Ebury: Macroeconomic data in focus

By Enrique Diaz – Alvarez *

Stock markets and risk markets in general recovered sharply last week, while US interest rates did not. The result was a predictable sell-off of the dollar, which mainly benefited the currencies of Europe and Latin America. The first was reinforced by differences in closure rates in the Atlantic, and the second by the return of risk-taking in general and the rally of goods in particular. The Polish zloty performed amazingly last week, realizing that the Polish economy is resilient to the effects of the war so far.

Macroeconomic data from major monetary areas will be in the spotlight this week. The Eurozone inflation report for May will be released on Tuesday, while the main report on US employment is expected on Friday. As for the former, markets expect another rise in both nominal and core inflation, which will “lock in” interest rate hikes at the European Central Bank by July at the latest. As expectations include more and more immediate and immediate increases from the ECB, it is expected to support the euro, and to continue its recent recovery.

Sterling

The PMI of economic activity was milder in the UK in May than in mainland Europe, and this is an enigmatic deviation worth watching. As sterling had various economic data in progress, such as interest rate markets, any forecasts for continued increases by the Bank of England require careful readings on this key index, and certainly the 51.8 we saw in the composite index is disappointingly low. The data to be released this week by the UK will mostly be secondary, so sterling is expected to offset developments elsewhere.

Euro

The PMI of business activity was much better maintained in the Eurozone than in both the United Kingdom and the United States, as an indication that the economy there is more resilient than credited. The numbers were clearly higher and refuted the belief that the recession was imminent, and that what was left for us were monetary policy arrangements completely unrelated to the inflationary and economic environment. Inflation data this week will show another all-time high. The actual number that will come out will be the key to deciding on the size of the interest rate hike in July. An unpleasant surprise in inflation would raise the chances of a 50 basis point increase, and provide support for the single currency.

US dollar

A series of second-tier data released last week was largely below expectations. The weakness in the housing market has helped the US bond market to continue its rally and the difference between the dollar and euro interest rates on the 12-month bond is now lower than it was at the end of March, which undoubtedly explains much of the recent recovery. of the euro. Inflation is still well above the US Federal Reserve’s target and this week we are waiting for the May employment report, which is the last of the key data data released before the US Federal Reserve meeting in June . Markets expect wages to fall, which are still lagging behind the cost of living. Here, a positive surprise would bring the markets to start pricing three fold increases by 50 basis points from the Central Bank.

* Chief Risk Officer of the international payment company Ebury