Last week a better than expected Nonfarm Payroll result (381k) lowered fears of a US recession while raising expectations for another 75 basis points hike from the FED this July. This strengthed USD further whilst EUR and GBP continue to decline in the face of high inflation, political turmoil and war on the continent.
Elsewhere Russian Gas will be the most important topic this week, with President Vladimir Putin seeking to cut off Europe’s (Nord Stream) gas supply indefinitely in retaliation for Western action in Ukraine.
With the continuing war, high inflation and a significant energy shock on the cards, the risk of a euro-area recession is increasing. The slow pace of action from the ECB compared to the very hawkish FED has left a chasm between the two economies, clearly shown by the decline in EUR/USD, which hit a 20-year low. Any interest rate hikes from the ECB will do little to dampen inflation, and some analysts are suggesting that a central bank-induced recession is potentially the answer to fighting off Euro inflation.
Critical data will be US CPI on Wednesday, which will lay the course for the FED’s actions later this month. The FED is widely expected to lift rates by 75bps at its next meeting on the 27th of July. A higher CPI reading will cement the bets of this significant rate increase.
WEEK AHEAD
Monday / Tuesday
GBP BoE’s Governor Bailey speech
Wednesday
US CPI
Thursday
US PPI, jobless claims
Friday
China GDP, G-20 finance ministers, central bankers meet in Bali, Biden travels to Saudi Arabia, US Retail Sales