NOTNow that a 75 basis point rate hike is becoming a fad, central banks can no longer be more hawkish than they ever have been. Inflation is far from peaking with the ongoing war and supply chain disruptions, but consumer sentiment has been shaken by soaring costs of living and interest rates. With signs of slowing global economic growth, the global economy will officially enter the stagflation cycle if the unemployment rate begins to rise. The next economic data will be on point to assess the trajectory of global GDP, where the second consecutive negative growth will define an official economic recession.
Notably, tech stocks halted drastic falls, leading the Nasdaq to outperform last week. The stock market is expected to stabilize at the recent low and cautiously await Q2 corporate results in two weeks.
- Recession fears drove oil prices lower, with WTI futures dropping 6% for the week, also the first negative weekly close in two months. See the latest technical analysis.
- Traders failed bets of a less dovish BOJ, which insists on ultra-easy monetary policy by controlling the bond yield curve (YCC). It can send USD/JPY approach the August 1998 peak.
- Australian stocks have underperformed major global indices since the RBA’s 50 basis point rate hike. With the fall in commodities driven by recession scares, the heavily commodity-heavy index could face continued headwinds. See ASX 200 movements
- It’s too early to tell that the cryptocurrency meltdown has eased, with two major cryptos plunging 70% from their all-time highs in November 2021.
Key economic data and events (June 20 – June 25)
PBOC Decision on Prime Lending Rate – Monday
The People’s Bank of China will announce its prime lending rate (LPR) on Monday. The 5-year and 1-year loan rates are 4.45% and 3.7% respectively. China’s central bank cut the 5-year loan rate by 15 basis points in May, which was the second rate cut this year. But the PBOC kept its one-year medium-term lending facility (MLF) at 2.85% unchanged last week, indicating that the bank may not be in a rush to cut the LPR again despite a slowdown in the growth of the economy due to strict Covid lockdowns.
RBA Meeting Minutes – Tuesday
The Reserve Bank of Australia shocked local financial markets with an unexpected 50 basis point rate hike this month. The hawkish U-turn sent local stock markets to a 19-month low while causing a strong sell-off in local bond markets. The bank is expected to accelerate the interest rate hike by 75 basis points at the July meeting, when local inflation could reach 7%. RBA Governor Philip Lowe will also speak to provide an overview of the economy and monetary policy on the same day.
New Zealand Trade Balance – Wednesday
A host of New Zealand economic data will be released on Wednesday, including the Global Dairy Auction Price Index (GDT), the international trade balance in May and credit card spending. GDT data has moderated recently due to Covid lockdowns in China, but is expected to recoup gains since easing measures have been taken by China since June. The trade balance is expected to show a surplus of NZ$580 million, slightly lower than the previous month at NZ$584 million. Credit card spending could continue to show modest growth thanks to a rapid rise in interest rates.
Retail Sales and CPI in Canada (May) – Thursday
Canada’s CPI is expected to climb to 7.0% year-on-year in May after data hit a three-decade high of 6.8% in April, which will encourage the Bank of Canada to join the bullish club. rate of 75 basis points at its July meeting. Retail sales data may also reflect inflationary pressure from higher gasoline prices, which may come with a softening in retail sales data which is expected at 0.5% m/ m against 2.4% the previous month.
Testimony from Fed Chairman Jerome Powell – Thursday
Following the recent 75 basis point rate hike, Fed Chairman Jerome Powell will speak in Congress before the Senate Banking Committee. Powell will be more likely to stick with the hawkish stance to pin down inflation, which may no longer have a major impact on markets as it is already highly anticipated.
Upcoming European Week
- UK CPI (May)
- Associated British Foods third quarter results
- UK PMI flashes (June)