By: John Kicklighter, Head of Market Research
There has been a notable waning in the market impact of top tier scheduled event risk over recent weeks. Will the FOMC's forecasts or Middle East headlines break the peace?
Talking Points:
There has been a notable waning in the market impact of top tier scheduled event risk over recent weeks. The restraint in the recent top listings from the US serves as a strong example. The June University of Michigan consumer confidence, May US CPI inflation report and change in nonfarm payrolls all registered relatively tepid and/or unexpected response from benchmarks like the S&P 500 and the US Dollar. In fact, the equity index generated its smallest weekly trading range (as a percentage of spot) in six months this past week while the Greenback dropped to multi-year lows despite a reinforcement of data backing assumptions that a Fed rate hike will be pushed even further back.
Chart of S&P 500 and VIX with 1-Week Historical Range (Weekly)
Source: John Kicklighter, TradingView
It is less likely that there is some unforeseen caveat in this and global data release; and instead, the more practical reality is that there is a strong undercurrent of risk trends that requires a more definitive fundamental traction to rouse the sense of absolute sentiment. The threshold to cut across markets and fight against seasonal expectations is likely high – and there is more likely a skew in the potential of intensity towards any severe moves of ‘risk aversion’. But, what could charge such concerns?
Calendar of Top Global Macro Event Risk
Source: John Kicklighter
Sign UpAs far as scheduled event risk over the coming week, there is plenty and it spans multiple thematic interests. For examples, the G7 Leader summit will likely touch on trade wars, China’s May economic data will give comprehensive insight into the world’s second largest economy and the OPEC monthly meeting is far more interesting given the context of the growing Isreal-Iran conflict. That said, as far as concentrated scheduled event risk goes, the top listing both historically and considering recent circumstances is the FOMC rate decision. Looking to Fed Fund futures (and other, less direct gauges), there is virtually no expectation of a change in the benchmark lending rate at this meeting.
In fact, by the derivative market’s pricing, we have seen expectations move below a 50 basis points – two quarter percent moves – threshold by year’s end. There is a lot riding on the ‘moral hazard’ that follows as stimulus from central bank easing. Further, President Trump has called Fed Chairman Jerome Powell a ‘numbskull’ for not cutting rates further; and stated again that he was considering actions to remove the central banker from office. So, while the Fed may not move rates at this meeting, the group’s forecasts in the Summary of Economic Projections is particularly interesting, as is the Powell’s press conference half an hour after the policy announcement.
FOMC Scenario Table with US Dollar and S&P 500 Potential Impact
Source: John Kicklighter
Monetary policy is a frequent, top shelf fundamental theme for the capital, currency and commodity market. But the US central bank isn’t the only game in town. In fact, this week offers up one of the busiest for major central banks of the entire year. The intrigue begins before the Fed’s gathering Tuesday morning when the Bank of Japan (BOJ) is expected to hold its benchmark lending rate once again at 0.50 percent – having hiked three times in the past year from a -0.10 percent floor.
This is the most prominent counter-trend policy lean among the major central banks; so reasoning and criteria matter more than any hold. For other major central banks, the Swiss National Bank (SNB) is the only big player expected to move with a -25 bp cut Thursday, while the Bank of England (BOE) and People’s Bank of China (PBoC) are seen holding on Thursday and Friday. Outside the majors, Brazil’s and Taiwan’s central banks are both seen holding while Turkey’s group is expected to hike its benchmark 200 bps likely in a bid to halt the lira’s steady slide.
Chart of Central Bank Rate Decision Meetings
Source: John Kicklighter
For a final theme, through the coming week, it is hard to pick a particular consideration. There is some important labor data (eg Australia), discrete growth measures (eg New Zealand Q1 GDP) and a broad run of US data to fuel a Greenback that is struggling with a notable bearish break down. Everything considered, the inflation updates we are looking for this week can present some regional asset intrigue and perhaps even feed into a deeper theme in the need to balance growth. Setting aside all of the emerging market price measures, there is a set of noteworthy states to keep close monitor on.
It starts Tuesday with the run of US import and export inflation gauges which will be important to measuring tariff carry over – a very controversial topic. Expect President Trump to be watching. On Wednesday, the United Kingdom will release its run of May inflation stats against a backdrop of reports that the past month’s figures were incorrect. What does the picture look like with everything supposedly fixed? Finally on Friday morning (Tokyo session), Japan’s consumer inflation report (CPI) will offer insight into one of the last environments with central banks pursuing a fight against higher prices with actual tightening of policy. The threshold for substantial volatility following these reports is high, but feeding into larger themes is well within capacity.
Chart of Google Search Interest in ‘Inflation’, ‘Growth’ and ‘Interest Rates’
Source: John Kicklighter, Google Trends
What are the major events and indicators on tap for the global economy that could charge volatility in markets and reshape deeper fundamental themes? Sign up for the updated Global Macro Calendar updated each week with a two week look ahead of the top events!
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--- Written by John Kicklighter, Global Head of Content
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