Inflation and Recession Worries Take Center Stage This Week

US
The US Federal Reserve (Fed) is anticipated to end its rate-hiking campaign shortly. Attention will turn to Personal Consumption Expenditures (PCE) readings, hoping for a decline in inflation. A decrease in inflation may boost swap futures’ confidence in one more Fed rate hike. Wall Street will keep a close eye on the Conference Board’s consumer confidence reading and Friday’s Personal Income and Spending data release.

Key Fed events include Fed’s Williams speech at the Bank for International Settlements, Fed Chair Powell’s address at the ECB’s global banking forum in Portugal, and the announcement of annual banking stress test results.

Eurozone
ECB President Christine Lagarde’s early-week appearances will garner significant attention due to recent interest rate hikes amidst ongoing inflation. Investors will closely watch the flash Harmonized Index of Consumer Prices (HICP) data on Friday.

The ECB has cautioned that significant data improvement is required to prevent another rate hike next month. A minor shift in the opposite direction could prompt the ECB to increase rates again in July before reevaluating in September. Inflation data from individual countries earlier in the week may offer insights into Friday’s expectations.

UK
Following the Bank of England’s 50 basis point interest rate hike last week, the focus will shift to Monetary Policy Committee (MPC) members’ statements. The lack of unity among MPC members was apparent in the June meeting and might become more pronounced as decisions grow more difficult. MPC members’ comments will be subject to heightened scrutiny since it would take only a few votes to halt the tightening cycle despite inflation concerns.

Switzerland
SNB Chair Thomas Jordan’s appearance will likely be the highlight of the coming week in Switzerland. The Swiss National Bank (SNB) recently increased rates by 25 basis points, and the market anticipates another hike. Jordan has alluded to a 2% neutral rate, and the SNB has suggested that another increase could follow. Inflation is expected to stay above 2% for the next few years; only a drop in inflation over the coming months might alter the SNB’s position.

Australia
Two essential data releases will be critical in determining the Reserve Bank of Australia’s (RBA) future monetary policy stance, as it confirmed its current tightening mode based on the RBA June meeting minutes.

Firstly, the monthly Consumer Price Index (CPI) indicator for May is predicted to show a slower growth rate of 6.1% YoY, compared to 6.8% in April, marking the lowest inflation growth since March 2023. Secondly, preliminary retail sales data for May is expected to show a 0.1% MoM growth, following no growth in April.

Furthermore, pricing on the ASX 30-day Interbank Cash Rate futures July contract indicates a 32% probability of a 25-bps hike at the next RBA monetary policy meeting on July 4, 2023, raising the cash rate to 4.35%.