UPCOMING EVENTS:
Monday: US Durable Goods Orders.
Tuesday: US CB Consumer Confidence.
Wednesday: Fed Chair Powell, Fed’s Mester, BoE’s Bailey and ECB President Lagarde speak on panel at ECB forum.
Thursday: US PCE, Chinese Caixin PMI.
Friday: EZ Flash CPI, US ISM Manufacturing PMI.
The last week of June is a bit empty on the events side. It begins with US durable good orders on Monday, which are expected to show a contraction as the economic slowdown and tighter monetary conditions are clear headwinds for durable goods.
On Tuesday we get the US Conference Board Consumer Confidence report, which is expected to show a contraction, although a milder one compared to its University of Michigan consumer sentiment counterpart since the Conference Board report is more correlated with the labour market conditions rather than the financial one like the UMich survey. News of layoffs are starting to spread and since the US is going into a recession, more will follow.
On Wednesday we have some central bankers expected to speak on panel at ECB forum in Sintra (Portugal). It’s a 3-day event starting on Monday and on Wednesday we have Fed’s Powell, Mester, ECB’s Lagarde and BoE’s Bailey speaking. Worth watching out for the headlines about monetary policies.
On Thursday we get the Fed’s preferred measure of inflation, the Core PCE report. There’s no expectation for the Core Y/Y figure, although as TD Securities noted it likely fell to 4.8% from the prior 4.9%. The Core M/M is expected to come at 0.4% from the prior 0.3% in May. On the other side of the planet, China will release its latest PMI figures and there’s hope to see improvement in the data after Shanghai and Beijing eased many covid restrictions.
On Friday, the first day of July, the Institute for Supply Management (ISM) will release the latest US Manufacturing PMI figures. The market expects the data to come in at 55.8, down from the prior 56.1 figure. Given the drop in regional surveys, the drop in the S&P Global PMI, the overall economic sentiment, the deteriorating economic environment and the tighter monetary conditions, we may see a larger drop in the report and more to follow in the coming months. The Eurozone flash CPI is expected to rise for the headline figure to 8.3% Y/Y from the prior 8.1% amid energy inflation and the core reading is expected to come at 3.9% from the prior 3.8%. Unless there’s a big jump in inflation readings, the ECB is unlikely to change its plan of a 25 bps hike at the next meeting.
On the trading side the market is shifting its focus towards the quickly deteriorating economic conditions. If we haven’t had inflation this high, it would have been better for the market as the expectations would have been for central banks to ease and thus help economic growth. Unfortunately, this time is not that straightforward. Risk aversion should dominate for the following months as economic indicators will start to paint the bleak economic picture and result in more losses for risk assets. All the major currencies should lose against the USD which is preferred in times of global growth slowdown and recessions.
This article was written by Giuseppe Dellamotta.
