The recession vs. inflation battle is increasingly shifting towards the former as reflected in the recent paring back in US Federal Reserve tightening expectations and growing market pricing of rate cuts beginning as soon as early next year.  The weakness in the US July Services purchasing managers index (PMI) added more weight to this argument.  This week's second quarter US Gross Domestic Product (GDP) data is likely to confirm two quarters of negative growth, which should mean technical recession though in the case of the US, recession is defined by the US National Bureau of Economic Research (NBER) as "a significant decline in economic activity that is spread across the economy and lasts more than a few months".  Either way, the US economy is on a softer path. This week is a big one for events and data.  The Fed is widely expected to cut US policy rates by 75 basis points tomorrow.  Expectations of a bigger 100bps move have been pared back.  If the Fed does hike by 75bp it will likely result in interest rates reaching a neutral rate (the theoretical federal funds rate at which the stance of Federal Reserve monetary policy is neither accommodative nor restrictive).  At this meeting there will be a lot of focus on the Fed's forward guidance but in reality the magnitude of hikes at the next FOMC meeting in September will be contingent on key inflation releases and other data, with two inflation reports (10 August and 13 September) to be published ahead of the next Fed meeting. In Europe there was yet more disappointing economic news this week, with the German July IFO business sentiment survey falling sharply. The data gave a similar message to last week's weak PMIs, provides yet more evidence that the German economy is falling into recession.   News that Russia has cut gas deliveries to Europe through Nord Stream 1 will only add to such concerns.  After surprising with a 50bp rate hike last week, the ECB arguably faces a bigger problem than the Fed.  At least in the US, the consumer is still quite resilient, with demand holding up well, while in contrast, demand is weak in Europe and the economy is sliding into recession at a time when inflation is around four times higher than target.  Emerging markets have found some respite from the pull back in the US dollar over recent days, but it is questionable how far the dollar will sustain any pull back.  Increased worries about the US economy and a paring back of Fed tightening expectations could damage the dollar further, but let's not forget that the Fed is still tightening more rapidly than many other major central banks, which ought to limit any US dollar weakness.  Even so, even if it’s a short-term phenomenon, emerging market currencies and bonds will find some relief from a softer dollar tone for now.  That said, many frontier economies such as in North Africa and South Asia are likely to struggle from higher food and energy prices for some months to come. If the dollar does resume its ascent it will only add to their pain. 

The Fed will hike another three-quarter point on Wednesday, at least. But looking ahead, what then? Target Rate Probabilities for Wednesday July 27 FOMC Meeting The above chart is courtesy of CME Fedwatch.  Looking Ahead Looking Ahead to December Target Rate Probabilities for Wednesday December 14 FOMC Meeting Key Points  The single most likely outcome (39.4 percent) for the FOMC meeting on Wednesday December 14 is for the Fed to target its base rate in the range 3.25-3.50 percent.  There is a 17.4 percent chance of 3.00-3.25 percent.  There is a significant (43.2 percent) chance of something higher than 3.25-3.50 percent.  The second most likely outcome (31.5 percent) for the FOMC meeting on Wednesday December 14 is for the Fed to target its base rate in the range 3.50-3.75 percent.    The current rate is 1.50-1.75 percent. There are meetings on July 27, September 21, November 2, and December 14. A 75 basis point hike in July is a given. That would takes us to 2.25-2.50 percent. To get to 3.25-3.50 percent in December would take two more 50 basis point hikes in September and December.  I am very skeptical the Fed will follow through all the way to the implied December targets.  But if inflation is still rampant (I doubt that), and the credit markets behave (doubly doubtful), the Fed will do what the odds suggest. Powell: "We understand better how little we understand about inflation” Let's review Powell's comments at the June 29 ECB economic forum: Powell: "We understand better how little we understand about inflation” Powell: “There’s a clock running here. The risk is that because of the multiplicity of shocks, you start to transition into a higher-inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening.” Powell: "The process is highly likely to involve some pain, but the worse pain would be in failing to address this high inflation and allowing it to become persistent." Powell: "Households are in very strong financial shape. They still have a lot of excess savings from forced savings and also fiscal transfers. The same is true of businesses. The labor market is tremendously strong. Overall the US economy is well positioned to stand tighter monetary policy." Powell: “Is there a risk we would go too far? Certainly there’s a risk. The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.”   I strongly disagree with point three except for the labor market. The other points could not possibly be more clear, even if I do not necessary agree. Inflation Expectations Point #1 above is related to the idea that inflation expectations might get out of hand. The concept is ridiculous as discussed on June 25 in The Asininity of Inflation Expectations, Once Again By Powell and the Fed. However, Powell's position is clear: "Our job is literally to prevent that from happening, and we will prevent that from happening.” "The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.” Expect an Overshoot Based on Powell's comments. I expect the Fed to overshoot. Then, unless the jobs picture or credit markets go haywire, Powell will be very reluctant to step on the gas out of fear of creating another inflation cycle. Expect a Long But Shallow Recession With Minimal Job Losses I expect a Expect a Long But Shallow Recession With Minimal Job Losses But if correct, that's the good news.  The bad news is Artificial Wealth vs GDP: Why Earnings and the Stock Market Will Get Crushed

The Fed will hike another three-quarter point on Wednesday, at least. But looking ahead, what then? Target Rate Probabilities for Wednesday July 27 FOMC Meeting The above chart is courtesy of CME Fedwatch.  Looking Ahead Looking Ahead to December Target Rate Probabilities for Wednesday December 14 FOMC Meeting Key Points  The single most likely outcome (39.4 percent) for the FOMC meeting on Wednesday December 14 is for the Fed to target its base rate in the range 3.25-3.50 percent.  There is a 17.4 percent chance of 3.00-3.25 percent.  There is a significant (43.2 percent) chance of something higher than 3.25-3.50 percent.  The second most likely outcome (31.5 percent) for the FOMC meeting on Wednesday December 14 is for the Fed to target its base rate in the range 3.50-3.75 percent.    The current rate is 1.50-1.75 percent. There are meetings on July 27, September 21, November 2, and December 14. A 75 basis point hike in July is a given. That would takes us to 2.25-2.50 percent. To get to 3.25-3.50 percent in December would take two more 50 basis point hikes in September and December.  I am very skeptical the Fed will follow through all the way to the implied December targets.  But if inflation is still rampant (I doubt that), and the credit markets behave (doubly doubtful), the Fed will do what the odds suggest. Powell: "We understand better how little we understand about inflation” Let's review Powell's comments at the June 29 ECB economic forum: Powell: "We understand better how little we understand about inflation” Powell: “There’s a clock running here. The risk is that because of the multiplicity of shocks, you start to transition into a higher-inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening.” Powell: "The process is highly likely to involve some pain, but the worse pain would be in failing to address this high inflation and allowing it to become persistent." Powell: "Households are in very strong financial shape. They still have a lot of excess savings from forced savings and also fiscal transfers. The same is true of businesses. The labor market is tremendously strong. Overall the US economy is well positioned to stand tighter monetary policy." Powell: “Is there a risk we would go too far? Certainly there’s a risk. The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.”   I strongly disagree with point three except for the labor market. The other points could not possibly be more clear, even if I do not necessary agree. Inflation Expectations Point #1 above is related to the idea that inflation expectations might get out of hand. The concept is ridiculous as discussed on June 25 in The Asininity of Inflation Expectations, Once Again By Powell and the Fed. However, Powell's position is clear: "Our job is literally to prevent that from happening, and we will prevent that from happening.” "The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.” Expect an Overshoot Based on Powell's comments. I expect the Fed to overshoot. Then, unless the jobs picture or credit markets go haywire, Powell will be very reluctant to step on the gas out of fear of creating another inflation cycle. Expect a Long But Shallow Recession With Minimal Job Losses I expect a Expect a Long But Shallow Recession With Minimal Job Losses But if correct, that's the good news.  The bad news is Artificial Wealth vs GDP: Why Earnings and the Stock Market Will Get Crushed

A quiet start to what will otherwise be a lively week in financial markets with particular focus on the US as the Fed meets Wednesday and big tech report earnings. Stock markets are modestly in the green, with a fair amount of straw clutching at play once more. Earnings not being as bad as feared, the Fed only hiking by 75 basis points and China putting together a plan in the hope of averting the next wave of the property crisis is among the reasons being given for stock markets rising. It all seems a bit desperate. Don't get me wrong, we need to take the small wins but none of the above scream recovery to me. Stock markets can't fall forever but the latest bear-market rally seems to be being driven by as much finger crossing as the previous ones. I think there may be a few more nasty surprises that will test the foundations of the latest market bottom. Those foundations could be rocked over the next few days if things don't go to plan. I expect the Fed will not hit the panic button yet and hike by 75 basis points again which still represents a very aggressive tightening path this year. But they may signal that another is possible in September, with markets currently having that as a coin toss. Whether that will be enough to send equity markets into another spiral I'm not sure. It could certainly dampen sentiment, to what extent may depend on what Microsoft, Alphabet and Meta have to say, among others. I'm not sure sentiment can take the combination of disappointing earnings and a more aggressive Fed. So we should all enjoy what is shaping up to be a relatively calm start to the week. The next few days are going to be full on and by the end of the week, we could have a better idea of whether the US is heading for recession, as appears to be the case here in Europe. Oil holds below $100 ahead of the Fed I'm sure oil traders have their sights set on many of the same events this week, as they try to better grasp the economic threat facing the US and other countries around the world. A recession is the primary downside risk for crude prices and it's all that's keeping them below $100 in the short term. A faster path of Fed tightening and disappointing earnings reports from the US this week could trigger further weakness in the oil market although I am sceptical about the scale of the downside risk. The tightness of the oil market cannot be ignored even as recession odds rise. A sustainable break below $90 still looks like a big ask and if it does materialise, it will be a bit of a double-edged sword. Gold recovering but faces big test Gold is continuing to enjoy a recovery and is set for the third day of gains as yields remain well off their highs. The US 10-year is not far from three-month lows, with 2.75% looking a potentially important level as this is where it has repeatedly rebounded higher from in that time. That will be interesting to gold traders as it could suggest the recovery is already on borrowed time or is about to take off. We may have to wait for the Fed on Wednesday to see which of the two it's going to be with the recessionary implications of its actions key to the outcome. Make or break moment? I can understand why some may be getting excited by the price action we're seeing in bitcoin over the last couple of weeks. It's come from trading below $20,000 to hit a six-week high and now the pullback of recent days has been very mild. That in the short term is arguably a bullish signal but it's still too early to say whether it will have legs. And as is the case with other assets, the Fed could make or break the recovery.

Key highlights EUR/USD is facing a major hurdle near 1.0225. A key bearish trend line is forming with resistance near 1.0230 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair was able to recover losses and climbed above the 1.0100 and 1.0150 resistance levels. The bulls pushed the pair above the 38.2% Fib retracement level of the downward move from the 1.0614 swing high to 0.9951 low. However, the pair is now facing hurdles near 1.0225 and the 100 simple moving average (red, 4-hours). There is also a key bearish trend line forming with resistance near 1.0230 on the same chart. The next major resistance is near the 1.0280 level. It is near the 50% Fib retracement level of the downward move from the 1.0614 swing high to 0.9951 low. A close above the 1.0280 level could open the doors for a steady increase. The next major resistance could be near the 1.0360 level, above which the pair could rise to 1.0420. If there is no upside break, the pair could correct lower and dip below 1.0180. The next major support is 1.0150, below which the pair could resume its decline. In the stated case, the pair might decline towards the 1.0110 level.

Key highlights EUR/USD is facing a major hurdle near 1.0225. A key bearish trend line is forming with resistance near 1.0230 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair was able to recover losses and climbed above the 1.0100 and 1.0150 resistance levels. The bulls pushed the pair above the 38.2% Fib retracement level of the downward move from the 1.0614 swing high to 0.9951 low. However, the pair is now facing hurdles near 1.0225 and the 100 simple moving average (red, 4-hours). There is also a key bearish trend line forming with resistance near 1.0230 on the same chart. The next major resistance is near the 1.0280 level. It is near the 50% Fib retracement level of the downward move from the 1.0614 swing high to 0.9951 low. A close above the 1.0280 level could open the doors for a steady increase. The next major resistance could be near the 1.0360 level, above which the pair could rise to 1.0420. If there is no upside break, the pair could correct lower and dip below 1.0180. The next major support is 1.0150, below which the pair could resume its decline. In the stated case, the pair might decline towards the 1.0110 level.

This month has dragged on and seems to be lasting forever. One reason could be that it is my last full month as a keyboard warrior, toiling as the voice of reason as I try to make sense of the nonsense in the financial markets. The second, and more likely, is that the US FOMC policy meetings falls at the end of the month, instead of its usual mid-month slot. But as the last week of July arrives, so does the FOMC policy meeting, with the results due out in the early hours of Thursday morning Singapore time. For what its worth, I am in Team Taylor, and going for 75 basis points, with 100 being a bridge to far. Last Friday’s price action may have softened the ardour of the 100 basis point hikes on the committee as well. Equity markets finished sharply lower, ostensibly because of soft social media earnings, but given Wall Street’s schizophrenic nature of late, it was just as likely to be recession fears, booking some short-term profits, and cutting exposure ahead of the weekend and any potential risks that emerged over it. Currency markets had a noisy day but finished not far from unchanged across the DM and EM space, so I don’t think Friday’s equity sell-off was a structural move. Friday’s S&P Global Manufacturing and Services PMIs for Europe and the US were disappointing to say the least, coming in softer across the board. Eurozone bond yields moved sharply lower as the market falls over itself to price in a recession there. Even Italian BTPs rallied. That seems to have flowed into the US bond market as well, with the US yield also moving sharply lower across the 5 to 30-year tenors, and even 2-years closed under 3.0%. The R-word remains on everyone’s lips. Even gold managed to string two consecutive positive days together, while oil markets were broadly unchanged. Agricultural commodities fell on Friday after Russia and Ukraine signed a Turkey-brokered deal to allow Ukrainian grain exports to resume from Black Sea ports such as Odessa. Naturally, Russia decided to rain cruise missiles down on Odessa over the weekend, including one that hit a grain silo. That has seen wheat futures rise by 2.0% this morning and has led to some US Dollar strength and extended the risk-off tone to equity markets. Various news outlets are also running a story about China’s increasingly strident warnings behind the scenes to US officials around Nancy Pelosi’s intended visit to Taiwan sometime in the next few weeks. This week features a raft of heavyweight US second-quarter earnings from tech heavyweights, which could drive volatility on stock markets in addition to the FOMC. Alphabet and Microsoft announce tomorrow, Meta on Wednesday, perhaps the highest risk one looking at the ad-strewn content-light wasteland of my Facebook and Instagram feed. Apple announces after the bell on Thursday evening NYT. Falling across the FOMC, we could be in for some tasty volatility around the mid-week hump. Alongside the FOMC, we have the German Ifo this afternoon, US Durable Goods Wednesday, German Inflation and US GDP on Thursday, and German, French, Italian, Spanish and Eurozone GDPs Thursday, and then Eurozone Inflation prints and US Personal Consumption and Expenditure data and the Chicago PMI on Friday. Slap in some China property and Taiwan risk, Eastern Europe risk, and the US President who has covid, and good luck picking the bones out of this week. It’s the show with everything but Yul Brunner. I’ll be in Bali next week for four days, and mightily glad I am, watching the dust settle from the distance. Closer to home, we see Singapore Core Inflation for June (4.20% exp. YoY), and Headline Inflation (6.20% exp YoY), released at 1300 SGT today. Having already made an unscheduled monetary tightening this month, higher than expected inflation data this afternoon will lock-and-load the Monetary Authority of Singapore to tighten again at their scheduled October meeting. I am in Singapore this week, and although COE’s have hit record high prices in July, I am still seeing a lot of brand new Mercedes and Range Rovers being driven around. I also paid just over seven dollars for a quite small, but pleasing, hipster latte in Singapore this morning. My feeling is that inflation will come in on the high side this afternoon, which may give local equities some headwinds this week, while supporting the Singapore Dollar. On a similar note, Australia releases its Q2 CPI on Wednesday, and we can expect volatility over the number as the street uses it to reprice the trajectory of the Reserve Bank of Australia tightening cycle. The Australian Dollar’s value is a function of international investors macro outlook for the world economy, risk-on/risk-off for those of us in pilot fish part of the financial...

This month has dragged on and seems to be lasting forever. One reason could be that it is my last full month as a keyboard warrior, toiling as the voice of reason as I try to make sense of the nonsense in the financial markets. The second, and more likely, is that the US FOMC policy meetings falls at the end of the month, instead of its usual mid-month slot. But as the last week of July arrives, so does the FOMC policy meeting, with the results due out in the early hours of Thursday morning Singapore time. For what its worth, I am in Team Taylor, and going for 75 basis points, with 100 being a bridge to far. Last Friday’s price action may have softened the ardour of the 100 basis point hikes on the committee as well. Equity markets finished sharply lower, ostensibly because of soft social media earnings, but given Wall Street’s schizophrenic nature of late, it was just as likely to be recession fears, booking some short-term profits, and cutting exposure ahead of the weekend and any potential risks that emerged over it. Currency markets had a noisy day but finished not far from unchanged across the DM and EM space, so I don’t think Friday’s equity sell-off was a structural move. Friday’s S&P Global Manufacturing and Services PMIs for Europe and the US were disappointing to say the least, coming in softer across the board. Eurozone bond yields moved sharply lower as the market falls over itself to price in a recession there. Even Italian BTPs rallied. That seems to have flowed into the US bond market as well, with the US yield also moving sharply lower across the 5 to 30-year tenors, and even 2-years closed under 3.0%. The R-word remains on everyone’s lips. Even gold managed to string two consecutive positive days together, while oil markets were broadly unchanged. Agricultural commodities fell on Friday after Russia and Ukraine signed a Turkey-brokered deal to allow Ukrainian grain exports to resume from Black Sea ports such as Odessa. Naturally, Russia decided to rain cruise missiles down on Odessa over the weekend, including one that hit a grain silo. That has seen wheat futures rise by 2.0% this morning and has led to some US Dollar strength and extended the risk-off tone to equity markets. Various news outlets are also running a story about China’s increasingly strident warnings behind the scenes to US officials around Nancy Pelosi’s intended visit to Taiwan sometime in the next few weeks. This week features a raft of heavyweight US second-quarter earnings from tech heavyweights, which could drive volatility on stock markets in addition to the FOMC. Alphabet and Microsoft announce tomorrow, Meta on Wednesday, perhaps the highest risk one looking at the ad-strewn content-light wasteland of my Facebook and Instagram feed. Apple announces after the bell on Thursday evening NYT. Falling across the FOMC, we could be in for some tasty volatility around the mid-week hump. Alongside the FOMC, we have the German Ifo this afternoon, US Durable Goods Wednesday, German Inflation and US GDP on Thursday, and German, French, Italian, Spanish and Eurozone GDPs Thursday, and then Eurozone Inflation prints and US Personal Consumption and Expenditure data and the Chicago PMI on Friday. Slap in some China property and Taiwan risk, Eastern Europe risk, and the US President who has covid, and good luck picking the bones out of this week. It’s the show with everything but Yul Brunner. I’ll be in Bali next week for four days, and mightily glad I am, watching the dust settle from the distance. Closer to home, we see Singapore Core Inflation for June (4.20% exp. YoY), and Headline Inflation (6.20% exp YoY), released at 1300 SGT today. Having already made an unscheduled monetary tightening this month, higher than expected inflation data this afternoon will lock-and-load the Monetary Authority of Singapore to tighten again at their scheduled October meeting. I am in Singapore this week, and although COE’s have hit record high prices in July, I am still seeing a lot of brand new Mercedes and Range Rovers being driven around. I also paid just over seven dollars for a quite small, but pleasing, hipster latte in Singapore this morning. My feeling is that inflation will come in on the high side this afternoon, which may give local equities some headwinds this week, while supporting the Singapore Dollar. On a similar note, Australia releases its Q2 CPI on Wednesday, and we can expect volatility over the number as the street uses it to reprice the trajectory of the Reserve Bank of Australia tightening cycle. The Australian Dollar’s value is a function of international investors macro outlook for the world economy, risk-on/risk-off for those of us in pilot fish part of the financial...

Next week, the FOMC, the Fed's monetary policy-making body, meets. We expect a 75 basis point (bp) hike in key interest rates, in line with the market. At the last meeting, Fed Chairman Powell announced that there would be a decision on a 50bp or 75bp hike in July. The crucial economic data released since then clearly favor the stronger hike. The inflation rate for June showed a further increase, reaching 9.1%. Energy and food prices are the decisive factors for the continuous increases that have been seen for months. In the remaining areas (core inflation), the inflation rate has declined in recent months, but only very slowly. Although sharp price increases from the previous year have dropped out of the calculation, at the same time, current inflationary pressures have been high since last fall and show no signs of abating. The labor market data for June published earlier showed a continued robust development. The number of newly created jobs has been stable at a high level for months. The unemployment rate has remained near record lows. Finally, retail sales showed solid growth in private consumer demand. Notably, the sharp rise in inflation also fueled short-term expectations of a 100bp rate hike. However, after a number of FOMC members rejected such a rate hike, the likelihood of this happening is low. The most exciting thing about the upcoming FOMC meeting should therefore be the outlook. However, we do not expect any changes compared to June. Fed Chairman Powell should also put a rate hike of 50bp or 75bp on the agenda for the September meeting. Inflation developments will remain the key determinant. The further development is very uncertain, as it will be determined, among other things, by supply bottlenecks depending on the conflict with Russia and the lockdowns in China. In general, however, the economy in the US and globally has started to cool down, which should counter inflationary pressure. Commodity prices, for example, have already fallen significantly. We expect to see a slight reduction in the inflation rate by the September meeting. Furthermore, based on the latest survey of FOMC members in June, next week's rate hike will bring policy rates very close to a neutral level, which should allow the Fed to proceed somewhat more slowly, so that in total we expect a rate hike of 50bp in September. EZ - Inflation could rise slightly again Next week (July 29), a first flash estimate of inflation for July will be published. In June, inflation rose further to 8.6% y/y, mainly due to increasing momentum in food and energy prices. By contrast, core inflation stabilized at around 3.7% y/y. As a result of the development of food, electricity and gas prices, there are also upside risks to the inflation rate in July. By contrast, the slight drop in the price of gasoline and diesel in some countries should have a dampening effect on inflation. In view of the recent decline in producer price momentum, we believe it is more likely that core inflation will also gradually lose momentum in the coming months. Due to the recent sharp correction on the global commodity markets, the probability of a general slowdown in inflation momentum in the fall has increased. For Europe, however, the tight situation in electricity and gas supply remains a significant uncertainty factor that could delay a decline in inflation rates. Overall, we expect inflation to reach 7.6% in 2022. Due to the current correction in global commodity prices, we forecast inflation to fall to 3.9% in 2023. EZ - Record inflation is a risk factor for 2Q GDP Next week (July 29), a first flash estimate of GDP growth in 2Q22 will also be published. In 1Q, the Eurozone grew surprisingly strongly at 0.5% q/q, due to special effects. However, high inflation already weighed on consumption in 1Q, which contracted by 0.7% q/q. The further sharp rise in inflation in 2Q to an average of 8% represents a significant downside risk for private consumption and thus for the overall economy in the Eurozone. We therefore expect the economy to stagnate roughly in 2Q. Falling inflation momentum would be helpful for an improvement in the economic outlook. In addition, a decisive factor for the outlook for private consumption is the question of how quickly and to what extent employees will be compensated for the record inflation levels via wage increases. Given the stronger than expected growth in 1Q, we expect GDP to grow 2.7% in 2022, despite the challenging environment. In 2023, growth momentum should drop further to 1.8%. IT – New elections in autumn This week, President Mattarella accepted the resignation of Prime Minister Mario Draghi and dissolved parliament. New elections are now expected between mid-September and early October.  Download The Full Week Ahead

Next week, the FOMC, the Fed's monetary policy-making body, meets. We expect a 75 basis point (bp) hike in key interest rates, in line with the market. At the last meeting, Fed Chairman Powell announced that there would be a decision on a 50bp or 75bp hike in July. The crucial economic data released since then clearly favor the stronger hike. The inflation rate for June showed a further increase, reaching 9.1%. Energy and food prices are the decisive factors for the continuous increases that have been seen for months. In the remaining areas (core inflation), the inflation rate has declined in recent months, but only very slowly. Although sharp price increases from the previous year have dropped out of the calculation, at the same time, current inflationary pressures have been high since last fall and show no signs of abating. The labor market data for June published earlier showed a continued robust development. The number of newly created jobs has been stable at a high level for months. The unemployment rate has remained near record lows. Finally, retail sales showed solid growth in private consumer demand. Notably, the sharp rise in inflation also fueled short-term expectations of a 100bp rate hike. However, after a number of FOMC members rejected such a rate hike, the likelihood of this happening is low. The most exciting thing about the upcoming FOMC meeting should therefore be the outlook. However, we do not expect any changes compared to June. Fed Chairman Powell should also put a rate hike of 50bp or 75bp on the agenda for the September meeting. Inflation developments will remain the key determinant. The further development is very uncertain, as it will be determined, among other things, by supply bottlenecks depending on the conflict with Russia and the lockdowns in China. In general, however, the economy in the US and globally has started to cool down, which should counter inflationary pressure. Commodity prices, for example, have already fallen significantly. We expect to see a slight reduction in the inflation rate by the September meeting. Furthermore, based on the latest survey of FOMC members in June, next week's rate hike will bring policy rates very close to a neutral level, which should allow the Fed to proceed somewhat more slowly, so that in total we expect a rate hike of 50bp in September. EZ - Inflation could rise slightly again Next week (July 29), a first flash estimate of inflation for July will be published. In June, inflation rose further to 8.6% y/y, mainly due to increasing momentum in food and energy prices. By contrast, core inflation stabilized at around 3.7% y/y. As a result of the development of food, electricity and gas prices, there are also upside risks to the inflation rate in July. By contrast, the slight drop in the price of gasoline and diesel in some countries should have a dampening effect on inflation. In view of the recent decline in producer price momentum, we believe it is more likely that core inflation will also gradually lose momentum in the coming months. Due to the recent sharp correction on the global commodity markets, the probability of a general slowdown in inflation momentum in the fall has increased. For Europe, however, the tight situation in electricity and gas supply remains a significant uncertainty factor that could delay a decline in inflation rates. Overall, we expect inflation to reach 7.6% in 2022. Due to the current correction in global commodity prices, we forecast inflation to fall to 3.9% in 2023. EZ - Record inflation is a risk factor for 2Q GDP Next week (July 29), a first flash estimate of GDP growth in 2Q22 will also be published. In 1Q, the Eurozone grew surprisingly strongly at 0.5% q/q, due to special effects. However, high inflation already weighed on consumption in 1Q, which contracted by 0.7% q/q. The further sharp rise in inflation in 2Q to an average of 8% represents a significant downside risk for private consumption and thus for the overall economy in the Eurozone. We therefore expect the economy to stagnate roughly in 2Q. Falling inflation momentum would be helpful for an improvement in the economic outlook. In addition, a decisive factor for the outlook for private consumption is the question of how quickly and to what extent employees will be compensated for the record inflation levels via wage increases. Given the stronger than expected growth in 1Q, we expect GDP to grow 2.7% in 2022, despite the challenging environment. In 2023, growth momentum should drop further to 1.8%. IT – New elections in autumn This week, President Mattarella accepted the resignation of Prime Minister Mario Draghi and dissolved parliament. New elections are now expected between mid-September and early October.  Download The Full Week Ahead

Next week, the FOMC, the Fed's monetary policy-making body, meets. We expect a 75 basis point (bp) hike in key interest rates, in line with the market. At the last meeting, Fed Chairman Powell announced that there would be a decision on a 50bp or 75bp hike in July. The crucial economic data released since then clearly favor the stronger hike. The inflation rate for June showed a further increase, reaching 9.1%. Energy and food prices are the decisive factors for the continuous increases that have been seen for months. In the remaining areas (core inflation), the inflation rate has declined in recent months, but only very slowly. Although sharp price increases from the previous year have dropped out of the calculation, at the same time, current inflationary pressures have been high since last fall and show no signs of abating. The labor market data for June published earlier showed a continued robust development. The number of newly created jobs has been stable at a high level for months. The unemployment rate has remained near record lows. Finally, retail sales showed solid growth in private consumer demand. Notably, the sharp rise in inflation also fueled short-term expectations of a 100bp rate hike. However, after a number of FOMC members rejected such a rate hike, the likelihood of this happening is low. The most exciting thing about the upcoming FOMC meeting should therefore be the outlook. However, we do not expect any changes compared to June. Fed Chairman Powell should also put a rate hike of 50bp or 75bp on the agenda for the September meeting. Inflation developments will remain the key determinant. The further development is very uncertain, as it will be determined, among other things, by supply bottlenecks depending on the conflict with Russia and the lockdowns in China. In general, however, the economy in the US and globally has started to cool down, which should counter inflationary pressure. Commodity prices, for example, have already fallen significantly. We expect to see a slight reduction in the inflation rate by the September meeting. Furthermore, based on the latest survey of FOMC members in June, next week's rate hike will bring policy rates very close to a neutral level, which should allow the Fed to proceed somewhat more slowly, so that in total we expect a rate hike of 50bp in September. EZ - Inflation could rise slightly again Next week (July 29), a first flash estimate of inflation for July will be published. In June, inflation rose further to 8.6% y/y, mainly due to increasing momentum in food and energy prices. By contrast, core inflation stabilized at around 3.7% y/y. As a result of the development of food, electricity and gas prices, there are also upside risks to the inflation rate in July. By contrast, the slight drop in the price of gasoline and diesel in some countries should have a dampening effect on inflation. In view of the recent decline in producer price momentum, we believe it is more likely that core inflation will also gradually lose momentum in the coming months. Due to the recent sharp correction on the global commodity markets, the probability of a general slowdown in inflation momentum in the fall has increased. For Europe, however, the tight situation in electricity and gas supply remains a significant uncertainty factor that could delay a decline in inflation rates. Overall, we expect inflation to reach 7.6% in 2022. Due to the current correction in global commodity prices, we forecast inflation to fall to 3.9% in 2023. EZ - Record inflation is a risk factor for 2Q GDP Next week (July 29), a first flash estimate of GDP growth in 2Q22 will also be published. In 1Q, the Eurozone grew surprisingly strongly at 0.5% q/q, due to special effects. However, high inflation already weighed on consumption in 1Q, which contracted by 0.7% q/q. The further sharp rise in inflation in 2Q to an average of 8% represents a significant downside risk for private consumption and thus for the overall economy in the Eurozone. We therefore expect the economy to stagnate roughly in 2Q. Falling inflation momentum would be helpful for an improvement in the economic outlook. In addition, a decisive factor for the outlook for private consumption is the question of how quickly and to what extent employees will be compensated for the record inflation levels via wage increases. Given the stronger than expected growth in 1Q, we expect GDP to grow 2.7% in 2022, despite the challenging environment. In 2023, growth momentum should drop further to 1.8%. IT – New elections in autumn This week, President Mattarella accepted the resignation of Prime Minister Mario Draghi and dissolved parliament. New elections are now expected between mid-September and early October.  Download The Full Week Ahead

Eurozone PMI data is off to a bad start with weak French data, which could take a further toll on EUR sentiment. With the ECB meeting out of the way, the focus can go back to fundamentals, Italian elections in September, the energy crisis and recession risk.  Germany's PMIs are even worse than the French data. Both manufacturing and services printed at 49.2, well below expectations and both in contractionary territory. The composite flash is a dismal 48.0. These gnarly PMI readouts could be an open window to sell the Euro on a policy mistake premise.  Though the knee-jerk spike has moderated somewhat, bunds had a more substantial initial reaction to the German PMI print than the French one. The futures gained roughly half a point on each bad print, with the German 10y yield down 12bp on the day.  USDCHF topped against the .9730/40 resistance level several times on Thursday; since then, the softer US data prints and, as a result, lower US yields have been weighing on the USD. The widening of peripheral spreads post ECB has been weighing on EURCHF, where the market has been taking back some shorts recently and now seems eager to re-instate