Key events to watch in the week ahead: 19-23 June 2023

This week’s overview

The S&P 500 looks set to deliver its fifth consecutive week of gains, as investors’ sentiments continue to hover in ‘extreme greed’ territory as reflected from the CNN Fear & Greed Index. Thus far, a hawkish guidance from the recent Federal Open Market Committee (FOMC) meeting has been met with some scepticism, but Federal Reserve (Fed) Chair Jerome Powell will have the opportunity to provide further clarification next week with his testimony to the US Senate Banking Committee.

Apart from that, monetary policy minutes will be released by the Reserve Bank of Australia (RBA) and Bank of Japan (BoJ). To top it off, we look towards the interest rate decision from the Bank of England (BoE), with unrelenting pricing pressures on that front suggesting that its fight against inflation could drag for longer.

Here are four events to watch next week:

20 June 2023 (Tuesday): RBA meeting minutes

The 25 basis-point (bp) hike by the RBA last week has pushed back against broad expectations for a rate pause, with the central bank further striking a hawkish message that further tightening may be required. Policymakers seem uncomfortable with the pace of moderation in inflation, with two consecutive months of upside surprises prompting that more needs to be done.

With cash rate futures looking for a terminal rate at 4.6%, which suggests an additional 50 bp worth of hikes over the coming months, further validation will be sought from policymakers’ views at the upcoming minutes.

The relentless rally in the AUD/USD ever since the RBA’s recent rate decision has prompted a break above a descending wedge pattern on the daily chart. That said, the weekly chart suggests that the 0.693 level will be the next key resistance to overcome, where past two interactions with the upper range of the Ichimoku cloud (April 2022, January 2023) have failed to find a breakthrough.

22 June 2023 (Thursday): BoE interest rate decision

A pull-ahead in UK May inflation has led markets to price for another relentless grind higher in interest rates from the BoE, with 125 bp worth of tightening expected over the coming months. In the Governor Andrew Bailey’s own words, inflation is ‘taking a lot longer’ than hoped to come down.

With its core inflation rising to the highest since records began in 1992 (6.8% in April), pricing persistence has proved to be a more severe issue in the UK as compared to other major economies. This will force the central bank to maintain its hawkish tone at the upcoming meeting, with the GBP/USD pushing to its one-year high lately. Further validation from the central bank that rates will go higher-for-longer may provide room for more upside in the British Pound (GBP), at a time when other central banks are generally heading towards their final phase of tightening but no end is in sight for the BoE.

22 June 2023 (Thursday): Fed Chair Jerome Powell’s testimony

The Fed Chair has attempted to strike a hawkish tone at the recent FOMC meeting, but as the Fed remains data-dependent, market participants have not been buying into the Fed’s hawkish guidance.

The Fed funds futures continue to price for one last 25 bp hike in July and rate cuts as early as next year. This serves as a pushback against the Fed’s guidance of cumulative 50 bp worth of hikes by the end of 2023 and a ‘couple years out’ in rate cuts, which may be perceived to lack commitment with the aim to avoid complacency.

The Fed Chair may retain his hawkish tone next week, but sticking to his usual script may potentially have limited impact in swaying rate expectations. He will have to further justify his hawkish outlook to provide greater conviction that recent guidance is more than just a jawbone.

23 June 2023 (Friday): Singapore’s CPI

Progress on the inflation fight has been overturned in the April’s Consumer Price Index (CPI) reading, with both headline and core inflation coming in higher than expected and pushing back against expectations for a quicker moderation in pricing pressures. The core CPI reading came in at 5%, towering above the expected 4.7% and still hovers more than two-fold above the central bank’s target.

With the Monetary Authority of Singapore (MAS) leaning towards a pause in its tightening stance since April this year, further easing in inflation will be needed to provide the conviction that a reinstatement in tighter policies is not needed. The central bank did mention that it expects inflation to “slow more discernibly” in the second half of this year, so more evidence will be sought on the inflation trend over the coming months. Constant upside surprises in inflation may then call for additional off-cycle tightening move from the MAS in the likes of that seen in January and July 2022.