Markets are still battling with an ongoing tug-of-war. This should be well known now, between the aggressive pace of tightening adopted by many global central banks to rein in inflationary pressures, and whether this comes at the expense of economic growth. The dreaded “r” word (recession) seems to be everywhere and is obviously not good news.

But as commodity price pressures cool and housing and the labour market slow down, this could enable central bankers to take their feet off the rate hike accelerator. Energy commodity indices are down around 16% from their highs whilst cyclical base metal indices look to have peaked in March. Is the current environment of higher price pressures, rates and lower stocks shifting in time to one of lower inflation thanks to demand destruction?

Data releases this week should provide more colour regarding the intensity of price rises. Various Eurozone member states report their inflation figures for May with the region’s HICP data set to be released on Friday. Before that, we get to see the Fed’s targeted measure of inflation with last month’s PCE price index. In his recent testimony, Fed Chair Powell commented that the core PCE number likely held at the same pace as in April. It will be interesting to see what impact rising prices have on spending volumes in the personal spending data released at the same time.

The greenback has been coiling over the last few sessions, holding above a previous long-term top from January 2017 on the DXY. Ironically, hawkish comments from Fed officials and the “unconditional” commitment to bring inflation down has seen more than a quarter point of tightening priced out by money markets. Traders watching the US 10-year Treasury yield will keep one eye out for the 3% level if this trend continues. If yield support has peaked for the dollar, the recent high in the DXY at 105.78 may be tough to beat.

This week, investors will also keep a close watch on the ECB’s Sintra forum. The Fed has the Jackson Hole symposium, while the European equivalent holds its own central bank powwow in Portugal. The three-day shindig should be interesting given the inflation surge, rising rates and worries about an imminent global slowdown. ECB comments by President Lagarde will be scoured for any details around the planned new anti-fragmentation tool. Fed Chair Powell and Bank of England’s Bailey are on a not-be-missed panel with Lagarde Wednesday.

Major risk events of the week

27 June 2022, Monday:

-US Durable Goods: The market median estimate is 0.1% in May, down from 0.5% in the prior month. Analysts expect demand conditions to soften amid rising prices. Supply chain issues also likely remain and represent an ongoing headwind.

28 June 2022, Tuesday:

–ECB Forum, Sintra: Sunny Portugal has seen some infamous phrases, and new policy direction, from ECB Presidents in the past. Notably Mario Draghi sounded positively bullish a few years ago indicating that the era of QE was coming to an end.  Current President Lagarde’s keynote speech is scheduled for Tuesday at 10am GMT. The focus will be on discussions around the new anti-fragmentation tool and ECB rate hiking.

30 June 2022, Thursday:

-US Core PCE: Analysts forecast the total PCE price index and core PCE index to rise sharply to 0.7% m/m and 0.4% m/m respectively. The annual core figure is expected at 4.8%, down a tick from the May print. A bigger slowdown could prompt markets to reassess the likely scale and timing of the Fed rate hike path, which would see dollar selling.

01 July 2022, Friday:

-Eurozone CPI: Consensus expects the June headline figure to edge up two-tenths to 8.3%. Energy inflation is set to trend higher on squeezed gas supply and the Russian oil ban.  The core reading is forecast to rise to 3.9% from the 3.8% print in May. Elevated prices are putting pressure on the ECB to start raising rates. An outsized beat should give a bid to the euro.

-US ISM: Consensus expects a reading of 55.4 in June, down from the prior 56.1. Analysts estimate that robust momentum remains strong with demand for goods still resilient, even as spending is shifting back to services.