January 28, 2023

Central banks try to stamp out inflation

LQDFXperts Features | Central banks try to stamp out inflation

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Amid the global turmoil and recession fears, inflation will be firmly in focus this week as central banks try to curb inflation. 

The coming week will offer more insights into weakening growth and record inflation around the globe.

A week after surging US consumer prices prompted an accelerated 75 basis-point hike, markets are trying to gauge the size of the expected rate hike at the Fed’s upcoming July meeting.

Jerome Powell is due to testify before Congress on Wednesday and Thursday, just a few days after the Fed raised rates by 75 bps for the first time since 1994.

Apart from tackling soaring inflation, the European Central Bank must prevent its currency union fragmentation. So last week, ECB announced a new tool to ensure no repeat of last decade’s sovereign debt crisis. If it works, it may allow policymakers to implement more aggressive rate hikes if needed. 

It has been estimated that UK inflation reached a new four-decade high above 9% in May. BoE threatens faster rate increases in response.

Last week’s market turmoil, hit by fears over the growing likelihood of a recession, sparked the most significant weekly drop in world stocks since March 2020.

Until there are clear signs that inflation in major economies is coming down from decades-high levels, volatility will remain in place.

The weekly economic calendar ahead

The US economic calendar is light in the week ahead, with updates on the housing sector’s health the main highlight.

Data on the U.S. housing market and jobless claims may indicate slowing economic growth.

Data on Tuesday on existing home sales will probably show a slowdown in May as mortgage rates continue to rise. 

The U.S. is to release data on new home sales on Friday. Markets are looking for signs of a bounce after May’s 16.6% plunge.

Data on initial jobless claims are due Thursday after last week’s figures pointed to some cooling in the labour market. 

Preliminary data on manufacturing and service sector activity is also due on Thursday.

Elsewhere, there are likely further rate hikes from Norway to Mexico and inflation readings in Canada (22.06), the UK (22.06) and Japan (23.06).