Federal Reserve, RBNZ In Focus, Global Growth Concerns Weigh

Complex macro-economic conditions prevail ahead of a speech by Federal Reserve Chairman Jerome Powell and the Reserve Bank of New Zealand’s (RBNZ) interest rate decision. New Zealand’s central bank is expected to hike its key interest rate guidance from 1.5 percent to 2 percent in Wednesday’s decision. The current inflation rate in New Zealand is close to 7 percent. 

In April, the World Bank cut its 2022 growth forecast for the East Asia and Pacific region to 5 percent from 5.4 percent. Global growth concerns continue to weigh on market sentiment as China’s fiscal policy makers released another 140 billion Yuan in tax rebates in economic stimulus to counter the losses from the latest COVID-19 lockdowns. Airbnb said it will shut down its rentals in China as tourism falters amid the lockdowns. In reaction to China’s COVID-19 woes, stock markets in Asia opened the week in a bearish mood. 

Global growth challenged

Meanwhile, in another warning for global growth prospects, several large-cap companies withdrew from Russia. McDonalds and Starbucks will exit the world’s sixth largest economy amid the ongoing conflict in Ukraine.  

The S&P Global Composite PMI benchmark for the Eurozone is due out today and is expected to have fallen from 55.8 to 55.3. Anything unexpected may move the EURUSD and other EUR currency crosses.  

Monetary policy makers have grown steadily more hawkish in Q2 as inflationary pressures drag on retail sales and pressure consumer spending. Traders have priced in another rate hike in the world’s largest economy and Jerome Powell’s speech later today ought to shed some light on the magnitude of monetary tightening coming up in June.  

The optimistic view is that by September, inflation will be under control in the US following two more rate hikes of between 0.5 and 0.75 percent each. Downside risks to this scenario include the effects of China’s lockdowns on supply chains to the US markets and the ongoing conflict in Ukraine keeping crude oil spot prices high and adding to inflationary pressures. 

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