Last week three central banks, the Federal Reserve, the Reserve Bank of Australia and the Bank of England raised rates and in so doing heightened concerns of an economic slowdown and stagflation.
Despite the ensuing volatility, the US sharemarket finished the week down just 0.2 per cent.
After weeks of outperformance, the ASX200 closed 3 per cent lower last week, with most of the fall coming on Friday, after the release of the RBA’s updated economic forecasts, which showed headline inflation is expected to reach 6 per cent by the end of the year.
And those forecasts came after the Bank of England became the third developed-market central bank to raise rates, while also painting a bleak outlook of high inflation and slowing growth, aka stagflation.
Here are the top five things to watch in markets this week.
1. US inflation data
April’s inflation figures are released this week and are expected to slow to an annual rate of 8.1 per cent, down from a 40-year high of 8.5 per cent in March.
The core inflation rate is expected to fall from 6.5 per cent to 6 per cent, still significantly above the Fed’s target of 2 per cent inflation.
2. US consumer sentiment
The University of Michigan will release its Consumer Sentiment Index for May.
The market is looking for a reading of 63.6, near multi-year lows, on concerns over rising inflation, the war in Ukraine, an expectation of aggressive central bank tightening and elevated energy prices.
3. Continuation of first-quarter US earnings season
US earnings season is in the home stretch.
But some big names are reporting this week, including Disney, Roblox, Peloton, Coinbase and EV maker Rivian.
According to FactSet, of the 87 per cent of the companies in the S&P 500 that have reported actual results for Q1 2022, 79 per cent have reported actual EPS above estimates, which is above the five-year average of 77 per cent.
4. Bitcoin struggling
Bitcoin is down more than 20 per cent for the year, and it is eyeing the January $US32,950 ($47,000) low.
Can Bitcoin hold on for dear life above this critical level, or are fresh year-to-date lows coming for Bitcoin this week?
5. Can the Aussie dollar stay above 70 US cents?
China’s COVID-19 lockdowns and hawkish Fed speak on slowing growth have sparked fears of a hard landing/recession – a prospect that has dragged the AUDUSD back to critical support just below .7000c.
The AUDUSD needs to remain above the .7000/.6970c support level or risk a deeper pullback into the mid-’60s.
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