This Week In Markets: 30th May - 3rd June 2022

Very good morning to you. It is Monday the 30th of May. Hope you had a great weekend. And for a change, a little bit of positive things to talk about to get the week underway. Stocks generally higher, as too are oil prices. Some of the main things over the weekend are loosening of lockdown restrictions in China, which I can talk about a little bit more detail. We're also looking out for any EU commentary in a two-day meeting starting today in regards to potential further Russian sanctioning. So keep an on energy prices. Otherwise, for the week ahead, plenty to get your teeth into from flash GDP data. We've got the run-up to non-farm payrolls on Friday, meaning we've got the likes of ADP coming out midweek. We've also got the commencement of the Fed shrinking its balance sheet as well, happening on Wednesday, in combination with a number of key Fed speakers. That's just to name a couple of things coming out this week, which I'll cover in more detail. But before I begin, as per usual, would super appreciate it if you could like and subscribe to the channel. I do these week ahead briefings every week, so hopefully they're useful. And any questions at all on any of the content covered, just feel free to drop me a comment on the link below or hit me on my, my Twitter handle, as you can see there. Otherwise, look, let's get straight into it and talk about last week. And in fact, last week the S&P 500 wiped out its May losses. It snapped a string of 7 weekly declines as institutional investors apparently were said to have been rebalancing portfolios into month end, which does make a lot of sense just given the continuous downturn that we had seen through the month of May going to this final cutoff really before month end. Remember as well, it is a US holiday, so perhaps a little bit of front running of that activity given the fact that US participants are out for Memorial Day. And remember, in the UK it's a shortened week. We'll only be working through Monday, Wednesday, with the Jubilee celebrations happening with holidays on Thursday, Friday of this week. But yeah, this is a look at the major US indices, as you can see here, such a string of downward movement that we've had given just the rhetoric over surging inflation, the tightening of policy, recession talk that's been happening. But we did get a decent and aggressive bounce last week. As I said, oil also trading a little bit higher in tandem with this, with the general positive tone emanating from Asia overnight with some of the lockdown commentary coming out of China. But let's talk through some of the weekend's news flow. I'm going to start off with the Jubilee bank holiday in, in May, so happening this later this week. It is likely to nudge the UK economy into contraction. A lot of expectations of a looming recession to come from the Bank of England, of course, later this year. We had last week the likes of Goldman Sachs upping their year-on-year expectation of UK inflation to peak at 10.6% in October. We of course had that revision coming after Ofgem came out and said about the next round of energy price hikes that are going to come and hit the consumer going further forward. But in the short term, just having a quick look at some data points from what we can learn from the previous celebrations that we've had over Jubilee situations. So that being the Golden in 2002, the Diamond in 2012, and this time of course the Platinum for the Queen celebrating her 70 years on the throne. The day off on Thursday to mark the Jubilee, economists suggesting it will shave off up to half a percentage point off GDP in Q2, is what we're looking at based on the assumptions we can derive from, from previous examples of this. Talking about China then, this is really one of the major news stories from the weekend. They reported their fewest COVID-19 cases in almost 3 months, with easing of outbreaks in both, importantly, Shanghai and Beijing, meaning that authorities have been able to relax some of the strictest virus controls. In Shanghai, the financial hub, on Sunday rolled out a raft of measures as well to support its lockdown-hit economy. Sort of things we're talking about here are allowing all manufacturing to restart from Wednesday, approvals for property projects, subsidies given to electric car buyers, and so forth. And of course, this comes after what Piers and I were talking on the podcast last week, which was that although high-frequency data has been a little bit mixed in mainland China at this point in time, And this is something we're watching very closely given the expected downturn, given the zero-COVID policy that they've had. But we have seen things like the Shanghai port, instrumental for trade, was back at around 96% of normal activity as well. So some positive signs coming out there. Obviously, this is really critical for the global supply chain and subsequent inflation issue which the world economy is facing at the moment. Otherwise, other things to be aware of are What's happening with the EU? They did— they have been, although in negotiations and talks throughout today and tomorrow, they had been in talks over the weekend, but they failed to agree on Sunday on a revised package of sanctions, as you can see here, over Moscow's invasion of Ukraine. And this came ahead of leaders' summit in Brussels where they're going to continue this, this conversation. Hungary's been the main kind of barrier to success of these negotiations going through on what exactly could happen. More details on the line-by-line account of, of what to look out for on that, just go on the AmplifyMe Twitter account. Otherwise, other things, ECB commentary. The chief economist Philip Lane follows up with President Lagarde from last week, just basically cementing expectations of the rate hikes to come. He said that policy would be gradual, reinforcing Lagarde's roadmap for exiting negative rates by the end of September. He said, I quote, increases of 25 5 basis points in July and September meetings are what he would classify as a benchmark pace. So not much reaction in the euro. Again, the, the market price discounting now that forward-looking pricing at the moment. And then look, let's talk about the week ahead. Plenty going on. So aside from the US markets being closed today for Memorial Day, apart from the EU leaders continuing that special meeting in Brussels over the Ukraine situation, The thing to look out for overnight is going to be some more intel on China, namely their PMIs. They are likely to show a slight improvement is what analysts are looking for in May from April slump. With the nation's leaders becoming increasingly concerned over the outlook, there's probably a likelihood for traders to scour over some of the forward-looking subindices to see like new export orders and things like that of how things are looking under the bonnet in China. Otherwise, one of the key things we look out for this week, just on the back of some of that ECB rhetoric we've had emerge over the last week or so on the more hawkish side, is a new record for eurozone inflation, very much expected to be seen on Tuesday. It's expected headline reading at 7.4%. Expectations are that's likely to potentially go further north in time as well. And at the same time, this is mirrored by a 14-month low in economic confidence. And this, of course, all coming ahead of the important June ECB rate decision, which, as per what Lagarde and also chief economists were saying, is that they're looking for potential rate rises to come on the near-term horizon. Now, it's important, this economic data, because the ECB go into their blackout period beginning on Thursday. So there's going to be a number of speeches to just keep an eye on for that final little bit of information that they can convey to the market about their next intentions at this upcoming meeting. So central bank governors of France, Italy, Spain, Ireland are all due on the tape in the coming days. Tuesday, we also do get the flash GDP numbers as well coming out of the euro area, as well as the US Chicago PMI to look out for later that day. Then going into Wednesday, early morning if you're, if you're trading in the UK, that is Australia's new prime minister, of course, just given the surprise election result that we had just a week ago. Anthony Albanese is going to find out how well the economy is performing now that he takes the helm, and GDP is expected to have slowed, essentially, as you can see here, as floods and Omicron have weighed. The bigger concern going forward though is how, as per most Western developed economies, how inflation is going to hit household budgets and consumption and how the government is going to respond to that. As you can see here, Australian inflation spiking up just as it is in many places around the world at the moment, and wage growth not quite keeping pace. And so it's going to be interesting on those latter points how this is going to really impact the consumer and the subsequent government decisions that will follow. Otherwise, just taking a look, on Wednesday we do have Fed— or New York Fed President John Williams is going to be speaking, as you can see here, a board member and leaning on slightly more on the hawkish side. And then you've got the likes of James Bullard— excuse me, on the dovish side for Williams. On the more hawkish side, you've got Bullard right down here. Both of these two chaps are going to be speaking on the same day of which the Fed have communicated they are going to commence starting to shrink the Fed's $8.9 trillion balance sheet. So be particularly interested to see what they've got to say to sort of cushion that out, although that's very much expected by markets. As a, as a procedure and a process going forward with the balance sheet reduction. All of this comes ahead, of course, ahead of nonfarm payrolls on Wednesday. We get the ADP national employment figure. We're also going to get the kind of more localized look at the economic picture nationally with the Beige Book as well coming out. And then the other thing is another rate decision, this time the Bank of Canada. They are expected to hike once again and not just hike, they are expected expected to continue with their fairly aggressive rate hiking cycle. Markets and most economists are looking for a second straight half percentage point increase, which would take rates in Canada to 1.5%. You can see here, this is again looking at the key metric of the rationale behind the aggressive tightening of central banks, of course inflation. Canada yearly inflation in black and the US yearly inflation figure you can see here just above it, both shooting north of late. We've also got the OPEC+ virtual meeting as well happening on Wednesday. We did have some conversations about how Saudi continued to back Russia in those relationships despite the EU's intentions about more onerous sanctions going forward. So keep an eye on that as well. And then of course, then heading us into Friday, we get the release of US nonfarm payrolls. Again, UK participants likely interested institutional desks will be manned, but potentially a touch lighter volume. But US as per normal. Um, and for the headline reading, it is expected to show growth in the US labor market. Um, headlines expected at 325,000 for, uh, change in headline non-farm payrolls, but that is down a little bit, um, and it's expected to moderate a touch from the 428,000 last time. However, highly unlikely to deter really from the Fed's intentions of hiking 50 basis points at the next subsequent two meetings in June and July, as they've communicated. The unemployment rate is expected to fall to a pandemic low of 3.5%. Average hourly earnings are forecast to rise 0.4% from a month earlier. So again, that is it from me. Don't forget to like and subscribe to the channel. Any questions at all, feel free to email me directly. I'll put a link in the comments section below to our daily newsletter. So if you are a student and considering a role in finance or financial markets, then check that out. And yeah, you can reach me via email on that channel. All right, thanks very much and have a great week ahead, everyone.