Inflation continues to rise this week as record levels are recorded in both Canada and the UK. The continued global surge in inflation is prompting central banks to hike rates and this week’s prints see no reason for that to change. The major question investors are now trying to grasp is at what point will the Fed become more concerned about slowing growth as opposed to rising inflation? The answer to this will most likely mark the turning point for global stocks when investors can see the timing for a Fed pause on their current hiking cycle.
Other key events from the past week
- CAD: Inflation print, June 22: Headline inflation rose 7.7% y/y from the 7.4% forecast. This was the fastest pace since 1983 and a higher rate than the Bank of Canada’s forecasts. STIR markets now see 94% of a 75bps rate hike in July.
- BoE: Inflation print, June 22: UK inflation rose to a 40-year high at 9.1% y/y. This is not surprising as the BoE warned inflation could reach as high as 11%. If growth keeps slowing then the UK is surely heading towards stagflation.
- FED: Semi-Annual testimony, June 22: The semi-annual testimony took place this week & Fed’s Chair Powell repeated that ongoing rate hikes will be appropriate. The key question going forward is at what point would the Fed consider pausing rate hikes. How much economic pain is the Fed prepared to inflict?
Key events for the coming week
- China: PMI prints, June 30: Will a pick up in manufacturing and services PMI data next week increase conviction for a bullish outlook on China? To what extent has recent COVID restrictions impacted sentiment? A bounce in this data print could lift global sentiment next week with all else being equal.
- Disney dazzles: Time for gains? Disney stock has a very strong period ahead.
- USD: Core PCE, June 30: The core PCE data is the Fed’s preferred measure of inflation. The core reading is due to come in at 5.1% y/y. If the print comes in below minimum expectations ( at 5.1% y/y) then the USD could weaken sharply.