Atmosphere: Central bankers gathered for two days in Sintra, Portugal, for the ECB's annual forum. Christine Lagarde took the opportunity to reiterate her firm stance on pursuing a restrictive policy to combat inflation, with the aim of bringing it down to around 2% by the end of 2025. Jerome Powell, is sounding much the same note, and is not ruling out further tightening of the screws as early as the next meeting in July. However, even the IMF, through its Deputy Managing Director Gina Gopinath, finds the objective somewhat ambitious and points out that "there is no historical precedent for such a fall in inflation [...] without causing a severe recession". At least we've been warned. In the meantime, equity markets seem to be coming to terms with this new macroeconomic situation. While until recently, the advance of the US stock market's flagship index, the S&P 500, was driven by a (very) small number of stocks (essentially GAFA and NVDA), the bullish wave seems to be taking a growing number of participants with it. Between a simple rebound and a new bullish wave, investors still seem hesitant, and are keeping a close eye on household consumption figures, which dipped to 0.1% in May from +0.6% in April.
Rates: As you will have noticed, the fight against inflation remains the watchword of central bank policies. At the same time, we can't prove them wrong: whatever the indicator, monetary tightening over the last year or so has helped stabilize inflation, but has not succeeded in bringing it under control for long. However, the US Core PCE came out in line at +0.3% in May, i.e. 4.6% annualized, against a forecast of 4.7%. But the probability of a rate hike at the next Fed meeting in July remains well above 80%, according to CME's Fedwatch tool. At the same time, the US 2-year yield continues to climb towards its March highs of 5.08%. By contrast, the German 10-year continues to operate within a narrow range of 2.20-2.55%, and no statistic seems likely to break it out.
Currencies: This week, the focus is less on the major Western nations and more on Russia and Turkey. Wagner's rebellion and its leader Evgeny Prigozhin have affected investor confidence, and Putin's televised interventions to calm things down do nothing. The Russian rouble continues to fall against the euro (EUR 1 = RUB 97.74) and the dollar (RUB 89.61 = USD 1).
In Turkey, the macroeconomic situation is plunging the country into chaos. Inflation has exceeded 40% this year, and rose by a staggering 72% by 2022. At its last meeting, the central bank decided to raise interest rates by 6.5% in one go. Investors are concerned about the risk of a major economic crisis in the country. As a result, the Turkish lira continues to fall against the dollar (USD 1 = TRY 26.07 ) and the euro (EUR 1 = TRY 28.45).
Crypto: After an explosive week last week, thanks in particular to SEC applications for Bitcoin Spot ETFs from a number of traditional financial giants, bitcoin has been stabilizing at around $30,000 since Monday, down a slight 1%. Ether is suffering a little more, shedding almost 3% of its valuation at the time of writing. Although the US Securities and Exchange Commission (SEC) has already warned certain funds wishing to offer Spot Bitcoin ETFs that the "form" of the application was inadequate, as in the case of BlackRock, we'll know more in the coming days about the final decision on the "substance" of these ETF applications.
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