Christine Lagarde signals the ECB could hike rates in July for the first time in over a decade, while James Bullard pushes the Fed toward a 3.5% rate by year-end, possibly with a 75-basis-point move. Saudi Arabia stays aligned with Russia in OPEC+, limiting the cartel's control over oil prices. Australia's Labor Party wins the federal election as climate concerns drive voters toward Greens and independents.
Chapters
Okay, hello and welcome back. Hope you've had a great weekend. And as per usual, just going to summarize some of the major headlines from this weekend and have a look at some of the events to put on your radar for the coming sessions ahead. Before I begin, don't forget to like and subscribe to the channel, really appreciate it. And of course, anything I cover here, any questions at all, feel free to leave a comment below on the video. Otherwise, let's get straight to it and talk about this lady here, the ECB president Christine Lagarde. She's made some comments over the weekend, definitely noteworthy. She said that the first increase in interest rates in more than a decade may come in July, but she downplayed the idea of a half-point move amid concerns about economic expansion. Last week, this came— to give it a bit of context— after this chap here on the right-hand side of the scale, which I'll explain what that is in a moment, the Dutch member Klaus Knot became the first member of the Governing Council, which are all of these people here in the ECB, to float the idea of a 50 basis point move at the ECB's July meeting, although he said that would only be if data worsens, and that being namely about the inflation situation. Now, of course, then calling for 50 falls into step with what the Fed are doing, but for the ECB, that would be a definite outside, outlying hawkish move in that extent. And definitely the comment coming from Klaus Knot, as you can see here from this bottom line left being more dovish of disposition on the view of monetary policy, so i.e. being much more gradual and cautious with the idea of the implications that raising rates too fast could have on the already situation that we've got with the recession probabilities increasing. And on the much more hawkish side of the spectrum, you would expect these to vote more aggressively with inflation being at the forefront of their kind of main objective. So yeah, overall the main point here is Christine Lagarde has put in a July hike on the table but discounted 50 at this point. Otherwise, sticking with the Fed and central bank theme, this is James Bullard, which I'm sure some of you will be familiar with his face because he as well is in the outlying camp on the hawkish side. He said the central bank, the US, should front-load an aggressive series of interest rate hikes to push rates to 3.5% by the year's end, which if successful would push down inflation— this is the rationale— and could lead to policy easing then in 2023 and 20— or, or in 2024. Asked about a 75 basis point hike, Bullard said that could not be ruled out as an option. So it's a little bit more open-ended to what we've heard from Jerome Powell of late, who's pretty much discounted that being an option at the moment with the markets kind of, you in step with that thinking of a 50 back-to-back move in the subsequent meetings ahead. So again, pretty punchy comments, but not too surprising given who they've come from. The other major news from the weekend has come out in the FT just a short while ago, and it's Saudi Arabia. They've signaled that it would stand by Russia despite some increasing tension over the sanctions situation. Of course, Saudi tends to be typically aligned with the likes of the US, and these are all countries which have been putting onerous sanctions on Russia, of course, because of the invasion that had over Ukraine in recent months. Now, Saudi have said they're going to stick by Russia as a member of the OPEC+ group of oil producers despite then that situation. The comments come— and this is the context that's important— 3 months before the end of the existing agreement which came into play in April of 2020. So pretty much as soon as the actual original pandemic hit, the drastic action that was taken to reduce supply in order to counteract the destruction of demand that we saw on the onset of the pandemic back then, 2 and a bit years ago. So the deal is coming to an end, and there is really no ability to really control oil prices at all from Saudi, although they're de facto head of OPEC. Without Russia, given that they account for around 10 million barrels per day of oil production, a similar kind of level to what Saudi have, without Russia playing to the same tune, there really is no way that these countries can control the price of oil. So unsurprisingly, I think, irrespective of what this might do for political friction with the Western world and how they're trying to sanction the likes of Russia, Saudi doesn't really have a choice. And so for the moment, this is pretty much as you would expect, I would say. Other things over the weekend, just a quick word in Australia. Prime Minister Scott Morrison conceded defeat after an election on Saturday. The opposition Labor Party is set to end almost a decade of conservative rule. The Greens and a group of so-called teal independents who campaigned on policies on integrity, gender equality, tackling climate change, they put in a particularly strong showing, tapping into that voter anger over the, the inaction over climate change following some of the worst floods and fires that we've had recently in Australia. Looking at the week ahead, though, this is really the main thing to focus on. And Monday we've got German IFO data but really Tuesday is where we get a bit more interesting things coming out, and that being namely the flash PMI numbers, always definitely ones to watch, definitely in the eurozone and in the UK more so than in the US. For the eurozone, flash PMI data on Tuesday— last month saw surprisingly strong PMIs as services performed very well due to the reopening effects following the pandemic, so very much a byproduct of that fact. Manufacturing was plagued by, of course, supply chain problems and weakening demand. The question that poses is how how long consumers will continue to outspend on services with prices continuing to move higher at this present point in time, according to analysts at ING. They add that UK PMIs are likely to point to a further reduction in demand among services. We've got the combination really of weaker consumer as well as lower health output now that free COVID testing has largely stopped, and the impact of the extra bank holiday of course to come next week with the Jubilee, um, that's going to have likely an impact on UK GDP, which will contract modestly, is expectations at the moment when that second quarter data starts to come through. Moving further on into Wednesday, we've got US durable goods, but you also get that evening the latest FOMC minutes, which are likely to give a bit more clarity then about this idea of further 50 basis point rate hikes back to back in the June and July meeting. And then Thursday you get the second reading of US GDP. And then into Friday, quite interesting as well for US data. Personal income and spending reports alongside the Fed's preferred measure of inflation, that being the core PCE price index figure. This should show decent real spending growth with households prepared to run down on their savings accumulated through the pandemic and inflation topping out. If that is the case, then it could cause a bit of a relief in markets. So keeping on that PCE number, it could also go the other way And if that number isn't in somewhat of a retreat, like what we've seen with the CPI number kind of indicating a topping out of inflation, that could then start to cultivate further more hawkish rhetoric coming out of the Fed. So that's a really key one at the end of the week. But that's it. So again, I really appreciate it if you could subscribe to the channel if you've not already done so and you're watching this for the first time. Thanks for doing so. And yeah, catch you next time. Thanks very much.
