Bear markets may not end just yet, but the recent bounce in the global equity markets suggests that bets of “peaking inflation”, and a “Fed pause” are growing. With major tech giants, including Microsoft and Tesla, slashing their growth prospects, and slowing hirings, an economic growth downturn becomes reality. Will Fed be less aggressive by seeing the threat? While the Reserve Bank starts its US$9 trillion balance sheet runoff this month, the odds of a rate-hike pause in September have been strengthened. One positive note is that OPEC’s pledge to hike output may slow down the surge in oil prices, in turn adding to the optimism of cooling inflation. Risk assets may keep the rebounding rhythm, should the oil prices come down. And hopefully, the US CPI data will not disappoint dip-buyers for a “Fed pause” bet.
In Asia, China’s rebounding looks more promising, with major Chinese big tech companies, including Alibaba and Meituan, beating earnings expectations in their first-quarter results. According to Bloomberg, analysts have stopped cutting forward estimates for components of the MSCI China. Will the upcoming Chinese data bring positive prospects to the world-second-largest economy?
- Crude oil may face a psycological price cap amid the OPEC’s turnaround, despite an ongoing undersupply issue. Can we see a moderating oil market going forward?
- Nasdaq is struggling to bounce off the bear market, with growth stocks facing ongoing global headwinds. But will the tech-heavy index continue the course for a bottom reversal that has been established in late May?
- The Eurodollar has strengthened 360 points, or 3.6% against the USD from a 4-year low amid ECB’s hints to raise interest rates, with the 10-year German bund yield spiking to an 8-year high. The upcoming ECB meeting will set a tone for its further movement.
- The Australian dollar has been strengthening against the other major currencies amid strong commodity prices. Will the currency continue to apricate against its peers if the RBA further increases its OCR this week?
Key economic data and events (June 5 – June 10)
RBA rate decision - Tuesday
The Reserve Bank of Australia raised its OCR by 25 basis points in early May, the first time in 11 years. It is expected the bank will continue to increase interest amid climbing inflation as the recent data indicates Australian economy is strong enough to take more rate hikes. The question is to what degree the bank will raise the rates, with expectations between 40 bps to 0.75%, or 65 bps to 1%. But whatever the rate hikes will be, Australian dollar is in a good shape to further rise against other major currencies amid an upbeat economic backdrop.
ECB policy meeting – Thursday
It is almost a done deal for the central bank to start rate hikes from the upcoming meeting on Thursday, as indicated by the ECB President Christine Laggard last month. The Eurozone inflation flares to a record high at 8.1% in May, urging a sooner rate hike decision. But the tightening measures will be only gradual, with an aim to quit negative interest rates by September. It will be a tough road for ECB to keep the tightening pace at the back of deepening economic distress in the region.
China's new loans, trade balance (May) – Thursday
Despite Beijing’s stimulus measures, China’s loan amounts were down dramatically due to the strict lockdowns as business confidence deteriorated. The new loan amount sharply dropped in April to 645 billion yuan from 3.13 trillion yuan in March. However, the economic data for both lending and trade balance in May are expected to show improvement, with easing lockdowns measures being taken in both Beijing and Shanghai.
US CPI data (May) - Friday
The US inflation has reached a peak at 8.5% in March, and 8.3% in April. Economists expect the data will continue to drop, with a forecast of 8.2% in May. The core CPI, excluding food and energy, is expected to fall to 5.9%, from 6.2% in April. A greater drop in consumer price will certainly help the broad sentiment to further recover, a higher read, otherwise, may restrain the risk assets’ comeback and complicate the economic outlook.
Canada employment change (May) – Friday
The job data is expected to continue to support a hawkish approach by the Bank of Canada, with a forecast of 24,000 new jobs added, and an unemployment rate of 5.2% in May.
Europe Week Ahead
- UK services PMI (May)
British American Tobacco Q2 results
Workspace Group – full-year results
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