South African diplomacy hits reality

Blinken goes to China, markets in Consolidation

Political and economic developments

The week ahead is less eventful than the week that just passed, which saw the anticipated hike by the ECB and the small cut by the PBOC. The Fed delivered the widely tipped hawkish hold and the US CPI continued to decelerate. The dollar fell against the G10 currencies last week but the yen.  Sterling, and the Canadian dollar rose to new highs for the year,  Momentum indicators are stretched.  This coupled with risk-reward considerations suggest that the dollar could bounce in the coming days.

The week ahead features the flash PMI readings and the Bank of England meeting (June 22) a day after its May CPI report. Norway's central bank also meets on June 22. Norway's inflation is running at a 7.2% annualized rate through May, though it was one of the earliest G10 central banks to embark on a tightening cycle (six months before the Fed). Its policy rate sits a 3.25%. A 50 bp hike would command attention. Fed Chair Powell delivers his semi-annual economic update to Congress.  His prepared remarks have already been published and the message well known. Among emerging market central banks, Turkey's rate decision under new leadership draws interest. The one-week repo rate (8.50%) may be hiked for the first time since March 2022. In Latam, Mexico's central bank is on hold, probably until Q4, while Brazil's central bank seems closer to cutting the 13.75% Selic rate.

United States:The Fed's hawkish hold means that the bar to a hike next month is low. The upcoming data will be judged through that vantage point. Still, the market seems a bit skeptical of the median Fed forecast for two more hikes this year. The Fed funds futures imply an effective rate (weighted average) of about 5.20%, up 12 bp from current prevailing levels. Fed Chair Powell's message in his congressional testimony (June 21-22) will be the same as the FOMC statement and press conference. The market, which had been pricing in cuts this year until late May still needs to be convinced that the Fed will in fact deliver two more hikes this year.

In this context, the flash June PMI does not seem particularly important. On the other hand, the housing market may have stabilized, but is still seems fragile. Permits have risen by an average of 0.3% a month this year through April (2.6% average decline in 2022) while starts themselves have risen by an average of 0.9% a month (falling 2% a month on average last year). The index of Leading Economic Indicators has been on a sharp decline since the end of Q1 22. Here, economists look at the six-month pace, which has accelerated this year to -8.7% in April compared with 7.5% at the end of last year and +1.2% in April 2022. It had reached -9.1% in March. When the LEI fell at such a pace previously the US was in a recession since the late 1960s. That said, this late in the quarter, the Atlanta Fed's GDP tracker does a fair job, and it now sees Q2 GDP a 1.8%. The US reports its current account balance for Q1. At least in the short run, the market is non-plussed, but the chronic deficit is a key consideration for some long-term dollar bears. In any event, we already know that the trade deficit narrowed slightly in Q1 ($12 bln), and this suggests the possibility of a quarterly shortfall of less than $200 bln for the first time in two years.

Poland clashes with South Africa

Poland has intercepted a plane carrying the personal protection teeam of the President of South Africa en route to Kiev. The head of the security services has accused Poland of displaying abusive racist behavior.

Why it matters, what it means.

The strip searching for 3 days of diplomat luggage just ahead of President Ramapohosa visit to Russia and Ukraine is a defiant challenge although Poland denies it has done it deliberately. Poland is one of the staunchest critics of Russia and opposed any peace deal so therefore it does what it can to derail the African Peace plan delegation. Expect backlash from the Global South

Read more here

https://www.bbc.co.uk/news/world-africa-65928782

Blinken goes to China

What it means why it matters

No honor guard, no welcome carpet, China shows its displeasure with this visit. It is however better than the treatment for Von Der Leyden who was forced to use the passenger terminal . Let s see if he gets to meet Xi like Bill Gates did

South African delegation diplomatic clash with Ukraine’s supporters