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Key events to watch in the week ahead: 22-26 May 2023

What are some of the key events to watch next week?

Source: Bloomberg

This week’s overview

The central focus for global markets this week has been revolving around the US debt ceiling negotiations, with signs of progress generally cheered upon by the risk environment. House Speaker Kevin McCarthy suggested that the House could vote on a debt ceiling deal as soon as next week, so that could continue to keep all eyes on any agreement. With recent market rally seemingly pricing for it to be a done deal, any blip on that front could easily cause a stir in market volatility.

Other than that, the economic calendar is lined up with key inflation readings out of Singapore and US. The Reserve Bank of New Zealand (RBNZ) meeting may also be a close call, with expectations still split on whether a larger rate move is needed. Last but not least, the Federal Open Market Committee (FOMC) minutes release will provide fresh update on policymakers’ thinking, which will be on close watch especially with hawkish rate expectations creeping up over the past week.

Here are four events to watch next week:

23 May 2023 (Tuesday, 1.00pm): Singapore’s April inflation rate

Broad consensus are for Singapore’s April inflation rate to moderate further from the previous month, with core consumer price index (CPI) expected to turn in at 4.7%, down from previous 5% in March. Headline inflation is also expected to move lower to 5.3% from previous 5.5%.

Further moderation in pricing pressures will suggest that the series of tightening moves thus far have been working its way through the economy, and support the Monetary Authority of Singapore’s (MAS) recent decision of switching to a pause in its tightening cycle.

The USD/SGD may be on watch, with the pair pushing to its two-month high lately on US dollar strength. A lower-than-expected read in Singapore’s inflation could further anchor its rate pause process, which could be an added push for the USD/SGD to retest its year-to-date high at the 1.358 level.

24 May 2023 (Wednesday, 11.00am): RBNZ monetary policy statement and press conference

The upcoming Monetary Policy Statement (MPS) from the RBNZ may likely be a close call, with current expectations split between a 25 basis-point increase in the Official Cash Rate (OCR) and a 50 basis-point move.

An expansionary budget set-up from the New Zealand’s government and still-elevated inflation (6.7% in Q1) suggests that more needs to be done to potentially keep pricing pressures under control. A surge in net migration provides an added uncertainty as well, with a larger labour pool aiding to ease wage inflation but on the other hand, contributes further to overall demand.

Future OCR expectations will be on watch as well, with market pricing for a terminal rate of 5.75% currently. Therefore, in the event of a 50 basis-point increase, any indications of a dovish hike could still lead NZD lower. Policy guidance from the press conference may serve as the key determinant of eventual direction.

Source: Refinitiv

25 May 2023 (Thursday, 2.00am): FOMC minutes

With rate expectations firmly looking for a rate pause from the Fed after the previous FOMC meeting, the upcoming minutes will provide some hints on how aligned is that view amongst policymakers.

Recent comments seem to suggest that policymakers stand ready to act further, so that could still leave potential room for hawkishness in the upcoming minutes to challenge market views. Rate pricing are also pointing to 50 basis-point worth of rate cuts by the end of the year.

The US dollar will be on watch after breaking above a key downward trendline to a new seven-week high. It is currently retesting the 103.12 level of resistance, where the upper edge of its Ichimoku cloud stands. Any hawkish tint in the minutes could provide an added boost in lifting the US dollar, potentially with the 105.00 level on watch next, where its 200-day moving average (MA) awaits.

US Dollar Source: IG charts

26 May 2023 (Thursday, 8.30pm): US core PCE price index

With rate expectations for another 25 basis-point hike from the Fed in June creeping up lately (33% probability being priced, up from just 10% a week ago), the core PCE price index will be closely watched to determine if further adjustment to the tightening process is needed.

The broader trend of moderating inflation since October last year suggests that market bulls may want to see more of the same, but the risk of any upside surprises surely remain on the table (eg. March higher-than-expected reading). Any pricing persistence will likely add to US dollar strength, which could challenge the recent risk rally once optimism over the US debt ceiling negotiations were to pass.

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