This Week In Markets: 16th - 20th May 2022

OK, I hope you're doing well. It is Sunday the 15th of May, and as per usual, just going to take a look at what's expected for the week ahead because actual major weekend news flow has been particularly quiet. There's only one story on Brexit to update you on ahead of talks with UK Prime Minister Boris Johnson in Belfast on Monday. But otherwise, yeah, very much a continuation of the general themes that have been playing out in markets. Obviously quite a substantial rally seen in US equity markets on Friday. Just looking at some of the percentage changes on Friday, the Nasdaq 100, of course, finished up around 3.65%, but on the week finished down about 2.5%. All the three major indices again finishing lower across the board in the US as the world acclimatizes to this idea of higher inflation, slowing growth, and interest rates rising, which has been the main culprit for the sell-off across all asset classes of late. Also, of course, the, the stablecoin breakdown that we saw. Crypto, bit of a bounce over the weekend, Got the likes of Solana and Cardano up around 8 to 9% going into Monday session. Bitcoin as well is trading back just short of the 31,000 mark. Ether around 2,100 at the moment. But yeah, let's get straight into it and talk about some of the headlines for this week ahead. And so as I said, Prime Minister Johnson is going to be in Northern Ireland, Belfast on Monday. This is some of the headlines that you're seeing in the FT actually on Sunday, today that I'm recording this. And this comes as ministers are expected to meet in the UK as early as Tuesday to agree a plan. And that plan is that Boris Johnson is expected to sign off on this idea for a plan for a law to unilaterally scrap parts of the UK's Brexit deal in spite of warnings it could collapse talks with Brussels and spark a further trade war with the EU. This potentially could come at a very particular bad time because, as we're going to talk about shortly, UK inflation is expected to jump 2 whole percentage points up to around 9%, accounting for those uptick in energy bills that we've had. And that's going to materialize in this week's data. And so this cost of living crisis could obviously get exponentially worse if Europe were to retaliate on the trade front with the UK. So a lot of this, I think, is we've just had elections obviously in Ireland. We've had a change of Um, kind of the most popular party, or the leadership I should say, with Sinn Féin, of course. And they're at loggerheads, as you would expect, with the DUP on the splitting of powers installment at the moment. So Prime Minister Johnson going there, and I think just trying to insert himself on those particular talks. So yeah, as aggressive as this headline sounds, I think it's probably just a lot of political positioning going into those talks for this week. I would have it, I guess. Otherwise, that's it really for the weekend news flow, because so— gonna jump straight in and talk about the week ahead broken up by geographic region. So I'll talk about the US, then the UK, then we'll talk about mainland Europe, and we'll talk about the G7 meeting as well happening this week, and then we'll conclude with Asia. So starting with the US, Federal Reserve Chairman Jerome Powell does speak on Tuesday. He spoke last Thursday, of course, and A lot of people pinning that recovery at the end of last week on the fact that he reassured markets that, look, 75 is not really up for discussion at the moment. So sticking with the obviously tightening, but as a slightly lesser pace of thought, the markets were leaning towards only around a week ago or so when the Fed did come out with their, their rate decision. So more of an affirmation of their stance than anything. But given the fact he's going to be speaking on Tuesday, obviously a lot of people will be keeping a close eye on that for sure. Other Fed speakers this week do include speaking on the economy and monetary policy, the likes of James Bullard, always one to watch, being much more on the hawkish end of the spectrum. You've also got the Chicago Fed President Charles Evans as well speaking this week. But on the data front, this is the, the chart I'm showing you at the moment. This bar chart here is of US retail sales on a month-to-month basis. They is expected to show consumer spending held up in the face of higher inflation in the reading that we'll get this week, this being at the start of the second quarter. Additionally as well, we do get production, industrial production numbers coming out of the US at the same time, on the same day I should say, slightly later time. They should be okay as what analysts are saying, with manufacturing surveys holding up reasonably well amid a long backlog of orders that remain on their books for the time being. Quite busy data slate actually for the US. We've got building permits, housing starts coming out on Wednesday. You've got your regular weekly jobless claims, of course, on Thursday, Philly Fed, and existing home sales as well coming out towards the back end of the week. Otherwise, flipping our attention over to the UK, it's going to be quite the fascinating one because just quickly here, looking at the unemployment rate in the UK, and as you can see here, the tightness of the labor market In fact, the readings that we're tracking at the moment around 3.8% do put us at the lowest the unemployment rate has been since really 2019 era. So well before the outbreak of the pandemic, of course. And it does go to really underscore the tightness of the jobs market and what that means really for added wage and subsequent price pressures. And what that leads us into then is the UK inflation reading. This is the last reading that we had coming in at 7%, but the headline is expected to jump by 2 percentage points, taking us to around the 9% marker. This reflecting the 54% rise we've had in household energy bills. Uh, the median actual outcome year on year is expected at 9.1%. If that does materialize, that would mark the fastest rate of inflation since 1982 for the UK. Now, what's going to be quite interesting, of course, is going to be how and what do the Bank of England members have to say about this. We've already had a lot of communication recently with their rate decision. If you remember, they said that basically inflation is going to go to double digits. So the direction of travel is actually not that unexpected, but the heads, the rate setters at the Monetary Policy Committee, so Andrew Bailey, the governor, Dave Ramsden, Jonathan Haskell, Michael Saunders, they're all going to be facing lawmakers of the Treasury Select Committee on Monday. You've probably already seen lots of UK politicians— I think it was Liam Fox was one the other day— taking potshots at the Bank of England, saying what a bad job that they're doing looking to control inflation. You could kind of expect that from politicians just looking to deflect a lot of that responsibility obviously onto the hands of the Bank of England, where of course a lot of that control, albeit perhaps they could have done things differently, has been out of their control with these kind of supply-side shocks that we've had, namely out of Ukraine and Russia and the energy price crisis. But nonetheless, I'm sure it will be much of the headlines dominating the beginning of the week. And then taking us over to kind of on the global stage, but in Europe, just given where the meeting is taking place, G7 and central bank governors will convene for in-person, for days of talks starting on Wednesday. The meeting comes in the context of the EU cutting its prediction for 2022 euro area growth and almost doubled its estimate for inflation. Of course, the last time a lot of these heads of state would have met, we've had the rate rise coming out, the fourth consecutive one from the UK's perspective. We've had this 50 basis point clip come out of the Fed and so on and so forth with the market fallout that we've had as well. So much to be heard of what they have to say from their discussions and deliberations, of course, over the the sanctions on Russia as well. And then coming out of Europe, Christine Lagarde, the ECB president, she's going to be speaking. And also separately, the latest ECB minutes can be coming out on Thursday. But given the number of ECB speakers we've probably had of late and the fact she's speaking on the same day, probably her comments might well, and her address, be more important than the actual dated minutes in themselves. Otherwise, say a quick jump over towards the Far East and China. Have had a couple of data points coming out of China already over the weekend. This kind of setting us up that China will set its medium-term lending facility rate on Monday. Some economists are expecting a potential reduction there. Don't think that would be particularly surprising. But otherwise for this week, we've got the minutes of the RBA. You can see here the Governor Philip Lowe, their meeting minutes are coming out on Tuesday while wages and jobs numbers in Australia will be coming out later on in the week on Thursday. And if those numbers do come out higher than expectations, then it could well further ratchet up those expectations about faster rate increases to come from the Bank of Australia. And then finally, from Japan, we've got some data there. Their GDP numbers are coming out this week, expected to have shrunk their economy in Q1 when that— those data points hit the tape on Wednesday. So that is it. Yeah, quite a busy week overall. Feel free to access my Twitter handle just down here. It's got all of the notes for what I've just discussed. If it makes life a little bit easier to have a review. Otherwise, yeah, pretty quiet on the actual overnight and weekend news flow, I would say. So still very much an overhang of the general broader global theme at the moment, as discussed at the very beginning. And then, yeah, quite a busy week. To go at for the couple of trading sessions ahead. So yeah, best of luck, and I'll see you for the next video. Take care.