Despite another hot inflation data, the recent resilient moves in the US stock markets suggest expectations for central banks to cushion a slowdown in economic growth have been strengthened. While a 75 or 100 basis points rate hike will be the argument between now and the next Fed meeting on 27 July, recent falls in commodity prices will most likely lead to a drop in consumer prices after the June data, typically in fuel and food, which may continue to support the relief rally on Wall Street.
On the earnings front, Citigroup’s upbeat results boosted a sharp rebound in the bank stocks on Friday, as rising rates helped increase lenders’ profit margin. This week, Netflix’s second-quarter performance will steer the tone for tech companies.
Source: TradingView as of 17 July 2022 (Click to enlarge the chart)
Looking forward, the global CPIs will continue to offer clues for major economic inflation trajectory. The CMC Markets Q3 outlook reports (Part 1, Part 2 & Part 3) will help forward look at global trends, and we'll also keep you updated with our analysts’ US earnings previews.
Key Instruments
- Is it the start of commodity winter, with both oil and gold losing ground in the last few weeks? Commodities have been pricing in softened demands amid recession fears, so key technical support levels of both gold and oil need to be closely watched. Check on oil prices
- The tech-heavy index, Nasdaq’s outperformance may suggest the investment funds start rotating into the beaten-up growth stocks, which makes the upcoming big tech earnings crucial for investors to scrutinise the business cycle. See Nasdaq's latest movements
- How strong can the USD be? A parity EUR/USD and a 44-year high USD/JPY may bring reversal opportunities, with bets of a less aggressive Fed growing. The ECB and BOJ policy meetings will offer clues for where the two major pairs are heading.
- Will the close positive correlation between tech shares and cryptocurrencies further boost the rebounds in digital tokens, with both bitcoin and Ethereum consolidating above the recent lows? Trade crytpo now
Key economic data and events (18 July – 22 July)
US – Existing home sales, Philly Fed Manufacturing Index (June)
It will be a relatively quiet week for US economic data. The existing home sales for June are forecasted at 5.38 million vs. 5.41 million in May, which will be the fifth monthly decline in a row. The Philly Fed Manufacturing Index is expected to improve marginally to -0.5 in July from -3.3 in June. But it will be still the weakest figure since May 2020.
Japan – BOJ policy meeting
There are no expectations for the BOJ to change the current monetary policy stance, especially after former prime minister Shinzo Abe’s assassination. But the continuing sharp decline of the Yen could be detrimental to the economy considering how much import prices rose over the year. Japan’s inflation has reached 2.5%, while the energy price has gone up 93% in yen terms from a year ago, which shows businesses and households are saving rather than spending despite minus interest rates. The BOJ may continue the bond yield curve control (YCC) to keep the 10-year JGB’s yield under 0.25%.
EU – CPI (June), ECB rate decision
The Eurozone’s inflation is expected to rise further to 8.6% y/y in June from 8.1% the prior month, with energy rocking the price index to a fresh all-time high. The European Central Bank is expected to raise the interest rate by 25 basis points for the first time since 2001. The June meeting minutes show policymakers agreed to a larger scale rate hike in September if the high inflation persists. A 25-bps rate hike will certainly do nothing to restrain the flaring inflation that has been intensified by the Ukraine-Russia war. The hyperinflation in some parts of northern Europe is at near 20%. And the debt issues in Italy and widened bond spread among members make the ECB’s job more complicated than just a rate hike. Hence, if the central bank rules out measures to solve issues in its bond markets, it might be a more positive action for the single currency.
Australia - RBA Governor’s speech, NAB quarterly business confidence
The RBA Monetary meeting minutes for July will be released this Tuesday, followed by the RBA Governor, Phillip Lowe’s speech on Wednesday. The Reserve bank increased the cash rate by 50 basis points in both June and July meetings and hinted to do the same in August. The Australian inflation is expected to rise to 7% from the current 5.1% in the first quarter.
The NAB quarterly business confidence due for a release on Thursday is also worth attention for investors to find clues for where the economic activities are heading.
New Zealand – CPI (Q2), credit card spending (June)
New Zealand inflation printed at 6.9% year on year in the first quarter, and the figure is expected to grow to 7.1% in the second quarter. The jump in consumer prices was caused by strong demands and tight supplies, as well as the surge in fuel prices. As the data is a lagging economic indicator, the inflationary pressure is expected to fall due to the recent drops in commodity prices. The credit card spending data released on Thursday is also an important economic indicator to gauge consumer confidence.
Canada – CPI (June)
Canadian inflation is expected to rise to 8.3% in June from 7.7%, which will be the highest since 1982. The Bank of Canada supersised a rate hike by 100 basis points this month to curb the elevated inflation. However, the recent falls in oil price may cap the Canadian dollar’s gain in the near term.
Europe Week Ahead
- UK CPI (June)
- UK average earnings (June)
- EU CPI (June)
