Week ahead 20 June – 24 June 2022
This past week felt like a big moment for central banks, collectively, as well as financial markets more broadly. It was the moment when the majority accepted that inflation isn’t just a problem, it’s one that needs to be dealt with powerfully in order to prevent it from spiraling out of control and becoming ingrained in the economy.
Volatility in the markets is probably going nowhere. Recessions are increasingly becoming a strong possibility, if not the base case, and central banks are content with that if it means inflation falls back to where it should be.
A brutal week on Wall Street that included a wrath of central banks tightening monetary policy has many traders focused on how soon the US economy will see a recession.
In US the upcoming week is filled with Fed regional surveys, housing data, the flash PMI readings, and the final consumer sentiment survey.
The Fed has signaled that it will take some time to tame inflation and that has driven expectations for a steady stream of massive rate hikes that will soon lead to a broader slowdown in the economy
In Europe next week we have a variety of surveys that will be poured over for an indication of inflationary pressures abating and/or economic fears taking hold. There’s enormous scrutiny on the data now, as well as central bank speak, which will continue to be a major driver of market volatility.
The BoE this week forecast inflation to peak above 11% in October while showing no urgency to do much about it. The economic cost is clearly weighing heavily on their judgement, with the belief being that 80% of the inflation overshoot is driven by energy and core goods and therefore not impacted by changes in rates.
No significant data. Attention remains focused on the Indian rupee which has traced out record lows this week. A rise again in energy prices next week could trigger more weakness.