As expected, recession, inflation and rates are again featured on market headlines. The Canadian central bank has followed Australia’s in raising rates, with the Australian central bank warning of sharply increased recession risks. The week ahead is similarly dominated by inflation and rates-related calendar events, with US CPI and PPI data arriving ahead of the outcome of FOMC’s rate decision. The European Central Bank and Bank of Japan will similarly be following up with rate decisions. With recently revised numbers showing the EU posting two straight quarters of contracting GDP and higher inflation numbers than the US, the ECB’s decision will be closely watched.
With the US economy proving more resilient than markets expected, there is once again increasing optimism amongst investors that a recession can be avoided. Meanwhile, indicators such as bankruptcy rates, and Fed emergency lending suggest pressures have not fully abated. The split is interesting, with large institutions and economists more convinced that a recession is going to arrive, and more likely to argue that the current rally is unlikely to sustain itself. For the latter, a point that is important to remember is that the markets are not the economy. Even if the US economy tanks tomorrow, if we see sharp rate cuts and globally increased government support, then expect asset prices to soar.
Upcoming Calendar Events
- US CPI (13 Jun)
- US PPI, FOMC rates decision (14 Jun)
- ECB rates decision (15 Jun)
- BoJ rates decision (16 Jun)
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