But policymakers also have to deal with cooling economies, with post-COVID job creation in the US potentially peaking and a gas supply shortage potentially pushing Europe into recession.
Here is your week in the markets of Dhara Ranasinghe, Karin Strohecker and Sujata Rao London; Kevin Buckland Ottawa and Lewis Krauskopf New York.
1/ WINTER IS COMING
As Europe faces record high temperatures, gas shortages have led officials to brace for a cold, dark winter.
Russia’s Gazprom has cut throughput on the Nord Stream 1 gas pipeline to a fifth of its capacity, and the EU is urging its members to reduce consumption and store gas for the winter.
Gas prices in Europe have risen by almost 200% since the start of the year and the longer this shock lasts, the worse the economies will be.
With Germany’s powerful industrial complex representing 36% of the country’s gas demand, commercial activity there is slowing and consumer confidence has reached record levels. Eurozone recession could arrive by early 2023, warns JPMorgan.
European gas prices soar European gas prices soar:
The Bank of England started early, but raised rates in smaller steps than its peers who are tightening policy in increments of 50, 75 and even 100 basis points. But a half-percentage-point hike of 1.75% is possible on Aug. 4, which would be the biggest since 1995.
JPMorgan and HSBC are among those predicting a 50 basis point move. While only three BoE policymakers voted in favor of a 50 basis point hike at the last two meetings, data since then have shown inflation hitting 9.4%, a 40-year high. year. It could reach 12% by October, six times the BoE’s target.
Governor Andrew Bailey has promised to act forcefully if necessary. Yet, with the BoE seeing virtually no UK economic growth until 2025, a Reuters poll predicts the BoE will stick to 25 basis points, with a slim margin.
The bank must then face the risk that a lower rise triggers a fall in the pound sterling, further stoking inflation.
Under pressure :
3/ AMERICAN JOBS
A barrage of Federal Reserve rate hikes is slowing growth in US house prices and forcing consumers to tighten their belts. Friday’s non-farm payrolls data will show whether this is also having an impact on the job market.
With the Fed now favoring a data-driven approach rather than explicitly guiding the markets on its policy, jobs and other numbers expected over the next eight weeks until the next Fed meeting, say increased importance.
Employers are already less keen on hiring staff, with companies ranging from Tesla Goldman Sachs warning of a slowdown in hiring.
Analysts polled by Reuters estimate that 255,000 jobs were created last month, after a forecast of 372,000 in June. A much lower number could support the view that the Fed has reached the “peak of optimism”. [L1N2Z8227]
Resumption of the job market:
4/HIGH DOWN UNDER
Traders reduced their bets on a 75 basis point Australian rate hike at Tuesday’s Reserve Bank meeting. But with inflation at its highest in 21 years, a half-point hike seems like a done deal.
The latest data shows that consumer prices rose at an annual rate of 6.1%, more than double the target of 23%, and double the pace of wage growth. And Treasurer Jim Chalmers warns the situation will get worse before it gets better.
RBA Governor Philip Lowe has signaled rates, currently at 1.35%, will rise to a “neutral” level of at least 2.5%, although markets expect them to rise. capped at 3.75%.
Initially unsettled by runaway inflation, Lowe has overseen three consecutive hikes since May – the most aggressive action in decades. This delay, and the way he communicated his intentions, prompted a government inquiry into the policies and governance of the RBA.
The RBA is looking for a way back to the inflation target:
5/ BRAZIL BREATHE
The four countries that investors once grouped under the BRIC umbrella – Brazil, Russia, India and China – have always been very different. This divergence manifests itself even today in the relative orientation of their monetary policy.
Brazil, which has raised rates by 1,125 basis points since March 2021, is expected to keep the benchmark rate at 13.35% at the policymakers’ meeting on Wednesday and keep it there for the rest of 2022 before moving on. easing in 2023.
Meanwhile, for India, which entered the current round of global monetary policy tightening late, the only way is up. The central bank has intervened heavily in recent weeks to pull the rupee out of a series of record lows. A Reuters poll predicts that India’s policymakers, meeting on Thursday, will raise rates, currently at 4.90%, by a further three-quarters of a percentage point by the end of the year.
BRIC key rates: