Calendar Week 20 – 2022

 

Friday calmed a week of volatility, but we expect this relief rally to be a dead cat bounce that will be sold off. Calm came from the US Fed indicting it will stick to 0.5% rises in June and July but will do more if data worsens. Also offering calm were Chinese COVID numbers suggesting that cases have peaked, and Beijing denied it is going into lockdown. Prices across asset classes from rates to commodities, currencies and stocks all took a breather.

 

The known unknowns

 

Whilst the market has paused, and there appears to be few headlines that could get worse, the thing about Black Swan events is that we do not know they are coming. One risk in front of us is the European plan to ban Russian energy imports and the fall out from that once they work out how to effectively and cheaply replace it – if they can.

 

So as the market has paused and a minor relief rally took place on Friday, which may continue in the first few days of this week, we do not think we have seen the market bottom yet and certainly not seen the end of volatility.

 

Week Ahead

 

Data releases this week would normally have minimal impact, however in these volatility heightened times they could impact significantly.

Monday, we get Chinese Retail Sales and Industrial Production, both expected to be weaker which could impact commodity prices and commodity currencies.

Tuesday, we get to see the minutes from Central Bank meetings of UK and AU. This could give insight to their forward guidance and concerns that has not previously been known. We also get the US Retail Sales numbers which is expected to tick higher. Consumer spending is the largest component of US GDP but with inflation at 8.5% will the US population be out spending. To us, this is probably the most volatile number this week.

Wednesday Powell speaks and we get Australian Wage Price Index, along with UK and Canadian inflation data.

Thursday is Australian jobs data and ECB minutes.

There are a number of other releases but those are the major ones to monitor this week.

 

Election Risk

 

Finally, we need to note that the Australian election is happening this weekend on Saturday 21st. The incumbent Liberal coalition (right wing) is losing in the polls, but Labor (left wing) do not seem to be strong enough to win outright. This creates the worst-case scenario of a hung parliament and Labor might have to create a coalition of sorts with some pretty nasty options for them to choose from. Markets do not like uncertainty so be careful of holding long Aussie positions over the weekend.