Inflation spikes again confounding investors and policymakers. 100 basis point hike priced to near certainty before Waller and Bostic get all doveish. Recession is now priced to near certainty by money and commodity markets but not yet equities. Interesting to always note how the narrative is twisted to support exactly what the market wants to do. Last month the University of Michigan's Inflation expectations were cited by the Fed for its knee-jerk panic into hiking rates by 75 basis points. In the immediate aftermath, commentators pointed out how limited the survey is in its scope being based as it is on a few hundred survey responses. Now that the same survey this month shows a modest and it is very modest reduction, everyone is citing it as gospel. Inflation is cured, it's transitory, rally back on for risk assets. Excuse the sarcasm but we are not out of the woods by a long long long way. Equity markets are always the last ones to know and it looks like that feat is repeating itself if the latest developments are anything to go by. Inflation remains on fire and in fact rising and broadening its base. That broadening is the most worrying aspect as it means it will likely last longer than most expect. Transitory is now on the lexicon of investors who are pricing inflation to be brought to its knees by a recession in 2023.

Summary United States: This Party Is Breaking Up Fast Signals of a slowdown are starting to flash across sectors. Business and consumer sentiment have faltered, real consumer spending has weakened, housing activity has stalled and business investment is downshifting in response. On the other hand, robust employment growth and solid gross domestic income suggest we are not in the hole just yet. Next week: Housing Starts (Tue), Existing Home Sales (Wed), Initial Jobless Claims (Thu) International: U.K. Growth Surprises to the Upside, Bank of Canada Delivers a Super-Sized Hike U.K. GDP registered a gain in May, but some cracks in the economy may be starting to show, specifically with regard to the consumer sector. Elsewhere in the G10, the Bank of Canada delivered a super-sized 100 bps hike at its July monetary policy meeting, bringing the policy rate to 2.50% and signaling more rate hikes to come. Next week: U.K. CPI (Wed), Canada CPI (Wed), ECB Rate Decision (Thu) Interest Rate Watch: Asset Inflation Is Already Being Curbed The Federal Reserve is continuing to reduce its balance sheet holdings of Treasuries and mortgage-backed securities (MBS), increasing the pace of the drawdown in September. However, the reduction of the MBS portfolio may prove to be difficult in the face of rising interest rates that have curtailed mortgage refinancing. We will also be on the lookout for liquidity challenges in the fall as the Fed's balance sheet is reduced. Credit Market Insights: Record High for Monthly Auto Loan Payments The average monthly auto loan payment reached a record high of $712 in June with 12.7% of new car buyers paying at least $1,000 per month for their cars, according to Cox Automotive Inc. Ultimately, with peak inflation not yet behind us and a potential economic slowdown looming, household balance sheets may be further stressed by these large monthly payments. Topic of the Week: Beige Book Heralds Slowing Growth, Inflation Fears, Recession Risk This week, the Federal Reserve released the Beige Book for its July meeting. Regional banks are describing situations seen across the country with some of the following language: slowing growth, inflation fears and even some risks of recession. Read the full article here

Summary United States: This Party Is Breaking Up Fast Signals of a slowdown are starting to flash across sectors. Business and consumer sentiment have faltered, real consumer spending has weakened, housing activity has stalled and business investment is downshifting in response. On the other hand, robust employment growth and solid gross domestic income suggest we are not in the hole just yet. Next week: Housing Starts (Tue), Existing Home Sales (Wed), Initial Jobless Claims (Thu) International: U.K. Growth Surprises to the Upside, Bank of Canada Delivers a Super-Sized Hike U.K. GDP registered a gain in May, but some cracks in the economy may be starting to show, specifically with regard to the consumer sector. Elsewhere in the G10, the Bank of Canada delivered a super-sized 100 bps hike at its July monetary policy meeting, bringing the policy rate to 2.50% and signaling more rate hikes to come. Next week: U.K. CPI (Wed), Canada CPI (Wed), ECB Rate Decision (Thu) Interest Rate Watch: Asset Inflation Is Already Being Curbed The Federal Reserve is continuing to reduce its balance sheet holdings of Treasuries and mortgage-backed securities (MBS), increasing the pace of the drawdown in September. However, the reduction of the MBS portfolio may prove to be difficult in the face of rising interest rates that have curtailed mortgage refinancing. We will also be on the lookout for liquidity challenges in the fall as the Fed's balance sheet is reduced. Credit Market Insights: Record High for Monthly Auto Loan Payments The average monthly auto loan payment reached a record high of $712 in June with 12.7% of new car buyers paying at least $1,000 per month for their cars, according to Cox Automotive Inc. Ultimately, with peak inflation not yet behind us and a potential economic slowdown looming, household balance sheets may be further stressed by these large monthly payments. Topic of the Week: Beige Book Heralds Slowing Growth, Inflation Fears, Recession Risk This week, the Federal Reserve released the Beige Book for its July meeting. Regional banks are describing situations seen across the country with some of the following language: slowing growth, inflation fears and even some risks of recession. Read the full article here

All eyes are on the European Central Bank meeting next Thursday, when we are expecting a hike of 25bp. Despite increasing expectations of the larger hike, we believe the Fed will repeat June's move The market is split as to whether the Federal Reserve will raise rates by 75bp or 100bp on 27 July. The strong June US inflation print of 9.1% and the Bank of Canada’s decision to raise its own policy rate by 100bp have helped fuel expectations of a larger hike. However, the weakening economic growth outlook and the fact that two of the most hawkish FOMC members, Chris Waller and James Bullard, have hinted they favour 75bp means we think they will indeed opt to repeat June’s 75bp move. Given there is the usual Fed blackout period starting on 16 July, there will be no additional comments from officials to provide guidance – although that doesn’t rule out someone getting in touch with the Wall Street Journal should there be a material change. In any case, the data flow is largely second-tier with an update on the housing market, which given rising mortgage rates is likely to remain under pressure. Bank of England gearing up for 50bp August hike, despite little impetus from domestic data On the face of it, next week’s data is unlikely to offer too much in the way of support for a 50bp rate hike in August. Another notch higher in the unemployment rate and a slight uptick in inflation will come as little surprise to the committee, which only a few weeks ago resisted pressure to step up the pace of rate hikes, opting instead for another 25bp move. However, the potential for another 75bp rate hike from the Fed, mounting worries among Bank of England hawks about GBP weakness, and earlier explicit warnings about more aggressive hikes from officials, suggest the Bank may well be tempted to join the growing number of central banks that have opted for larger rate increases. We narrowly expect a 50bp rate hike in August, though this may well be a one-off. Our central view is that the Bank of England will stop hiking when the Bank rate gets to roughly 2%. Bank of Canada's 100bp hike was only the beginning – More to come In Canada, we will be closely following inflation data, which will hit new highs on rising gasoline, but there will be broad gains elsewhere too. The central bank's 100bp hike on 14 July was to “front load” tightening to ensure inflation expectations remain anchored, but an upside surprise in CPI could heighten fears it repeats the move in September. Currently, we favour a 75bp hike. ECB's first hike in 11 years: 25bp or 50bp? It’s ECB week next week, so naturally all eyes are on the Thursday meeting. Expect the ECB to fiercely debate whether the first hike in 11 years will be just 25bp or perhaps 50bp after all. Also key out of next week’s meeting will be the anti-fragmentation tool which investors will watch closely to see how robust it can be to curb spreads in the eurozone. With Italian political problems surfacing, an additional challenge is added to next week’s meeting. While summer meetings at the ECB can be dull, this one clearly won’t be. Also important is how much the economy is cooling off in the eurozone. Next week’s PMI and consumer confidence data will give some evidence of that. This will be especially important for how much the ECB will hike in the coming cycle and we expect the economy to cool enough to keep the ECB's cycle quite limited. Developed markets economic calendar Source: Refinitiv, ING Read the original analysis: Key events in developed markets next week 

Yesterday, JPMorgan Chase (NYSE: JPM) reported that the bank's second-quarter earnings fell as a result of adding $428 million in bad loan reserves. With this view, JPMorgan has chosen to temporarily halt its share repurchases in order to meet regulatory capital requirements. According to a statement from JPMorgan, the reserve rise was primarily to blame for the earnings decline of 28% from a year earlier to $8.65 billion. Additionally, JPMorgan, which has one of the largest operations on Wall Street, was hurt by the slowdown in Wall Street transactions. Investment banking fees dropped sharply by 54% to $1.65 billion, $250 million less than the forecasted $1.9 billion. Fixed income trading revenue increased by 15% to $4.71 billion, Although, strong results in macro trading were offset by a decline in credit and securitized products, resulting in a quarter- end revenue that was below analysts' $5.14 billion projection. On the positive side of its report, revenue from equity trading increased by 15% to $3.08 billion, beating the estimate of $2.96 billion. Rising U.S. interest rates and a growing book of loans are two positive factors for the firm. For the quarter, net interest income increased by 19% to $15.2 billion, exceeding analysts' expectations of $14.98 billion. JPMorgan stated during the firm's investor day in May that rising rates will allow it to surpass its main goal of 17% returns this year faster than anticipated. However, the firm has achieved that goal this month. JPM 1W JPM stock dropped about 5% in intra-day trading on Thursday but found the support to finally settle only 3.5% lower at closing. JPM now trades at a 90-week low, but with a rumored 100 basis-points rate hike due from the US Federal Reserve within a couple weeks, perhaps bank stocks will find their bottom before the rest of the market.

AUD/USD Current Price: 0.6748 Australian employment figures were upbeat, but so were inflation perspectives. Fluctuations in the market sentiment lead the way for AUD/USD. AUD/USD is neutral-to-bearish in the near term, could fall further once below 0.6710. The AUD/USD pair ended Thursday with modest losses around the 0.6750 level, hit by a dismal market mood and despite better-than-anticipated Australian employment data. The country reported it added 88.4K new jobs in June, much better than the 25K expected. Full-time new positions accounted for 52.9K, while part-time ones stood at 35.5K. Additionally, the Unemployment rate contracted to 3.5% from 3.9%, much better than the 3.8% expected, while the Participation Rate increased to 66.8%. On a down note, Consumer Inflation Expectations in July surged to 6.3%. The pair fell to 0.6680 early in the American session as risk-off flows dominated financial markets throughout the first half of the day, with the focus on potential recessions across the globe. It’s clear that central banks’ actions are having no evident effect on inflation, which continues to soar. Stocks plummeted, weighing on AUD/USD, although cooling expectations for an even tighter US monetary policy helped both bounce back. AUD/USD short-term technical outlook The daily chart for the AUD/USD pair shows that the risk remains skewed to the downside as the pair develops far below bearish moving averages. Furthermore, technical indicators remain in the negative territory, with the Momentum heading lower and the RSI consolidating at around 37. In the near term, and according to the 4-hour chart, the pair is neutral-to-bearish. AUD/USD is currently struggling to overcome a mildly bearish 20 SMA while the Momentum indicator consolidates around its 100 level. The longer moving averages maintain their bearish slopes far above the current level, while the RSI advances but within negative levels. Support levels 0.6710 0.6670 0.6625 Resistance levels: 0.6810 0.6850 0.6890 View Live Chart for the AUD/USD