It was a terrible week of market volatility for every active class on Wall Street. It is still about inflation and what will be the reaction of central banks. Challenging inflation and a growing mix have caused investors to worry that the Fed will not be able to deliver a smooth landing.
Next week is full of anger from central bank talks, world leaders are meeting, and economic data that could show signs that the economy is losing momentum. Fed Chairman Powell will speak on Tuesday and he expects to assert expectations that the Fed will stay with a half-point increase in June. Most of the U.S. economic data is likely to show that the economy is seeing a slowdown with manufacturing activity and that the housing market is cooling, while the U.S. consumer is still doing its best to withstand widespread prices.
Much of the inflation story is energy prices and many traders will pay close attention to both if the EU delays banning Russian oil and if Iran can make any progress in reviving its nuclear deal.
Next week is full of rage of economic data and corporate earnings that will provide the latest update on the U.S. consumer. Investors will still be fixated on anger from Fed talk, which should largely confirm the Fed’s set course on tension during the ensuing policy decisions.
The royal dollar has given no indication that it is ready to relinquish its crown, but that could change if a risk appetite can find its basis. The stock market is showing signs of depletion and if investors show that they are ready to ‘buy the stock’, the dollar could be ripe for a withdrawal.
On Monday the Empire Manufacturing Survey is expected to show activity sharply decelerated in May. Tuesday is a big day for retailers to focus on the latest store report, which should show April was a better month of consumer spending, Walmart reports ahead of the opening bell, and Fed Chair Powell gives an afternoon interview with the Wall Street Journal . . Wednesday is mostly about housing data, which should show that the market is cooling. Thursday will see another release of jobless claims that could show the job market remains tight.
The BoE may not have been as far behind the curve as other central banks, but the country is still heading for more than 10% inflation and a recession if the central bank’s forecasts are to be credited. The data next week could indicate how pessimistic or, worse, optimistic these forecasts are. Unemployment, retail and CPI inflation make up the UK data dump next week.
We’ll also hear from some policymakers, though the message may not deviate too much from what we heard last week, unless the data drastically surprises one or the other. The highlight here is naturally the hearing on a monetary policy report that takes place on Monday before the Treasury Election Committee with Governor Andrew Bailey, Lt. Gov. Sir Dave Ramsden, Jonathan Haskel and Michael Saunders in attendance.
It would seem that the ECB has finally come to the idea that the inflation problem will not be solved, and many politicians in recent weeks have indicated that July is a lively meeting after the end of net assets. Even President Lagarde alluded to this, which means again that the central bank has finally come to the mindset of the market. And probably too late to avoid great pain. With that in mind, the flash GDP and final inflation data will be looked at, but that is what policymakers need to say will be paramount. And next week, there are a lot of them coming out.
The EU continues to work on a Russian oil embargo that faces opposition from Hungary while companies continue to seek solutions to the ruble gas payment requirements.
Russia’s energy sector remains a key focus in the markets as the country seeks to make life uncomfortable for “enemy” gas buyers and the EU seeks to ban imports of its oil.
A light data week with preparatory GDP the only notable release on Wednesday.
The SARB is expected to raise interest rates by 50 basis points to 4.75% on Thursday in a bid to finally reach inflation, which is currently running at 5.9%; the upper end of its 3-6% range. April inflation data is released a day before the SARB meeting, which may affect how aggressively they raise rates.
A quiet week for Turkey with level three data only on the cards.
Shanghai covetous zero restrictions have been extended, and restrictions remain in parts of Beijing and across China. That keeps fears of recession ahead and at the center, while another Chinese developer has paid off foreign debt this week. Without signs of a more widespread stimulus from government, the pressure remains on the yuan. China seems happy enough to let the yuan weaken, supporting exporters.
Mainland stocks showed unnatural resistance this past week and I suspect China’s “national team” is holding lows. This will continue next week.
It’s a heavy week .China data with Industrial Production, Retail and M2 on Monday, and House Price Index on Wednesday. Everything has downside risks and could push stock markets lower. Friday has the 1st and 5th year Loan Master Courses. Again, no cut to at least the! Annual LPR will be negative for Chinese equities.
In general, Chinese stocks and the yuan remain at the mercy of global sentiment flows and developments in the covetous zero space in China.
India’s inflation printed far above the forecast this week and a much higher WPI data release on Tuesday could increase the noise for another RBI rate in June. That could be supported by the INR but is likely to be another headwind for stock markets.
Like other emerging markets, however, the INR remains on the shit in which way global sentiment fluctuates every day. Rising oil prices next week will put pressure on the currency.
The Australian dollar remains under pressure as global investor sentiment swings more sharply toward a deeper slowdown in China, and possible stagflation is challenging elsewhere. Until that changes, any buildup of AUD is likely to be short and sharp.
RBA Minutes on Tuesday could be temporarily positive for the AUD, but negative for equities, if it suggests a stronger stance going forward.
Thursday’s Employment data is always good for intraday volatility on the AUD and will have a binary result. Higher equals more RBA tension equals lower equals, higher AUD and vice versa.
The NZD continues to suffer at the hands of a negative global investment sentiment and a central bank that is still behind the inflation curve. The NZ Services PSI on Monday, Global Milk Auction on Tuesday and Trade Balance on Friday have downside risks that will increase recession noise, weighing on the NZD and local equities.
USD / JPY remains solidly supported while releases with a Thursday fall look more correct than a turnaround in sentiment. Japanese Machinery Orders on Thursday, and Inflation on Friday are the main data, but will only have a temporary effect.
The Nikkei 225 continues to overshadow Nasdaq moves, while the USD / JPY remains supported by the Bank of Japan’s dovish political stance and the US / Japan rate difference. Only a sharp drop in U.S. yields changes that story.
The likelihood of a tight MAS move is rising as the Singapore Dollar remains under heavy pressure, thanks to its proxy role to China. This undermines the work of the MAS, which uses the exchange rate instead of interest rates to drive monetary policy.
Soft Non-Oil Exports on Tuesday could put lower pressure on the currency and local equities.
Volatility in energy markets will not diminish as the demand outlook faces great uncertainty with record gas prices, a close eye on China’s COVID situation, refined capacity concerns, and as EU nations struggle to move forward with a Russian oil ban. Iran’s nuclear talks are also approaching a critical juncture, with expectations somewhat pessimistic that a resurgence is imminent.
Oil will remain a volatile trade, but it looks like energy traders should get used to seeing oil above $ 100 a barrel. The near-term outlook for crude is still largely optimistic as Europe’s air travel improves, China’s COVID situation is expected to improve in a few weeks, and a peak travel season in the US is expected to be strong even with record high prices.
It seems that the Gold Railroad will not end soon. Bond market volatility, especially at the front end of the curve, could still weigh on gold prices. If we saw the Treasury yields make a short-term peak here, gold could continue to stabilize above the $ 1800 level. If the weekend’s rebound doesn’t follow the new week, gold could see a violent technical sell-off during a break below the $ 1790 level.
Crypto markets closely monitor stable currencies and ensure that further contagion does not hit other parts of the cryptocurrency. The collapse of Bitcoin seems to have found tentative support amid $ 20,000 but confidence that the fund will hold will depend on whether a risk appetite shows a sign of a return on Wall Street.
If risky reluctance remains the dominant issue for financial markets, Bitcoin could be vulnerable to a retest of last week’s lows.
Monday, May 16th
Economic Data / Events:
- US cross-border investment, Imperial manufacturing
- NY Fed Chairman Willliams speaks in NY
- President Biden meets with Greek Prime Minister at the White House
- Russian Foreigner Lavrov speaks to me
- Chinese retail, industrial production, unemployment, real estate
- EU Commission reveals spring economic forecast
- Canada existing home sales, housing begins
- Japan PPI, machine orders
- New Zealand performance service index
- Turkey running account
- Hedge Funds reports 13F files
Tuesday, May 17th
Economic Data / Events:
- U.S. commercial inventories, retail, industrial production
- RBA publishes minutes to May policy decision
- Fed Chairman Jerome Powell speaks at the Wall Street Journal’s “Future of Everything” conference.
- Chicago Fed Chairman Evans speaks at an event hosted by the NYU Money Marketers
- Cleveland Fed President Mester speaks at a virtual panel on inflation hosted by her bank.
- Philadelphia Fed Chairman Harker talks about health care as an economic driver at the University of Delaware
- Louis Fed President Bullard speaks at a virtual conference hosted by the Energy Infrastructure Council
- Ohlsson of Riksbank talks about monetary policy in wartime.
- Eurozone GDP
- Hungarian MEP
- Thailand MEP
- Italy CPI, Commerce
- Australian consumer confidence
- France unemployment
- Bar wholesale prices
- Japanese tertiary index
- Mexican international reserves
- Singapore electronics exports, non-oil exports
- UK unemployment claims, unemployment
- Walmart Revenue
Wednesday, May 18th
Economic Data / Events:
- G7 finance ministers and central bankers meet in Germany
- American housing begins
- Fed Harker speaks
- Mann of BOE speaks at a CBI virtual event
- Canada CPI
- UK CPI
- MEP of Russia
- Japan MEP
- Australian leading index, wage price index
- China new home prices
- Eurozone new car registrations, CPI
- Japan industrial production, capacity utilization
- South Africa retail
- Car sales in Thailand
- EIA Crude Oil Inventory Report
Thursday, May 19th
Economic Data / Events:
- US initial jobless claims, Conference Board leading index, existing home sales
- New Zealand Finance Minister Robertson reveals 2022 budget
- ECB publishes report on April political meeting
- Vestager from the EU, Holzmann from the ECB speak at an awards ceremony in Vienna
- Floden of Riksbank talks about monetary policy.
- Australian unemployment
- Chinese SWIFT global payments
- Hong Kong unemployment rate
- Japanese core machine orders, trade
- New Zealand PPI
- Singapore MEP
- South Africa tax decision: Expected to raise rates by 50bps to 4.75%
Friday, May 20th
Economic Data / Events:
- President Biden begins a 4-day trip to South Korea and Japan
- Chinese loans main rates
- Eurozone consumer confidence
- Japan CPI
- New Zealand business, credit card spending
- Thai foreign reserves, previous contracts
Sovereign Rating Updates:
- Ireland (S&P)
- South Africa (S&P)
- Portugal (Moody’s)
- Denmark (DBRS)