GPS Global Wallet – May 22nd Edition

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MARKET WATCH

The US Dollar is down for the second day after a Fed official, Neel Kashkari, increased speculation that the Federal Reserve will pause rate hikes in June. USD/JPY holds below 138 and EUR/USD is set to keep trading above 1.08, after last week’s drop to 1.076. GBP/USD advances to trade mid 1.24-1.25.

This is a busy week, both in the US and Europe. Debt-ceiling talks seem to be taking over the news in the US, and according to Treasury Secretary Janet Yellen, the US government could run out of money to pay its obligations as early as the 1^st of June. Markets have been quiet with little volatility, meaning that either there is nothing to worry about or that they are about to reprice as the “X-Date” (1^st June) approaches. Furthermore, President Joe Biden and House speaker Kevin McCarthy are set to resume talks this Monday on what is a very tight deadline, and if an agreement only comes in at last – minute this could influence rating agencies’ confidence on the US government’s creditworthiness, potentially turning what could have been a mild recession into a deep one.

We will be looking out for the Fed’s preferred inflation measure, the PCE Index (Fri.), which is estimated to show little progress on inflation over the last month and University of Michigan’s long-term inflation expectations (Fri.). FOMC minutes (Wed.) will highlight how divided Fed officials are on the 5.25% peak.

In Europe, UK inflation (Wed.) is set to tick lower, finally. We should see April’s CPI dropping back into the single digits to 8.3%, from the previous 10.1%, as last year’s bump in household energy bills falls out of the annual comparison. Euro-area and UK flash PMI surveys (Tue.) For May which should flag how the economy is performing amid tighter credit conditions.

Have a good week ahead.

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