We finally saw some fatigue coming into investor sentiment, as equities drifted lower.

A Little Look Back at Last Week 

We finally saw some fatigue coming into investor sentiment, as equities drifted lower.

As central banks reiterared their hawkish stance and extremely hawkish action from the BoE, we still see benchmark yields dropping lower. The main reason for yields failing to catch up is arguably that the market view is that the higher rates will be impacting the performance of the economy – is a recession on the cards, or just a slowdown to growth?

Sterling remains strong across the board despite higher interest rates, mortgage refinancing risks, sticky inflation, and rising borrowing costs.

We can see institutional investors have built up a stretched long position: with this in mind, we keep our positioning risk at the forefront over the coming sessions. The reward is for sterling to sell off.

On another note, Economic Data for this week is a lot lighter.

The Key data points will be CPI data coming out Canada (Tuesday) Australia (Wednesday) & Germany on Thursday respectively. 

Chair speakers from BoJ, BoE & The Fed are all set speak on Wednesday, and Fed chair Jerome Powell again on Thursday.

CAD CPI & Business Survey

After the BoC’s surprise hike a few weeks ago, the bank has taken a far more stringent data dependent stance. That means incoming data is key for markets to assess whether the bank hikes rates again or now.

Based on interest rate futures, markets are pricing in a 70% chance (at the time of writing) for a 0.25% hike at the bank’s July policy decision. That means Tuesday’s May CPI report as well as Friday’s Business Outlook Survey will be important.

With higher CPI and a positive BoS survey expected to increase hike expectations and support the CAD. While lower CPI and a disappointing BoS survey expected to see markets push back against July hike expectations and pressure the CAD.

Wednesday, we see the release of the next monthly CPI print from Australia.

Inflation has reached 6.*% in April and this was enough for the RBA to surprise the market and hike 25bps in the June meeting.

With a very strong jobs report a couple of weeks ago, markets are only pricing in a 25bps hike at just under 35%. A beat or a miss could definitely swing the expectations from the market.

Having seen AUD sell off in recent weeks handing back all its gains, we favour a move higher in the AUD should we see a beat on the CPI report.

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