This Week: Stocks desperate for support

Traders and investors around the world will continue being very attentive to the Fed’s goal of subduing consumer prices, wary that more Fed rate hikes could ultimately lead to a US recession.

Fed Chair Jerome Powell’s testimonies before Congress this week will be scrutinised for more signals about the US economic outlook in light of more incoming Fed rate hikes, although this holiday-shortened US trading week doesn’t feature any tier-1 economic data releases: 

Monday, June 20

• CNH: China loan prime rates
• US markets closed for Juneteenth holidays

Tuesday, June 21

• NZD: New Zealand 2Q consumer confidence
• AUD: RBA Governor Philip Lowe speech, RBA June meeting minutes
• CAD: Canada April retail sales

Wednesday, June 22

• JPY: Bank of Japan April meeting minutes
• GBP: UK May inflation
• EUR: Eurozone June consumer confidence
• CAD: Canada May CPI
• USD: Fed Chair Jerome Powell testifies before US Senate

Thursday, June 23

• AUD: Australia June PMIs
• NOK: Norway’s Norges Bank rate decision
• EUR: ECB economic bulletin, Eurozone June PMIs
• GBP: UK June PMIs
• USD: Fed Chair Jerome Powell testifies before US House

• USD: US weekly initial jobless claims

• US crude: EIA weekly US crude inventories

Friday, June 24

• JPY: BOJ Deputy Governor Masayoshi Amamiya speech
• AUD: RBA Governor Philip Lowe speech
• EUR: Germany June IFO business climate
• GBP: UK May retail sales

 

Policymakers have made it very clear that most major central banks are now pulling out all the stops to win back inflation fighting credibility.

A string of seemingly uncoordinated interest rate hikes last week meant heightened volatility across asset classes in the context of ongoing angst over the now heavy-handed nature of monetary policy. Significantly above-target inflationary dynamics is spooking central bankers and trumping sensitivity around growth data and financial conditions.

Since before the publication of the US CPI number on 10 June, the blue-chip US equity market, the S&P500, is down around 8% and setting new year-to-date lows.

Many Wall Street commentators now have their eyes fixed on the 3,500 level in the benchmark stock index.

This is roughly the halfway point of the March 2020 low during the pandemic and the January record high. The 200-week Simple Moving Average also comes in around this psychological mark.

 

In this environment of rising rates and also risk-averse sentiment, the dollar bulls are endeavouring to make their way to recent highs.

Numerous sentiment gauges are flashing red with the VIX above 30 and the Bank of America’s Bull & Bear indicator dropping to zero/extreme bearishness for the first time since 2020.

Other central banks are not as advanced in their tightening process as the Fed so this should also offer support for the greenback.

 

But the risk of hawkish surprises from various parts of the world means yield may rise further still.

The widely watched 10-year US Treasury has 3.5% firmly in its sights, even if traders have to wait for the next inflation print to test that level again. At the same time, a series of poor US data including a jobless claims miss, disappointing Philly Fed outlook and a new sharp decline in US housing starts and permits intensified fears that the Fed’s anti‐inflation campaign might come at a huge cost for growth.

With little major data on this week’s calendar, risky assets will be desperate to find a bid.

We note that the blackout period for FOMC speakers has ended so it will be worth listening to the wires.