Julien Ponthus gives a look at what lies ahead for markets today.

It’s amazing how a week can make a big difference!

After snapping its longest consecutive losing streak in nearly 100 years and recording its strongest week since 2020, Dow Jones’s performance has quickly changed the stock market narrative. It is now a story of hope rather than fear of meltdown.

However, there are two competing expectations: Some strategists think the ‘9% rebound from May 20th lows may actually conceal a bear rally or a money trap that could lead to a steeper fall.

Still, capital is returning to the stock markets with $20 Billion flowing into equity funds last Wednesday, which was the biggest inflow in 10 consecutive weeks according to BofA data citing EPFR.

Investors are also puzzled by the direction of equity investments. The fall to 3% in mid-May from the two-decade-high was equally troubling.

There are indications that the Federal Reserve may slow down interest rate increases after this summer, despite the optimism that stocks and other currencies have.

Markets have cut their wagers regarding the U.S. total interest rate increases this year by a mere 190 basis points to just under 180 basis points today.

The British recession signal is also causing a shift in Britain, where despite the expectation of 10% inflation rates, 120 basis points of rate increases are priced up to June 2023, as opposed to 165 at May’s start.

There will always be big inflation drivers. For example, the conflict in Ukraine could increase energy prices and grain prices. COVID-19-related outbreaks in China may also cause disruptions to global supply chains.

The data from Europe this morning suggests that we might not yet have reached peak inflation: German import prices rose 31.7% in April. This is the largest increase since September 1974.

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Markets should be more informed by key developments on Monday

Swedish Economy Shrinks because of Pandemic and War-Picked Exports

– German April import prices surge 31.7%

– Euro zone business climate/sentiment/inflation expectations

– German prelim CPI/HICP

– Kenya’s central bank decision

–Pool Japan Q2, Full-year Growth to Be Lower Than Previously Estimated