The US CPI print was in key focus this week as investors look for signs of US peak inflation. The headline and core y/y print both came in above expectations which means the Fed is still under pressure to quickly contain inflation. However, will their speed of hiking interest rates mean that the Fed also slow growth? This is the big question now facing investors, ‘is global growth about to slow further and how much will global stocks fall if it does?’ Until inflation shows stronger signs of peaking then investor angst will remain. Will stocks see another leg lower this month or can a near-term recovery start?
Other key events from the past week
- USD: Inflation beats expectations, May 11: The US CPI data was the most hotly anticipated event of this week. US Inflation remains stubbornly high with the headline printing at 8.3% y/y and the core at 6.2% y/y. However, has inflation peaked now?
- USD: Fed hikes 50bps, May 04: Fed’s Mester said that the Fed will need to see a compelling slowdown of inflation before slowing Fed rate increases. He also did not rule out a 75 bps rate hike. Is a 75bps rate hike a tail risk for June?
- China stocks jump: Falling COVID cases, May 11: China’s benchmark CSI 300 index rose midweek as Shanghai reported a 51% drop in new COVID infections. Will this, coupled with expectations of policy stimulation, boost growth? Is now the time to be bold on China?
Key events for the coming week
- AUD: Wage Price Index, May 18: The RBA recognised that Inflation picked up more quickly at its last meeting and to a higher level than was expected. This should mean the Wage Price Index on Wednesday beats the previous reading of 2.3% y/y. A reading above 3% should boost the AUD higher.
- Seasonal trades: Copper falls? Copper market tends to see a period of weakness into the middle of June. Will that repeat on slowing growth fears?
- EUR: Inflation pressure, May 18: Short-term interest rate markets (STIR) are pricing in 82% chance of a 0.10% hike for June’s meeting, If inflation comes in above 3.7% for the core reading next week that could support the EURGBP higher.