One economic release overshadowed the U.S. midterms for markets. Stocks surged last week after the October core CPI rose less than expected, stoking market hopes a Federal Reserve pause on rate hikes is nearer. BlackRock think that’s optimistic.
The G20 summit in Bali will be a key focus for the markets this week. Leaders will meet on Tuesday and Wednesday. Geopolitical tensions, the war in Ukraine and inflation levels are expected to be the hot topics of the summit. Outside of that, inflation prints in Europe throughout the week will be closely watched.
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BlackRock see the new regime of greater macro and market volatility playing out. They think this new regime is not about to change, and debated how to navigate a recession foretold, persistent inflation, geopolitical fragmentation, a strong U.S. dollar and the energy crunch.
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The next two weeks could be key for setting the tone into year end. There are several central bank meetings this week, including the Reserve Bank of Australia, Fed, Norges Bank and Bank of England. Wednesday’s Fed interest-rate decision and statement will likely be the key event of the week.
Markets are rallying on hopes policy tightening is nearing an end – prematurely, in BlackRock’s View. They think the Fed, like other developed market (DM) central banks, will only stop when the severe damage from rate hikes is clearer.
Equities usually do well after U.S. midterms. Why? Gridlock is common and prevents policy change that could spook stocks. BlackRock don’t see that past playbook working this time due to the recession they expect from the Fed ratcheting up rates.
The key focus for this week will be the European Central Bank (ECB) meeting on Thursday, with a 75 basis point interest-rate hike expected. ECB President Christine Lagarde will also speak, likely to reiterate that quantitative tightening will begin after interest-rate normalisation has completed. The US GDP report on Thursday will also be closely watched. Earnings season gets into full swing this week, so focus will be on corporate reporting.
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