Stocks have rallied from last week’s lows on Friday, but it remains to be seen whether selling resumes. With the Fed tightening its monetary policy and remaining committed to continue raising interest rates, the global economy could fall into a recession.
China’s economy is the second largest in the world and a continued slowdown here would most likely impact the global economy overall. Risk assets such as stocks were the first to get impacted, secondary effects could be felt in commodity markets and currencies such as the Australian dollar and New Zealand dollar, which are heavily exposed to the Chinese economy.
Chinese authorities are aware of the issues and are likely to act with fiscal measures to stimulate the local economy. That however comes with further risks to the Chinese yuan which has already been devalued by 8% since the beginning of April when Chinese lockdowns escalated.
In the meantime geopolitical tensions continued to increase as Finland and Sweden have committed to join NATO, but Turkey could stall the process. India rocked soft commodity markets over the weekend as it announced a full-scale ban on wheat exports dashing hopes that the country could fill-in the gap left by Ukrainian production, which is set to decline by a third this year.
Gold continued its slide as investors digest the latest central bank talk and European monetary policymakers joined their Fed colleagues across the Atlantic with calls for higher interest rates before the end of the year.
Economic data highlights
Monday 16th May
· Chinese Industrial Production, Retail Sales
· EU Trade Balance
· ECB Speakers – Villeroy, Panetta, Lane
· UK Monetary Policy Report Hearing
Tuesday 17th of May
· AU RBA Meeting Minutes
· UK Unemployment, Claimant Count
· EU Unemployment, Q1 GDP
· US Retail Sales, Industrial Production, Fed Chair Powell Speech
Wednesday 18th of May
· UK Consumer Price Index, Producer Price Index
· EU HICP
· US Building Permits, Housing Starts
· CA Consumer Price Index
· NZ Producer Price Index
Thursday 19th of May
· AU Unemployment, Employment Change
· EU ECB Monetary Policy Meeting Minutes
· US Jobless Claims, Philadelphia Fed Manufacturing Survey
· US Existing Home Sales
· NZ Trade Balance
Friday 19th of May
· UK Retail Sales, Bank of England’s Pill Speech
· EU German Producer Price Index
· EU Consumer Confidence, ECB’s Lane Speech
- US retail sales, Powell speech, existing home sales
- Eurozone GDP & Inflation, ECB Speakers
- UK unemployment, inflation, retail sales
In a week very heavy on data and with markets still in turmoil despite Friday’s rally, the majority of the attention of traders will be on key economic indicators out of Europe, and the US. A slew of ECB speakers are expected to provide clarity on the ECB’s policy path, while Fed Chair Powell speaks on Tuesday.
EU and US Central Bankers
Monday kicks off with a few ECB speakers which are expected to sound hawkish and could extend the euro’s recent upside seen in the final days of last week. The ECB is now expected to tighten close to 100 basis points before the end of the year. With inflationary pressures ramping up, policymakers worldwide are pressured to act to curtail demand.
Chair Powell speaks on Tuesday giving him the opportunity to clarify further his latest remarks last week where he signaled that a 75 bps rate hike can not be ruled out and the Fed remains data-dependent.
In the meantime heavy data from Europe and the US includes UK and EU unemployment, US retail sales, and the Eurozone’s GDP for the first quarter.
European Inflation and US Home Sales
Wednesday bring into focus the latest inflation figures out of the Eurozone, the UK, and Canada. Upcoming monetary policy decisions are likely to be materially affected by the latest figures. US housing data on Wednesday and Thursday will also provide some food for thought for the Fed as demand for homes is expected to fall over the coming quarters due to rising interest rates.
Thursday starts with key employment figures out of Australia, and the traditional US jobless claims coupled with the latest economic sentiment data from the Philadelphia Fed’s survey.
Geopolitical Watch
The Ukrainian war remains a major focus with the latest bout of food-price escalation triggered by India’s decision to ban exports of wheat. Ongoing oil price gyrations also remain key to market developments as discussions on the Russian oil embargo on
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