Now that a 75-basis points rate hike becomes a fashion, central banks cannot be more hawkish than they had ever been. Inflation is hardly to peak with the war ongoing and supply chain disruptions, but the consumer sentiment has been whacked down by both surging cost of living and interest rates. With signs of a slowdown in the global economic growth, the world economy will officially be entering the stagflation cycle, should the unemployment rate starts rising. The upcoming economic data will be in crispy focus to gauge the global GDP’s trajectory, where the second consecutive negative growth will define an official economic recession.
Notably, tech shares have paused the drastic falls, leading Nasdaq to outperform in the last week. The equity market is expected to stabilize at the recent bottom and cautiously wait for the second-quarter earnings results from companies in two weeks.
- The recession fears have sent oil prices lower, with the WTI futures slumping 6% for the week, which is also the first negative weekly close in two months. See the latest technical analysis.
- Traders failed the bets of a less dovish BOJ, who insists on an ultra-easing monetary policy by controlling the bond yield curve (YCC). This may send USD/JPY to approach the peak of August 1998.
- Australian equities have been underperforming the global major indices since the RBA’s 50-basis points rate hike. With the recession fear-led selloff in the raw materials, the commodity-heavy index may face ongoing headwinds. See ASX 200 movements
- It is too early to say the meltdown in cryptocurrencies has eased, with two leading cryptos plunging 70% from their all-time highs in November 2021.
Key economic data and events (June 20 – June 25)
PBOC’s prime loan rate decision – Monday
The People’s Bank of China will announce its prime loan rate (LPR) on Monday. The rates for the 5-year and 1-year loans are 4.45%, and 3.7% respectively. China’s central bank cut the 5-year loan rate by 15 bps in May, which was the second time of rate-cut this year. But the PBOC kept its one-year medium-term lending facility (MLF) at 2.85% unchanged last week, which indicates that the bank may not be in a hurry to cut the LPR again despite a slowdown growth in the economy due to strict Covid lockdowns.
The RBA meeting minutes – Tuesday
The Reserve Bank of Australia shocked the local financial markets with an unexpected 50-basis points rate hike this month. The hawkish turnaround has sent the local equity markets to a 19-month low while causing a sharp selloff in the local bond markets. It is expected the bank may accelerate raising the interest rate by 75 basis points in the July meeting, when the local inflation may hit as high as 7%. The RBA Governor, Philip Lowe, will also speak to give an outlook on the economy and monetary policy on the same day.
New Zealand trade balance – Wednesday
A slew of New Zealand economic data will be released on Wednesday, including the global dairy auction (GDT) price index, the international trade balance in May, and credit card spending. The GDT data has moderated recently due to China’s Covid lockdowns but is expected to recover gains since easing measures had been taken by China since June. The trade balance is expected to be at NZ$580 million of surplus, slightly lower than the prior month at NZ$584 million. Credit card spending may stay modest growth at the back of a rapidly rising interest rate.
Canadian retail sales and CPI (May) – Thursday
Canada’s CPI is expected to surge to 7.0% year on year in May after the data hit a three-decade high of 6.8% in April, which will promote the Bank of Canada to join the 75-bps rate hike club in its July meeting. The retail sales data may also reflect the inflationary pressure of a rising price on gasoline, which may incorporate with a softening retail sales data that is forecasted at 0.5% m/m vs. 2.4% the prior month.
The Fed Chair Jerome Powell’s testimony – Thursday
After the recent 75 bps rate hike, Fed Chair Jerome Powell will speak at Congress before the Senate Banking Committee. Powell will be most likely to stay with the hawkish stance to pin down inflation, which may not be a major impact on the markets anymore since this is already highly expected.
Europe Week Ahead
- UK CPI (May)
- Associated British Foods Q3 results
- The UK flash PMIs (June)