Take Five: Dollar takes everything

British politics, Chinese lockdowns, US banking results and central bank hawks also need to be monitored.

Here’s your look at the markets in the coming week from Dhara Ranasinghe, Tommy Wilkes and Sujata Rao in London, Jamie McGeever in Orlando and Kevin Buckland in Tokyo.

1 / DOLLAR, WE BEND FOR YOU

The single European currency is the latest victim of the dollar. It is now at a 20-year low of around $ 1,016 and may soon reach parity, influenced by the dollar’s broad appeal as a safe haven, but also rising gas prices, which have fueled the risk of a recession in the euro area. .

Wednesday’s data, which is expected to show US inflation up 8.7% year-on-year in June, from 8.6% in May, may boost hopes of another sharp rise in interest rates from the Federal Reserve and push the dollar further up.

The finance ministers and central bank governors of the G20, who meet in Bali on 15-16. July, see with. Tighter financial conditions have broken markets, and with the dollar so strong, a kind of “reverse currency war” is underway, with countries preferring stronger exchange rates to curb inflation.

2 / VEST (MINSTER) WING

The departure of the scandal-ridden UK Prime Minister Boris Johnson means the world’s fifth largest economy is longer in operation as the pound has been at its lowest level in almost two years and Britain’s worst cost of living for decades.

But while the drama of Westminster dominates the TV screens, the markets have quietly followed from the sidelines. That may change when the new government’s priorities become clear.

Nadhim Zahawi, who was appointed finance minister a few days ago, may want to review some tax increases and cut others. But while a easing of the money bag may support the British pound, it could boost inflation, which is already above 11%.

May GDP data on Wednesday is likely to boost growth, but keep in mind that Westminster’s chaos could hit markets.

3 / ON WALL STREET

US banks begin their earnings in the second quarter and things are not looking good. Yes, higher interest rates help, but economic growth is also slowing.

Refinitiv I / B / E / S estimates that the total profit on the S&P 500 will grow by 6% year-on-year in the second quarter, but the financial sector is expected to see 20% less profit.

A large part of this decline is due to the worsening outlook for loan losses, as interest rate increases increase the risk of borrower default. According to accounting standards, banks must recognize the macroeconomic outlook in loss provisions and thus results.

Commission income can also originate, predicts broker Wedbush, under pressure from income from mortgages and capital markets.

Morgan Stanley and JPMorgan start earnings on Thursday, followed by Citi, State Street and Wells Fargo the following day.

Overall, the results for the second quarter should shed light on the outlook for profits, input costs and employment. And listen to what company executives are saying about a potential recession.

4 / COUNTING COVID COSTS

Weeks after lifting a two-month repressive lockdown, China is struggling to bring a group of COVID cases under control in a karaoke lounge in Shanghai. With new cases emerging, massive tests and new activity restrictions have been introduced.

The economic cost of the draconian zero-COVID policy will become clear on Friday when China publishes its second-quarter GDP figures.

Economists say the official 5.5% GDP target is out of reach, but President Xi Jinping remains committed to a zero-COVID policy and prefers “temporary” economic costs rather than endangering lives.

Investors are worried. Shares in Shanghai have interrupted their five-week rise, while fears of growth have pushed iron ore to its lowest level this year.

5 / CLUB WITH HALF POINT

When even pigeons from central banks like Switzerland raise interest rates by half a percent, the Royal Bank of Canada and the Reserve Bank of New Zealand will have a hard time choosing movements at 25 basis points.

RBNZ has already raised interest rates to 2% five times in a row. As she expects interest rates to double to 4% in the coming year, analysts expect it to take another half-percent step on July 13th.

On the same day, the Bank of Canada was able to raise interest rates by 75 basis points to 2.25% after sequentially raising interest rates by 50 basis points. That would be the biggest change since 1998.

But beware of indications that rate hikes may be declining. Business confidence in New Zealand has deteriorated and housing markets are weakening. Canada will have a 35% chance of a recession in the coming year.

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