The risk tone was cautious and non-committal for most of this week, but inflation fears took centre stage. The rise in commodities helped push up inflation expectations which sent yields higher and the JPY to new levels of weakness. The RBA acted tough on inflation surprising markets with a 50bps hike and natural gas made fresh year highs as a winter shortage looms. The China 50 index finally broke higher as re-opening optimism lifted sentiment. Beijing registered zero infections outside of quarantine for 4 consecutive days this week indicating that China’s activity looks set to return, but will it? Is this the last chance to grab a bargain on the China 50 or is a pullback due?
Other key events from the past week
- AUD: RBA acts on inflation, June 07: The RBA surprised market with a 50 bps rate hike as they signal they are to get tough on inflation. Does this open up an AUDNZD upside bias as STIR markets price in a 50bps hike for July too?
- ECB: Interest rate decision, June 09: The ECB confirmed APP will end on July 01 and confirmed a 25 bps rate hike for next month. The ECB gave a slightly hawkish tilt by hinting that a 50 bps hike could be appropriate for September, but the euro remained pressured immediately after the meeting.
- Natural gas: Winter shortages, June 10: The natural gas market is vulnerable to fresh highs as investors prepare for a winter supply scramble. Will this help propel natural gas to further gains over the summer months, especially if China’s demand picks up again too? Or will the recent fire in Freeport pressure prices?
Key events for the coming week
- USD: Interest rate decision, June 15: Expectations are that the Fed will hike by 50 bps next week. Investors will be very keen to see whether or not the Fed signals any concerns about signs of slowing US growth on Wednesday.
- Terrific Tesla?: Musk’s magic touch? Will Tesla shares buck the summer slump?
- GBP: Interest rate decision, June 16: Short-term interest rate markets are pricing in a 100% chance of a 25 bps rate hike this week. However, the BoE re-vised 2023 growth into negative territory at the last meeting sending the GBP lower. Will they do the same again?