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Take Five: Farewell, tumultuous H1

As the year’s midpoint approaches, anxiety over the possibility of a worldwide recession is at a peak. Because of this, economic data and talk about the central bank will be more important than usual, and there will be a lot of it.

The European Central Bank will conduct a forum in Portugal, and among the data highlights will be a Chinese business activity survey and a carefully watched U.S. inflation index. And, for the first time in a century, Russia’s failure to pay its international debts could be proven.

The following market outlooks for the upcoming week were provided by Karin Strohecker, Sujata Rao, and Dhara Ranasinghe in London, Ira Iosebashvili in New York, and Tom Westbrook in Singapore:

HALF OF THE PICTUREAfter six months of rate hikes, market turbulence, and a conflict that fueled runaway inflation, the next half-year will see… essentially the same.

Still, there may be important turning points in the second half of the year, most notably a peak in inflation, which may come sooner than expected as economic growth slows and oil prices go down.

Could recession indicators moderate the hawkishness of the central bank? Markets expect interest rates in the United States to double to 3.25 to 3.5 percent by the end of the year, and eurozone rates to rise to 0.75 percent from -0.5 percent.

Nonetheless, stock markets, which are solidly in bear territory, may receive a reprieve. Goldman Sachs (NYSE:GS) observes that historically, equities tend to decline prior to inflation peaks, then rally.

However, this also depends on firm profits. Still expected for 2022 is double-digit U.S. and European profit growth.

Lastly, keep an eye on Japan and Turkey, where the central bank doves into a hawks’ nest. The latter has the potential to precipitate a major crisis.

2/GO TO THE MOUNTAINS

The Federal Reserve meets in Jackson Hole, Wyoming, while the European Central Bank meets in Sintra, Portugal, at the base of the Sintra Mountains.

The three-day event, which starts on Monday, will be especially interesting because of the biggest rise in inflation in decades and fears that a global recession is coming soon.

Therefore, pay even closer attention than normal to what the ECB’s Christine Lagarde, the Fed’s Jerome Powell, and the Bank of England’s Andrew Bailey say during the forum. Also, ECB statements will be looked at for any hints about an upcoming tool to stop fragmentation.

Separately, the latest inflation data for the euro area will be released on Friday, July 1, which might influence whether the ECB will deliver larger interest rate hikes than the quarter-point increase projected for July.

TENSIONS OF FLARE

Four months into the conflict, tensions between Moscow and the West are rising once more. As a bold geopolitical response to Russia’s invasion of Ukraine, EU leaders officially approved Ukraine as a candidate to join the bloc.

As a result of the invasion and Europe’s decision to impose sanctions on Moscow, Russian gas exports to Europe via Ukraine and the Nord Stream 1 pipeline have declined. Germany has turned on the “alarm stage” of its emergency gas plan, which affects a dozen EU countries.

Concerns are growing because of the fight over the Russian enclave of Kaliningrad, which has led Moscow to make more threats against the Baltic EU countries.

As the grace period for an interest payment on its international obligations ends, Russia may enter sovereign default territory. This could be the country’s largest external default in more than a century.

4/ DATA, THERE’S PLENTY

Fed Chairman Powell asserts that the central bank is not attempting to cause a recession, but is dedicated to limiting inflationary pressures despite the danger of a recession.

A lot of upcoming data should show how the U.S. economy is reacting to the aggressive Fed, which has tightened by a total of 150 basis points this year, including 75 basis points this month.

The June consumer confidence index will be released on Tuesday. Reuters polled economists, and they think it will drop to 100 from 106.4 in May.

Monday’s pending home sales and Tuesday’s Case-Shiller home price index should show how higher mortgage rates have affected home sales. On Thursday, the Fed will look at the personal consumption expenditures price index, which is an indicator of inflation.

5/LIGHT IN THE DARK

When China’s manufacturing activity data for June comes out on Thursday, it could give the financial markets a reason to be hopeful.

A slowing global economy is sucking the wind out of commodities, driving the Shanghai copper price down by more than 10% in just two weeks.

Iron ore prices are also going down, and red-dust miners in Australia have given up their gains for the year, which has a negative effect on their benchmark stock index.

This obscurity may require some penetration. But lockdowns have relaxed, and if the data indicates that economic momentum is propelling output into a growth zone, it would be a positive sign for the economy and for those who view Chinese stocks as a refuge from the stagflation fears sweeping the West.

Take Five: Farewell, tumultuous H1

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