Coffee Break

Coffee Break:
  • Week

Last week in a nutshell

  • Energy markets were again shaken as Russia reduced gas supplies to France, Germany and Italy just as their heads of Government visited Ukraine President Volodymyr Zelenskiy. It was the highest profile visit to the country since the Russian invasion in February. Prices surged, delaying yet again a possible return to a post-COVID-19 but pre-war situation.
  • With an interest rate hike of 75bps, the US Federal Reserve Bank announced its biggest interest rate hike since 1994. Chairman Jerome Powell justified this move following the recent economic news on inflation (which hit a 40-year high). Other central banks were put under pressure to follow suit.
  • The European Central Bank held an emergency meeting, highlighting the additional challenge the ECB is facing: The risk of fragmentation as weaker states are more vulnerable to surging borrowing costs and the end of the ECB’s debt-buying programme.
  • Japan's seasonally adjusted real GDP dropped by 0.3% in April, the first contraction in three months. Exports were weaker than anticipated, primarily due to China’s lockdown which slowed production and sales activities in the country. In this context, the Bank of Japan confirmed its accommodative stance.

What’s next?

  • Investors will watch the releases of home sales and preliminary PMI surveys figures in the US, following last week's stream of soft data in retail sales, the Philadelphia Fed survey, housing starts and building permits. All these milestones will be key to assess the spreading of the slowdown to other parts of the economy.
  • On this side of the Atlantic, Business confidence indicators for France, Belgium and Germany will be released. In addition to flash PMIs for June, they will reveal important insight on the economic momentum at the end of Q2.
  • Several central banks will meet and undoubtedly highlight the difficult tasks they are facing. Norway's Norges Bank, which was early to kick off the rate-hiking cycle last year, is expected to increase its rate again. In Turkey, the central bank must cool inflation in the 70%’s range and stabilise a sliding currency whereas in Mexico, Banxico is expected to follow the Fed and hike its benchmark rate by 75bps.
  • Federal Reserve Chair Jerome Powell will testify before Congress to give his regular, semi-annual update, on monetary policy. A timely meeting following last week’s unusual 75bp rate hike.
  • On the geopolitical front, an EU council meeting, which, will include Ukraine’s path to EU membership will be on the agenda. This will kick off a 2-week series of Western leaders' summits, including the G7 in Germany and the NATO Summit in Spain. Tensions with Russia are unlikely to cool down soon.

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