Week Ahead- markets, oh oh

Inflation peaks spell more pain for stocks and bonds


UK will rise interest rates, but how much ? How will help Andrew Bailey stem spiralling price inflation and grow the economy at the same time.

How will the markets reaction initially?

FTSE and Sterling?

How to trade it?

These are great opportunities for forex day traders. Basically, Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise. However, only a rise higher then has already been factored in will cause a big movement as well as the following comments regarding further rates.


FED, this is the big one. It cant possibly go up by 0.75 % in one hike, can it??


"All eyes will be on the US FOMC (Federal Open Market Committee) decision scheduled on June 15, and the market is fearing aggressive rate hikes amid inflation monster.


The US Dollar was king last week! Although the ECB pre-committed to at 25bps rate hike at the July meeting, it failed to address what would be done if peripheral country’s interest rates rose more then the core EU interest rates. Fragmentation could lead to another debt crisis. In addition, the US CPI for May was hot, coming in at 8.6% YoY vs 8.3% YoY expected and 8.3% YoY in April. This was the highest reading since December 1981! .

The FOMC meets on Wednesday and, by all indications, is expected to hike 50bps, bringing the Fed Funds rate from 1.0% to 1.5%.In addition, the committee will release forecasts for interest rates (dot plot), inflation and growth. However, with a CPI reading for May at 8.6%, its highest level since December 1981, could the Committee surprise the markets and hike by 75bps?It’s possible, but not the likely scenario. Fed officials have also indicated that they expect to raise interest rates by another 50bps at the July meeting. Again, watch for comments that may suggest the possibility of raising 75bps at that meeting. (Before the July meeting, markets will get a look at the June inflation data.)Looking out to the September meeting, the Fed said that it will be looking to raise rates again, with some Fed officials suggesting only 25bps.But the door was left open for the possibility of raising rates more than that. Watch the dot plots to see if they suggest a 50bps rate hike at the September meeting as well!.

BOJ and SNB


The BOJ is expected to leave rates unchanged at -0.1%. The central bank should also continue to buy 10-year JGBs when necessary to keep rates at the 0.25% cap. As a result of the negative interest rate policy in Japan, interest rate differentials have been increasing dramatically over the last several months. Therefore, the Yen has fallen sharply against other currencies. Watch for BOJ officials to try and “talk down” many of the Yen pairs with possible threats of intervention. As for the Swiss National Bank, expectations are that the central bank will leave rates unchanged at -0.75% in order to fight off a strong Swiss Franc. However, the May CPI reading was 2.9% YoY, up from 2.5% YoY in May and 2.2% YoY at its last meeting.

Could the SNB surprise the markets and hike 25bps to bring interest rates to the still ultra-conservative rate of -0.50?


Economic Data

In addition to the many central bank meetings this week, there is economic data that is worth watching. Given the surprise US CPI reading of 8.6% YoY on Friday, traders will be watching US May Retail Sales to see if higher prices affected consumer spending. In addition, Employment data will be released by both the UK and Australia this week. And China will have a data dump on Wednesday! Other major economic data releases are as follows:

Monday

  • Japan: BSI Large Manufacturing (Q2)

  • UK: GDP (APR)

  • UK: Trade Balance (APR)

  • UK: Industrial Production (APR)

  • UK: Manufacturing Production (APR)

Tuesday

  • New Zealand: Food Inflation (MAY)

  • Australia: NAB Business Confidence (MAY)

  • Australia: House Price Index (Q1)

  • Japan: Industrial Production Final (APR)

  • Germany: CPI Final (MAY)

  • UK: Claimant Count Change (MAY)

  • EU: Industrial Production (APR)

  • Germany: ZEW Economic Sentiment Index (JUN)

  • US: PPI (MAY)

Wednesday

  • Japan: Reuters Tankan Index (JUN)

  • Japan: Machinery Orders (APR)

  • Australia: Westpac Consumer Confidence Change (JUN)

  • China: Industrial Production (MAY)

  • China: Retail Sales (MAY)

  • China: Unemployment Rate (MAY)

  • EU: Trade Balance (APR)

  • Canada: Housing Starts (MAY)

  • US: Retail Sales (MAY)

  • US: NY Empire State Manufacturing Index (JUN)

  • US: Business Inventories (APR)

  • US: NAHB Housing Market Index (JUN)

  • US: Fed Interest Rate Decision

  • Crude Inventories

Thursday

  • New Zealand: GDP Growth Rate (Q1)

  • Japan: Trade Balance (MAY)

  • Australia: Employment Change (MAY)

  • China: House Price Index (MAY)

  • Switzerland: SNB Interest Rate Decision

  • EU: Labour Cost Index (Q1)

  • EU: Wage Growth (Q1)

  • UK: BOE Interest Rate Decision

  • US: Housing Starts (MAY)

  • US: Building Permits (MAY)

  • US: Philadelphia Fed Manufacturing Index (JUN)

Friday

  • New Zealand: Business NZ PMI (MAY)

  • Japan: BOJ Interest Rate Decision

  • UK: Retail Sales (MAY)

  • EU: CPI Final (MAY)

  • Canada: PPI (MAY)

  • US: Industrial Production (MAY)

  • US: Manufacturing Production (MAY)