Equities | Europe | FX | Global | Monetary Policy & Inflation
Markets to Watch This Week: The US Is Far From Recession – The UK May Already Be There!
- By Bilal Hafeez and Ben Ford
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- 3 min read
We standardise WoW price changes across different markets to allow for cross-market comparisons.
Market Moves
US Speaker of Nancy Pelosi’s visit to Taiwan dominated much of the political headlines last week. With China continuing to conduct new live-fire exercises in the Yellow Sea around Taiwan, while abandoning talks with the US military, the risk of escalation remains elevated.
Last week saw a general bear-flattening in rates curves, albeit with relatively less rise in the UK short-end following the very dovish BoE monetary policy report (MPR). Risk assets meanwhile performed comparatively well, with European indices and US tech leading the gains. Chinese equities, meanwhile, fell on rising uncertainty about the country’s economic outlook. July data released earlier today showed a new record trade surplus, but imports are falling across a number of key pro-cyclical commodities. Brent crude oil continued its decline, falling down to $94bbl. This is the most convincing break of the $100bbl support we have seen since the Russian invasion of Ukraine began.
Last Friday’s bumper outturn for US NFP (+528k) continues to support Dominique’s belief that the US is far from recession. She expects the hawkish tone will persist into this week (75bp hike in September), while CPI (released Wednesday) will show a continued acceleration in core services price growth.
The Week Ahead
Last week’s BoE came out largely as Henry had expected, with a 50bp hike, but a strongly dovish MPR. For now, the market has yet to price in just how much the BoE will disappoint in their hiking, which should leave room for renewed GBP weakness. UK June GDP data (released Friday) is the major release in a quiet week for Europe. It may show that the UK is already in recession.
Meanwhile, Wednesday’s US CPI should provide proof of continued inflationary pressures, which will ultimately necessitate much stronger hiking action by the Fed than the market currently expects. In a week largely devoid of central bank speakers, Fed speakers will have an opportunity to point towards a 75bp September hike and a higher trajectory for the Fed Funds Rate thereafter.
Meanwhile, the Inflation Reduction Act cleared by the US Senate late in the weekend, which includes $369bn for climate action, could see further support for renewables energy companies ahead. Henry remains strategically bullish European renewables. Meanwhile US autos continue to face difficulties post-COVID. See here for John’s summary of US earnings releases this week.
For further analysis, see our week-ahead preview, and watch Andrew and Dominique discuss topics such as: why long-end yields are coming down, what to expect from CPI, and which Fed speakers to keep an eye on.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.