César Pérez Ruiz, Chief Investment Officer Pictet Wealth Management.

Markets started last week on a better footing as some Federal Reserve officials alluded to the possibility of pausing interest rate rises in September. But other US central bankers have been more hawkish, and the stronger-than-expected ISM report and (to some extent) the May US jobs report fuelled another sell-off in bonds. Average hourly earnings growth in the US showed signs of moderating (down to 5.2% year-on-year in May from 5.7% in April), which markets took as a positive sign. Indeed, one theme that appears to be taking shape in markets is the transformation of what is initially perceived as bad news into good news—with the exception of inflation, for which bad news is still just bad news. In Europe, inflation surprised to the upside including core inflation, which came in at a new high of 3.8% in May. The European Central Bank (ECB) is constrained by its forward guidance, which rules out a rate hike this week. Several members have talked about the possibility of a 50 basis point (bp) hike in July, however. This is a very close call; we expect a 25bp increase in July, but a 50bp rise in September is looking increasingly likely. In an effort to address one of the key challenges tied to its policy normalisation cycle, the ECB might create a new facility aimed at limiting the widening of peripheral bond spreads. We remain negative on periphery euro area bonds. This week we will be watching the Friday release of US consumer inflation numbers.

JP Morgan CEO Jamie Dimon’s comment about a “hurricane coming” in reference to the economy and Elon Musk’s on the need to cut 10% of Tesla’s salaried staff could be a prelude to tougher times ahead. In the meantime, the strong US dollar is starting to have an effect on US companies. Microsoft lowered its earnings forecast on the back of the strong currency. This may add some risk to Q2 earnings. At the same time staff dismissals in tech are starting to resemble the early 2000s. In the UK, the London Metal Exchange is being sued for over USD450 mn over its nickel trading cancellation and suspension last March. On Monday, Prime Minister Boris Johnson survived a confidence vote, but a considerable 41% of the parliamentary Conservative party voted for his removal. Across the Channel, my fellow countryman, Rafael Nadal, won his 14th Roland Garros title at the French Open.

Elsewhere, some Chinese cities tentatively reopened from covid lockdowns, which could generate some upward pressure on industrial metals prices – notably copper, as global inventories are very low and Chilean production has been hindered. But it’s still very early days of China’s reopening and other macro news in the region were mixed. In Japan, companies are increasing share buybacks, such that the country will have double the buyback volume of 2021. We are still positive on Japanese equities.