20 June 2022 Equities | Europe | FX | Global | Monetary Policy & Inflation

Markets to Watch This Week: Pay Attention to Central Bank Speakers and June Surveys

We standardise WoW price changes across different markets to allow for cross-market comparisons.

Market Moves

Last week saw bond yields across DM rising significantly. The rises came as DM central banks (excluding the BoJ) continue to be more hawkish. The Fed (Dominique’s FOMC Review) and SNB provided the biggest moves, hiking by 75bps and 50bps, respectively. Meanwhile, the ECB shifted hawkish at their last meeting, but were forced to pivot to cap widening periphery/core spreads last week. They announced ‘flexibility in reinvesting [PEPP] redemptions’ and an acceleration of their anti-fragmentation tool’s creation. Meanwhile, the BoE hiked another 25bps with a modestly more hawkish tone.

Equities, too, saw a strong sell-off. EM equities led the way lower with the KOSPI (-3.1 std-devs) seeing the most dramatic fall while the S&P500 (-2.4 std-devs) registered its worst week since March 2020. As a result, credit spreads continued to widen at the fastest rate since the summer of 2020.

On this backdrop, one would have thought the dollar would have surged across DM and EM. But it appears some combination of dollar valuations, and other central banks hiking could be limiting dollar strength. For those that did underperform vs USD, it was the commodity currencies hurt most. CAD (-2.0 std-devs) led the fall lower as Brent crude dropped through $120/bbl. BRL and AUD followed up with the far from smooth China reopening’s weighing on iron ore prices. Natural gas outperformed other commodities as Russia substantially cut flow to Europe while a prolonged outage at the Freeport LNG plant in Texas has left alternative flow smaller than usual.

Finally, Bitcoin spent the weekend sub-$20K following a $10k drop down from $30k. It rebounded modestly on Monday, but we remain bearish on bitcoin.

The Week Ahead

Hard data releases are relatively light this week, but there should be some interesting outturns from the surveys. On inflation, markets expect the UK CPI to reach 9.1% YoY. Meanwhile, the 7.3% YoY expected for Canadian inflation will more than likely cement market pricing around 75bps. On PMIs, while June’s readings are expected to remain above 50, the trajectory will be most important to watch. If sentiment slides markedly, it may present a harder environment for CB hiking.

On policy, markets will turn to central bank speakers with Norges Bank and Banxico the only central banks announcing policy this week. In the US, Chair Powell will deliver the Humphrey Hawkins testimony, which should give us a sense of how much political pressure the Fed is under. Meanwhile, Bullard, Mester, Evans, Daly, Barkin, and Harker are all scheduled to talk; Dominique will be closely following the Bullard and Mester speeches and notes the Daly talk could likely have an interesting Q&A. In Europe, the ECB’s Lane and Lagarde (both today) are the most likely to generate any reaction. Meanwhile, market interest is likely to come from a wider set of speakers for the BoE. From the hawks, Henry will be listening out for hints that they may want to go faster than 50bp per meetings until December. From the doves, he’ll be looking for any shift from their previous position that no more hikes were needed. Henry sees value in fading current pricing of BoE hikes up to November (before which three 50bp hikes are priced). Elsewhere, Governor Lowe is to speak prior to the release of the RBA minutes. We look for any signs that he’s considering a terminal rate above 2.5%, a level he referred to only just last week.