Market Wrap: Volatile inflation and a deluge of data as China emerges from lockdowns

The release of a deluge of data in China will provide fresh insights into the economic impact of the COVID-19 lockdowns.

The release of a deluge of data in China will provide fresh insights into the economic impact of the COVID-19 lockdowns.

US stockmarkets closed lower on Friday, following a robust US jobs report that strengthens the argument for a 50 basis point hike at the September FOMC meeting.

Adding to the malaise, the share price of Tesla fell 9 per cent after CEO Elon Musk said he has a bad feeling about the economy and needs to cut 10 per cent of the EV maker’s workforce.

The ASX200 locked in a third straight week of gains closing 0.9 per cent higher at 7238, supported by gains in the materials sector and energy sectors.

Here are the top five things to watch in markets this week.

1. RBA to lift interest rates back to pre-pandemic levels

At its monthly meeting this afternoon, the Reserve Bank board is widely expected to raise the cash rate from its current setting of 0.35 per cent.

The main uncertainty is whether the RBA will raise the cash rate by 25 basis points to 0.60 per cent as it did in May.

It might instead raise it by 40 basis points, taking the cash rate to 0.75 per cent where it was before the pandemic, or by an even larger amount.

For the record, we are tipping a 40 basis point hike.

2. US inflation data – peaked or peaking?

US inflation data is expected to rise 0.7 per cent month on month due to higher energy prices and keep the annual rate at 8.3 per cent year on year.

Core inflation, which excludes volatile food and energy prices, is expected to fall to 5.9 per cent year on year from its 6.5 per cent high of February, sparking hopes that peak inflation has passed.

3. ECB to end QE and set the scene for a rate rise in July

Last week, euro area inflation made fresh record highs printing at 8.1 per cent year on year in May versus 7.4 per cent in April.

This week the European Central Bank will confirm the end of quantitative easing at the end of the month and set the scene for an ECB rate hiking cycle to commence at its July meeting.

4. China data to provide fresh insights into damaging COVID-19 lockdowns

This week sees the release of a deluge of data in China, which will provide fresh insights into the economic impact of the COVID-19 lockdowns, including trade, consumer and producer inflation, and Caixin Services and Composite PMIs.

A modest rise in CPI inflation to 2.2 per cent year on year is expected due to higher food and energy prices.

5. Crude oil closes at three-month highs

Last week, crude oil added 3.3 per cent, closing at $118.87, its highest level in three months.

The rally was supported by the EU announcing a partial ban in Russian oil, the reopening in China and the start of the driving season in the US – ingredients that may see oil climb again this week towards the $130.50 high of March.

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