As mid-year approaches, fears of global recession risks prevail. So it’s worth watching economic data and central bank talks more than usual, and there’s plenty more to come.
The European Central Bank will host a forum in Portugal, while data highlights will include a Chinese business activity survey and a closely-watched US inflation indicator. And Russia could be confirmed to have defaulted on external sovereign debt for the first time in a century.
Here’s your take on the coming week at markets from Karin Strohecker, Sujata Rao and Dhara Ranasinghe in London, Ira Iosebashvili in New York and Tom Westbrook in Singapore.
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1/ HALF OF THE PICTURE Six months of rate hikes, market turmoil and a war that has fueled runaway inflation gives way to another half year with…more.
Still, H2 could contain turning points, most notably peak inflation that may be closer than thought as economic growth slows and oil prices fall.
Could recession signs ease central bank’s hawkish stance? Markets expect US interest rates to double to 3.25% to 3.5% by the end of the year and Eurozone interest rates to rise from -0.5% to 0.75%.
Still, the stock markets, firmly in bear territory, could get some breathing space. History shows that stocks typically fall ahead of the peak of inflation and then rebound, notes Goldman Sachs.
But that also depends on the company’s profit. Continued double-digit earnings growth is forecast for 2022 in the US and Europe.
Finally, watch Japan and Turkey, central bank pigeons in a hawk forest. The latter threatens to trigger a serious crisis.
2/ UP TO THE MOUNTAINS
The Fed has Jackson Hole, but the ECB has Sintra, its own central bank forum in the foothills of Portugal’s Sintra Mountains.
The three-day shindig, which begins Monday, will be particularly interesting amid the biggest spike in inflation in decades and fears of an imminent global economic recession. Read more .
So listen even more closely than usual to what ECB Chair Christine Lagarde, Fed Chair Jerome Powell and Bank of England Governor Andrew Bailey have to say at the forum. ECB comments will also be searched for insights into a planned anti-fragmentation tool.
Separately, the latest inflation data for the euro zone will be released on Friday, July 1st, which in turn could determine whether the ECB will make larger rate hikes after a quarter-point move announced for July Continue Reading.
3/ BURNING TENSIONS
Four months after the start of the war, tensions between Moscow and the West are increasing again. EU leaders have officially accepted Ukraine as a candidate to join the bloc, a bold geopolitical move prompted by Russia’s invasion of Ukraine.
Meanwhile, Russian gas flows to Europe via Ukraine and the Nord Stream 1 pipeline have declined following the invasion and Europe’s efforts to impose sanctions on Moscow. A dozen EU countries are affected and Germany has triggered the “alert level” of its emergency gas plan. Continue reading
Adding to concerns is a standoff over the Russian enclave of Kaliningrad, prompting fresh warnings from Moscow towards Baltic EU member states. Continue reading
And Russia could slide into sovereign bankruptcy if the grace period to pay interest on its international bonds expires, in what could be the country’s biggest default in more than a century. Continue reading
4/ DATA, THERE’S A LOT
Fed Chair Powell says the central bank is not trying to create a recession but is committed to containing price pressures even at the risk of a downturn. Continue reading
A set of upcoming data should show how the US economy is reacting to an aggressive Fed, which has tightened 150 basis points worth this year, including this month’s 75 basis points. Continue reading
Highlights include Tuesday’s June consumer confidence index, which analysts polled by Reuters expect will fall to 100 from 106.4 in May. Read more .
Monday’s upcoming home sales and Tuesday’s Case-Shiller home price index should show the bite of rising mortgage rates, while May’s personal spending index — an indicator of inflation watched by the Fed — is due on Thursday.
5/ LIGHTNING IN THE PAN
China’s June Factory Activity Numbers (CNPMIB=ECI) on Thursday may offer a glimmer of hope to dampen financial markets.
Zero COVID lockdowns and a slowing global economy rob commodities of wind, pushing high-growth Shanghai copper prices down nearly 10% in two weeks.
Iron ore has also tumbled and Australia’s red dust miners (.AXMM) have given up annual gains, hurting the benchmark stock index there (.AXJO). Continue reading
This gloom could use something piercing. But lockdowns have eased, and if the data shows economic momentum pushing manufacturing into growth territory, it would be a welcome signal for the economy and for those who see Chinese stocks as a haven from the stagflation fears sweeping the West.
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Compiled by Dhara Ranasinghe; Edited by Bradley Perrett
Our standards: The Thomson Reuters Trust Principles.
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