The European Central Bank will hold its annual retreat in Portugal, where President Christine Lagarde, along with Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey will appear at a panel discussion on Wednesday. The first half of what has been an exceptionally turbulent year in markets is ending, with investors wondering whether the next six months could bring some respite or more volatility. The economic calendar features the PCE price index – an inflation gauge watched by the Fed – along with the latest inflation data out of the Eurozone and Chinese PMIs. Here’s what you need to know to start your week.
Sintra forum
The ECB’s three-day forum in Portugal’s Sintra gets underway on Monday against a backdrop of worries over whether central bank moves to stamp out the strongest inflation surge in decades could tip the global economy into a recession.
The forum will be focusing on “challenges for monetary policy in a rapidly changing world.”
Investors will be closely watching Wednesday’s panel discussion with Lagarde, Powell and Bailey for insights on how the central bank heads view the trade-off between curbing inflation while still trying to ensure a soft-landing for the global economy.
Comments by ECB officials will also be closely watched for any more details on a planned anti-fragmentation tool.
Torrid first half draws to a close
Six months characterized by the fastest rate-hiking cycle in decades, market turmoil and a war that spurred spiraling inflation are drawing to a close, leaving investors to ponder what the second half may bring.
The S&P 500 is down around 18% year-to-date, and bonds have fared little better: The U.S. bond market, as measured by the Vanguard Total Bond Market Index Fund (NASDAQ:BND), is down 10.8% for the year to date.
With investor expectations fluctuating between continued high inflation and an economic downturn caused by a hawkish Fed, few believe the market’s volatility will subside anytime soon.
“Inflation is still rising and that means the Fed will hike more and move more rapidly, which will put downward pressure on the economy, so that’s adding to recession fears,” Seema Shah, chief strategist at Principal Global Investors told Reuters.
“There are also growing signs of economic weakness coming earlier than expected.”
U.S. economic data
The U.S. is to release a raft of economic data in the coming week which will show how the economy is faring amid the Fed’s aggressive rate hiking cycle.
Investors will be closely watching Thursday’s May data on the personal consumption expenditures price index for indications on whether inflation is cooling.
Economists are expecting durable goods orders to slow, consumer confidence to deteriorate further and manufacturing surveys to weaken further, adding to concerns over the economic outlook.
A report on pending home sales and the Case-Shiller home price index should show how much rising mortgage rates are hitting the housing sector.
Several Fed officials are also due to make appearances during the week including New York Fed President John Williams, San Francisco President Mary Daly, Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard.
Last Friday, Daly – who is generally a policy dove – indicated that she supported a 75 basis point rate hike at the Fed’s upcoming July meeting.
Eurozone inflation
The Eurozone is to publish consumer price inflation data for June on Friday, which is expected to hit a fresh record high of 8.3% year-over-year as energy and food costs continue to soar.
Eurozone inflation hit a record 8.1% in May, over four times higher than the ECB’s 2% annual target.
The inflation data will likely add fuel to the debate over whether the ECB should deliver larger interest rate hikes after a quarter-point increase flagged for July, in what will be its first move to tighten policy in more than a decade.
National inflation figures from Spain and Germany will be released on Wednesday.
Meanwhile, Eurozone consumer confidence data the same day is expected to remain depressed amid ongoing concerns over the economic impact of elevated inflation and the war in Ukraine.
China data
China is due to release data on industrial profits on Monday, followed by PMI data on Thursday and Friday, respectively.
Positive numbers could offer some hope to downbeat financial markets.
Zero-COVID lockdowns and a slowing global economy have pushed the growth-bellwether copper price almost 10% lower in two weeks in Shanghai.
But lockdowns have eased and if the data points to a return to growth, it would be a welcome signal for the economy and for those who see Chinese stocks as a haven from the stagflation fears gripping the West.
