Equities | Europe | FX | Global | Monetary Policy & Inflation
We standardise WoW price changes across different markets to allow for cross-market comparisons.
Market Moves
US equities staged a bounce. The largest moves were in tech stocks with the NASDAQ (+1.8 std-devs) now up +9.3% from the June -lows (Chart 3). The bounce came as recession fears dampened, sparked by better-than-expected PMIs and NFPs. The data also helped US credit spreads tighten 60.5bps (-1.9 std-devs). Still, I do not yet see a clear reason to turn bullish risk. I prefer to be underweight equities in my latest asset allocation piece. But on US sectors, John Tierney updated his view on commodity ETFs. He’s overweight in energy (with caution), marketweight in agriculture, and underweight in industrial metals.
US government bonds sold off across the curve with the front-end leading the sell-off. Meanwhile, the market is looking for core inflation to drop to 0.5% MoM, which Dominique agrees with. Further out, she expects core inflation to remain above Fed forecasts into year-end which would support our base case for a more hawkish Fed than currently priced. She reiterated her view for an 8% Fed Funds rate on Bloomberg. In Europe, the gilts curve followed the UST yields higher and flatter while EGBs curves moved lower and steeper.
EUR/USD (-2.1 std-devs) approached parity. Markets place a 21.1% probability of it falling below parity within the next week, based on options data. They’re more certain (30.7%) on it happening within the next month. Meanwhile, our Hive Minds slack chat favours it trading below parity by month-end. Gold (-2.2 std-devs) was the only asset to see a larger move relative to the past year. It’s nearing a support region at 1725, after which the next support level could be 1685 (Chart 2).
The Week Ahead
US CPI (Wednesday) will take center stage this week in a busy data week. Aside from the above, Dominique will be looking for a further increase in the Cleveland Fed trimmed mean CPI, from 9.6% in May, as well as a continued slowdown in core goods price inflation and acceleration in services inflation. The Fed will also release their Beige Book later that day. There will be updates to retail sales, activity indicators, PPI and import prices, consumer confidence, and business inventories.
In Europe, headlines will focus on the process to select the next UK Conservative Party leader (to be announced after market close today), and the annual shutdown of Nord Stream gas flows. On the latter, the fears right now are whether the shutdown will be extended beyond the scheduled ten days. Henry has covered who the main Tory candidates are, as well as Final Eurozone CPI numbers are released this week, while BoE Governor Bailey’s testimony will be watched for hints of a more hawkish outlook.
Elsewhere, the BoC and RBNZ both meet on Wednesday. There’s no sign of slowing just yet in Canada, where a 75bps move is expected. Concentration will now turn to new forecasts in the Monetary Policy Report. Meanwhile, the RBNZ are expected to deliver their third straight 50bp hike. Markets are expecting at least another two to follow. For a full breakdown of the week ahead, read Dominique and Henry’s .
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.