Monday's Bullseye: 9th of May 2022

Markets have been in turmoil as major central banks stayed on course to hike rates over the coming months. The Fed and the Bank of England last week signaled that their priority is to reduce inflation and while the pressure from uncertainty took a back seat, the readjustment of stock prices to reflect higher interest rates is ongoing.

While stock markets have remained volatile, the US dollar stabilized near 2 year highs and is consolidating after an upbeat payrolls report on Friday. Commodity currencies have been torpedoed lower as recession fears have increased, especially in light of the Bank of England’s monetary policy press conference where Governor Bailey highlighted that a UK recession is a possibility over the coming quarters.

Oil prices continued to be volatile amid war-related tensions with no end in sight for Russia’s aggression against Ukraine and European policymakers mulling sanctions on Russian oil imports. The pound dropped to its lower levels in 2 years against the U.S. dollar, but is rebounding strongly on Monday morning.

Precious metals have been hammered lower due to higher rates, recession, and inflation fears. Both gold and silver have been underperforming after the initial spike lower during the Ukrainian war outbreak. In tightening monetary conditions their performance could continue to be subpar, at least until central banks signal a pause in hikes.

Economic data highlights

Tuesday 10^th May

·         EU German Zew Institute Survey
·         US Fed speakers – Williams, Waller, and Mester

Wednesday 11^th of May

·         EU German CPI, ECB President Lagarde Speech
·         US CPI

Thursday 12^th of May

·         AU New Homes Sales
·         US Jobless Claims, PPI

Friday 13^th of May

·         EU Spain, France, CPI
·         EU Industrial Production
·         US Import and Export Price Index
 
The coming week is not very heavy on data, but some talk from central bankers and inflation figures which are key to their decisions are likely to be key market drivers. With all major central banks except the Bank of Japan pledging to hike rates at coming meetings, it would be up to the pace and magnitude of that tightening to reflect on markets.
 

EU and US Central Bankers

 
Monday is light on data, but Tuesday comes with some sentiment figures out of the EU. With the Ukrainian war still undoubtedly weighing on sentiment, the next area of focus would be supply chain disruptions caused by Chinese lockdowns. The German Zew Institute will publish its latest figures on that front with expectations already low.
 
A slew of Fed speakers will be key to watch during the US trading session, as three Fed members scheduled to deliver their remarks on the latest economic trends. Any mention of 75 bps rate hikes could torpedo the markets lower.
 
ECB’s speakers are headed by President Lagarde herself, alongside De Guindos from the Bank of Spain, Elderson, and Schnabel. Expectations for a hawkish tone are indeed somewhat priced in, but ultimately it all depends on how hawkish ECB and FED policymakers will be.
 

All about Inflation

 
Inflation numbers will be THE piece of data to watch out for both from Europe and the U.S. The European dataset starts on Wednesday with Germany and is closely followed by the US figure later throughout the day. Spain and France are also reporting on the number later during the week on Friday.
 
Expectations are that inflation figures are going to decline year-on-year for the first time in a while. With back to back increases in CPI data becoming somewhat of a given over recent quarters, the response of the market could be positive if inflation indeed ticks lower. That rebound however could be short-lived depending on the comments of central bankers as regards to the figures.
 

Second Tier Data & Headline Watch

 
The remaining data is second tier, and isn’t likely to be materially market-moving unless some big surprises are in store. Headlines this week are most likely to be driven by the war effort in Ukraine and related oil moves that may or may not be triggered by further oil sanctions on part of the EU. Excessive stock market moves are to be expected as volatility is near the highs of the year.
 
Aside from stock markets, cryptocurrencies are a place to watch, as recent headlines about stable coins backing have sent the sector into a tailspin. More news about regulation and a continuations of the selloff in risk assets could trigger further selling.