5 world market themes for the week ahead
1/ UNDER PRESSURE Markets have come around fast to the Fed's view that instead of being cut anytime soon, rates will remain high for longer. After another brutal bond sell off, focus turns to Wednesday's U.S. inflation data.
Price pressures have been easing but perhaps not fast enough with a July rate hike seen as likely. May CPI data showed the smallest year-on-year increase since March 2021 — but at 4%, that was still well above the Fed's 2% target. Just like the latest personal consumption expenditures index showed similarly slowing inflation also above the Fed 's comfort zone.
June meeting minutes showed a united Fed agreed to hold rates steady, buy time and assess whether further hikes would be needed. The answer seems yes. And the most deeply inverted bond yield curve since the 1980s suggests investors bracing for another hike also expect Fed tightening raises recession risks.2/ FIGHTING FIRES China is fighting a hi-tech trade war with Washington while grappling with a sputtering economy.
After months of tightening of restrictions by the U.S. and key allies on chip-related imports, Beijing hit back in recent days with curbs on chip-making metal exports, and a warning of more to come — just in time for Treasury Secretary Janet Yellen's visit. Washington has been mulling curbing Chinese companies' access to cloud-computing services.
Things aren't looking bright on the economic front either. Monday's inflation data should show more deflationary pressure at factories and retailers, while Thursday's trade numbers are expected to see a continued decline in exports — all pointing to lacklustre demand. Hopes for major Politburo policy support at month-end seem to have faded.
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