(Reuters)-Central banks are wrestling with inflation, stock sliding is enthusiastic, and investors need to ponder where the so-called “FRB put” went.
Meeting minutes from the world’s leading policy makers may shed some light while the central banks of New Zealand and South Korea are wondering how much rate hikes are needed to catch up with the Fed. And as the critical deadline approaches, Washington holds the key to Russia’s sovereign default.
Here’s a week ahead of Ira Iosebashvili in New York, Kevin Buckland in Tokyo, Dhara Ranasinghe in London, Saikat Chatterjee, and Karin Strohecker.
1 / FED THINKING
Can the Federal Reserve curb the worst US inflation in decades without putting the economy into recession? The minutes of the bank on May 25 provide clues.
Chair Jerome Powell is confident that the Fed will be able to achieve a “soft landing.” This is almost uncomfortable for the stock market, as there are piles of recession warnings from major Wall Street banks. The Fed, which has risen 75 basis points since March, is expected to raise another 50 bps in July.
Powell has vowed to raise interest rates as high as necessary to curb inflation. The minutes show how tenacious policy makers expect inflation and whether growth is flexible enough to face much tougher monetary policy.
Graphics: Fed and Stocks-https://fingfx.thomsonreuters.com/gfx/mkt/egpbkwygzvq/Pasted%20image%201652922084575.png
2 / Bear hug
Wall Street is melting. The major stock market index has fallen by about 19% to seize the territory of the bear market, with the high Nasdaq down more than a quarter from its peak in November 2021. And there is no visible rest: Barclays (LON :) and Goldman anticipate further suffering in equities as corporate margins are suffering from a surge in inflation.
Sold out is widespread. Since the peak of the bond bull market in March 2020, 30-year US Treasury bonds have lost half of their value over a period of time, and safe haven gold has fallen 6% this quarter. The surge in volatility means that even solid stock pickers are reluctant to make big bets.
Individual and institutional investors are also bearish. The US Private Investor Psychology Index is close to the March 2009 lows and fund managers have maintained their highest cash levels since September 2011.
Graphics: US Investment Survey-Bullish and Bearish-https://fingfx.thomsonreuters.com/gfx/mkt/znvneozkkpl/AAII.JPG
3 / Pivot point
The future-proof Purchasing Managers Index (PMI) data for the United States, Australia, the United Kingdom, Japan and the Eurozone is noteworthy. And more than usual, as China’s COVID blockade and the war in Ukraine shook growth prospects, with central banks sandwiched between inflation surges and consumer implications. is.
China has recovered rapidly from the initial slump in the 2020 pandemic, thanks to bumper exports and factory production, but it may be difficult to shake off the current recession.
Policy makers involved in the fight for inflation may reach the point in the coming months that they have little choice but to focus on the risks of a recession. PMI has been holding up well lately, but it may indicate how close its turning point is.
Graphics: Global PMI is over 50, how long is it? -https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoxlkovr/PMIS1905.PNG
4 / The starting lineup catches up
Although they were an early move, the central banks of New Zealand and South Korea continue to compete to stay ahead of the federal government in a few big step hikes, just following them.
The Reserve Bank of New Zealand is widely seen on Wednesday to halve interest rates to curb inflation again, but recent homebuyers are feeling the pain of rising mortgage rates, increasing the risk to the economy. ..
South Korea’s new central bank governor has flagged the market in half before its first meeting on Thursday. Being behind the curve can put pressure on the fragile won and raise import food and energy prices.
Bank Indonesia, one of the few remaining holdouts, is advised to stay a little longer at the meeting on Tuesday.
Graphics: RBNZ, BOK competition ahead-https://fingfx.thomsonreuters.com/gfx/mkt/znpneozzlvl/Pasted%20image%201652964894923.png
5 / Russia faces default and again
Given that the US license that allows Moscow to make payments expires on May 25, the Russian sovereign default outlook is back.
To evade that deadline, Russia said late Friday that it sent $ 100 million in interest payments on a $ 2 bond. The coupon was paid 2 days after the deadline.
However, the next installment payment is scheduled for late June, requiring additional payments of just under $ 2 billion for international bonds by the end of the year.
But Russia’s $ 40 billion government bond after the February 24 invasion of Ukraine triggered western sanctions and countermeasures from Moscow is just one of many flash points.
Also, if you have to pay the ruble for payments after May 20th, it’s also important that the gas continues to flow into Europe, as companies are having a hard time figuring out how to buy gas legally. .. This would violate sanctions on Moscow. Russia supplies about 40% of EU gas.
Graphics: Russian gas exports-https://fingfx.thomsonreuters.com/gfx/mkt/gdpzyewzyvw/Russia%20gas%20exports.PNG
Reuters inflation, recession risk, tanking market surge
https://www.investing.com/news/stock-market-news/take-five-surging-inflation-recession-risk-and-tanking-markets-2828983 Reuters inflation, recession risk, tanking market surge