In this weekly market briefing, the presenter surveys the most consequential economic and political developments shaping global markets from 6‑10 June 2022. The discussion opens with the prospect of the United States easing sanctions on Iranian oil to lower pump prices ahead of the November midterm elections, linking policy to domestic political pressure. It then examines Saudi Arabia’s unexpected price hike for Asian markets amid a tentative rebound in Chinese demand, and the Biden administration’s consideration of tariff reductions on certain Chinese imports as a tool to curb inflation. The briefing moves to the Ukraine conflict, noting Russia’s recent airstrikes on Kyiv and a new US security assistance package. UK politics are covered through the looming vote of no confidence in Prime Minister Boris Johnson, the significance of upcoming by‑elections in Wakefield and Tiverton & Honiton, and the broader “Red Wall” shift. A brief corporate note highlights Elon Musk’s mixed messaging on Tesla staffing and its impact on the stock. The outlook for the week ahead focuses on key macro data: the ECB’s June meeting and potential end to bond purchases, the US CPI release and its inflation implications, Australian CPI and the Reserve Bank’s expected rate hike, China’s trade and inflation data, and German factory orders and industrial production. The presenter concludes by urging viewers to engage with the channel.
Chapters
Hello and welcome to the outlook for the week ahead. And if you're based in the UK, I hope you've enjoyed the long weekend, and congratulations to Her Majesty for the Platinum Jubilee. But straight back down to business, and let's talk about some of the major headlines from the weekend to be aware of, and also an outlook for the week ahead. We've got, of course, things like the ECB meeting, Chinese trade data, and bookended with US inflation metrics, of course critical at the moment to try and assess the Fed's policy maneuvers going forward. Kicking things off though, let's talk about oil prices, and the reason why is a really interesting article on Bloomberg, and that's that the US may allow more sanctioned Iranian oil onto the global markets even without a revival of the 2015 nuclear accord. Remember, they've been trying to crack that accord for for months and several rounds of negotiations but have failed at every turn. Of course, this was the one that was disrupted by the former US President Donald Trump. Now, what Biden could decide here, according to this report, is the need to bring down record-high pump prices ahead, of course, of November's midterm election. And does that outweigh the benefit of strictly enforcing sanctions? Of course, needs must. Biden is particularly weak in the polls at the moment. It's looking very pessimistic from that perspective going into the midterms and his control on the Congress, particularly that in the Senate. And so he's looking to do everything he can in order to change the direction of what energy prices meant for prices at the pump, which of course is impacting the consumer and therefore the electorate. Biden, all of this timing has come as Biden is aiming to participate in a Riyadh summit of the Gulf Cooperation Council at the end of this month. So as you might have read or heard about last week, he's softening the rhetoric as well, not just with Iran potentially, but also with Saudi Arabia, and specifically Mohammed bin Salman, who he's had a big falling out with over recent years since he took the helm at the White House. And this has all come as Russia being suspended from OPEC is meaning that other countries like Saudi Arabia and the UAE are going to have to fill that void and pump more. And of course, Biden wants Saudi to do that in combination, particularly or potentially with the more relaxation around the enforcement of Iranian sanctions, means more oil on the market. The prices of energy he's looking to bring down in the oil space, which will bring down then prices at the pump for the US consumer ahead of the midterms. So all of this very tactful in that, in that situation. In separate news then, a few other things that I would, I'd mention over the weekend. Saudi Arabia, they've actually raised oil prices for its biggest market of Asia by $2.10. Analysts were only looking for an increase of around $1.50. So quite a bit more than expected. And that means from June, the price is going to be around $6.50 above the benchmark that it uses. And the rationale really for this is because some of the major economies like we've had in China over the last 2 weeks or so, starting to see some, a bit of a turning point, perhaps peak COVID with the spread that has meant they've had very onerous lockdowns start to be gradually loosened. And that means then that demand should start to pick up. And it's, as the Saudis see it, time to start raising prices again as that starts to pick up. Sticking with Biden overall, another interesting article on Bloomberg from the weekend was this, and this is in a similar vein where President Joe Biden's commerce chief, a lady called Gina Raimondo, said it might make sense to lift tariffs on some goods as a way to tame the hottest inflation in almost 4 decades. So almost like a multi-pronged attack here from the administration, looking to directly try to influence then the amount of crude oil in supply to, to directly bring oil prices down, or at least to stop them being so hot. But at the same time, reviewing the tariffs that have been in place ever since the Trump era and have somewhat intensified under Biden, and whether or not that could be relaxed in order to just bring prices for general goods a little bit lower. And one of the things here is steel and aluminium, which of course are very critical to the relationship between the US and China. That's said to be not really on the table at this point in time. But what is then are other products, household goods, bicycles, these types of things. The Commerce Secretary said these sorts of things make sense to perhaps see some relaxation in those tariffs. And asked if the administration would consider ending duties on billions of dollars of imports from China, this was the type of response that was issued from the weekend. So again, and I think everything that comes out now from US politics has very much squarely got the midterm results in mind. So not too surprising in terms of the commentary and the pivot that we're seeing towards being a little bit less strict with a number of these things coming out of the White House. Other things to be aware of, just having a look at an update on the Ukraine situation. The latest there is that Russia has taken aim today, Sunday, at Western military supplies for Ukraine, launching airstrikes on Kyiv, the capital, that it claimed destroyed tanks donated from abroad. And of course, this comes in the context of what we heard last week where the US announced plans to deliver some $700 million worth of security assistance to Ukraine. So somewhat symbolic with these actions, of course, Putin trying to send a signal directly to the US and to others within NATO. And in recent days, Russian forces have focused capturing Ukraine's eastern cities, and particularly then continuing their push and airstrikes in cities and villages in the Donbas region, of course, on the eastern side, which borders land with with the Russian country. Other things then to just quickly talk about, um, this could be very much a talking point specifically domestically in the UK. How much of influence is it going to have on the British pound? I would say perhaps not too much. We've, we've been here, it seems, many times before, and essentially this is about a vote of no confidence. And what's emerged in the FT today, uh, just a short while ago, is that Boris Johnson's key allies are preparing to defend him in a challenge to his leadership as they conceded it was increasingly likely that the rebel Conservative MPs had reached the key threshold trigger for a vote of no confidence in Boris Johnson, potentially as soon as this week. Now, how this works— if you're American, it's a little bit complicated— but essentially, for such a vote of no confidence to take place, the name you need to listen out for is, uh, Graham Brady, who's the chair of the influential 1922 Committee of backbench Tory Conservative MPs, and he must receive 54 letters calling for Boris Johnson to go in order to then get the process underway on the vote of no confidence. Should Johnson avoid a vote in the coming days, then the next thing that we need to be looking out for about whether or not he's going to have longevity in his position as the, in, as the leader of the country is going to switch to results of two crucial by-elections which we're going to see on the 23rd of June. To give you a bit of a flavour of what these are, this is going to be Johnson's challenge in Wakefield is an area in particular. So again, these are all very much kind of litmus tests to see how much ground the Conservatives have lost through the various different scandals, particularly that we've had more recently with the, the current government. Johnson's challenge in Wakefield is highlighted by a new poll that's come out this weekend. 10, suggesting that the Labour Party was on course to take back that seat, which was gone Conservative for the first time in the last election in 2019. It's the first time it flipped from red to blue since 1931, and that was when he had that really big result. Now, to give you a bit of an idea here, I've got a map of, of England, and you can see here these blue areas. These were all the areas that switched changed political allegiance from one party to another. And you can see here, here in the Midlands, but also in northeast Wales, and also in the north, you can see areas like Wakefield here. This is what's known politically in the UK as the Red Wall— typically those who've always voted Labour. But as we saw in the previous 2019 election, a lot of those flipped. And it's these ones that could be quite key to determine the shift of powers or not, on whether Boris Johnson could stay or go. The other area is in, uh, Tiverton and Honiton, a Tory stronghold with around a 24,000-type majority, but the bookmakers have installed the Lib Dems as odds-on favourite to win. So a lot of the conversation is this isn't about Labour being the victors here. In fact, perhaps they're not so popular. It's the alternate shifts that we're seeing to alternative parties like the Liberal Democrats or the Greens, for example. The Prime Minister will attempt to shift, of course, the focus while all this is going on. A couple of things that you should be aware of. He's going to look to focus on the domestic situation, again sympathising with the British public about the cost of living crisis. Of course, coming after this really triumphant Jubilee weekend, of course, he'll try and play that to his strength. I'm sure he's due to deliver a speech on Tuesday about the housing situation and a growth strategy. Ahead of a joint speech on the economy with the chancellor as well this week. So all of these things just looking to deflect off and defend against a lot of these other things I've been talking about. The other thing I wanted to mention on a single stock basis was Elon Musk, um, continue to get somewhat mixed signals here because Elon Musk on Saturday said that the electric vehicle maker's total headcount would increase over the next 12 months. But the number of salaried staff should be little changed. And a lot of people have seen this as a bit of a backtracking from an email sent just 2 days ago, or prior to that tweet this weekend, saying that job cuts at Tesla were pending of around a 10% margin. That actually saw Tesla shares finish down around 9.22% on Friday's session. So it's a really significant move. About those job reductions, but he's kind of reversed tact on that over the weekend. So typical Musk, using Twitter, um, to put out that new commentary and again has shifted the narrative once more. A quick look at the week ahead. Christine Lagarde, the ECB president, of course, is probably one of the key things to look out for. It's almost 3 months now, if you can believe it, since the Fed actually started to deliver its first in a sequence of rate hikes that that we're seeing at the moment. Of course, we're very much expecting that 50 back-to-back move, June, July as well, still to come. The eurozone counterpart Lagarde will this week announce an end to bond purchases and formally begin the countdown to increasing borrowing costs in July, is what herself and the other members of the senior governing council have been hinting towards. The majority of the council seems to be in support of a slightly smaller move. Uh, but market participants will be closely watching any remarks that she says. As per normal with every ECB meeting, there'll be a press conference. She's going to be challenged on this. Some of the more hawkish members have been talking about a 50 basis point move in order to match what the Fed have been doing, for example. And so what does she have to say about this? Again, the consensus seems to be leaning a little bit more towards a more incremental 25 basis point stepstone approach. However, the likes of Deutsche and some other banks are starting to fall into the 50 camp last week. Lagarde's also going to unveil new forecasts that have informed her decision on policy for this meeting, but that gives a little bit of projections that may invite comparisons with the OECD's latest Global Economic Outlook, which is going to be due as well on the day prior to the ECB meeting. So that will give us a bit of visibility about the thinking at the moment about what they think for inflation, growth, and so forth. Otherwise, the other major thing happening this week is the US CPI figure. It's going to come at the end of the week on Friday. It's expected to show inflation accelerated on a month-to-month basis due in part to record gasoline prices. Excluding fuel and food, the core measure probably posted another sizable advance. That indicates potentially more sustained price pressures. But how much of this is new information? Perhaps not too much. The main thing is, is that economists are calling for kind of a repeat of an 8.3% year-over-year increase, which does then mark somewhat the peaking of what we've had, of which has led to quite a severe reversal in the dollar, which has propped up then some of the reversals in the likes of the euro currency and so on that we've had of late and the the switch in yield movement that we'd been seeing in the months prior. So yeah, probably not going to detract too much from the current course of direction the Fed are on at the moment in the context of this data to come, but also nonfarm payrolls that we had at the end of last week. A few other things to mention. Australia, interesting commentary coming out of the Treasurer Jim Chalmers today on Sunday. He basically said that Australian consumer prices have accelerated from the 5.1% recorded in the first 3 months. So he's basically saying inflation has gone even higher at this point. The Reserve Bank of Australia meets on Tuesday and another rate hike is anticipated as inflation continues to outstrip forecasts and the economy is holding up a little bit better than expected at the moment. Other things that I'm watching are in China. Where Chinese trade data is due on Thursday, inflation data on Friday, going to be closely scrutinized after the most recent Purchaser Manager Index figures for May pointed to some improvement as the lockdowns have begun to ease in China. So looking out for any more confirmation of that pattern of behavior to, to come out of that. The other final things, German factory orders on Tuesday, industrial production the next day, so midweek, are likely to show improvement at the start of the second quarter, picking up from some of those supply disruptions that we've had in various different supply chain bottlenecks of late. And that is it. So feel free to like and subscribe to the channel if you've found that briefing interesting and useful. Any questions at all for me, feel free to leave a comment below. Be more than happy to help. But otherwise, have yourself a great week ahead. Take care.
