ING
Inflation well above target, consumer sentiment at all-time low
The market is favouring a 75bp rate hike from the Federal Reserve on 27 July and we agree given the tight jobs market and inflation running at more than four times the 2% targeted rate. In fact, inflation is likely to move even further above target this coming week as gasoline, food, shelter and airline fares continue to rise apace. Core inflation may slow marginally to 5.8% from 6%, but this too is well above target.
We will also be looking out for the University of Michigan consumer confidence index. It recently fell to an all-time low as the rising cost of living and plunging stock markets weighed on sentiment. This obviously is not encouraging for consumer spending growth, and we will also be closely following the inflation expectations series. It spiked last month (subsequently revised lower) and this was seen by many as the trigger for the Fed to signal it was going to hike by 75bp in June rather than the 50bp it had laid the groundwork for. Another strong reading for inflation expectations should all but confirm a second consecutive 75bp move later this month.
Weakening demand and negative trade balance
Eurozone industry continues to struggle with supply chain problems, while signs of weakening demand have also become more apparent. Both are bad news for a recovery in production although we do see some improvements in supply chains that may help production to catch up in the months ahead. Backlogs of work are still sizable, so don’t expect a sudden drop in May production figures due to weaker demand just yet. Nevertheless, the outlook for industry remains soft at the moment. Also, look out for the trade balance, which is set to be negative again on the back of high energy prices and a difficult export environment.
Canada’s housing market provides strong resilience against spikes in price
We expect the Bank of Canada to implement a 75bp move at its July 13 meeting. The economy is growing strongly, is at record employment levels and its inflation rate is running at 7.7%, the fastest rate since January 1983. The housing market is also red hot while Canada’s strong commodity-producing sectors mean it is far more resilient than most major economies to the spike in prices.
Canada looks set to hit the brakes hard
The Bank of Canada (BoC) has indicated that it sees the “neutral” range for the policy interest rate as 2-3%. Given we are currently at 1.5% and central bankers have expressed a desire to see interest rates move to the top or even beyond that range, we expect the Bank of Canada to follow the Federal Reserve’s lead and implement a 75bp hike at its 13 July meeting.
After all, the economy is growing strongly, has record employment levels, and its inflation is running at 7.7%, the fastest rate since January 1983. The housing market is also red hot while Canada’s strong commodity-producing sectors mean it is far more resilient than most major economies to the spike in prices.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% and 68% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Written by James Harte
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.
Previous Post
Daily Market Outlook, July 11, 2022
Source: Tickmill
