Investors await further tightening amid busy week for central banks

In a week that's likely to be busy for central banks, the Federal Reserve is widely expected to raise interest rates by another 50 basis points. Following Friday's much stronger than expected inflation data, investors will be closely watching the comments of Fed Chair Jerome Powell regarding future interest rate hikes. Following the growing cost of living crisis, the Bank of England is likely to raise rates for the fifth time in a row on Thursday. In addition, the Bank of Japan and the Swiss National Bank will meet to discuss monetary policy. Data on retail sales in the US will give an insight into whether inflation is eroding households' purchasing power, while equity markets look to have another turbulent week.

The US stock market ended sharply lower on Friday after recording its biggest weekly percentage decline since January. As the red-hot inflation data raise worries about aggressive monetary tightening at the Federal Reserve, European stocks are expected to open sharply lower Monday. Meanwhile, a cluster of COVID cases in Beijing dampens hopes of a sharp rebound in demand from the world's second-largest economy.

Bank of England policy meeting

There is a high probability that the Bank of England will increase interest rates by 25 bps for the fifth time in a row on Thursday, despite a growing number of global central banks opting for half-point increases.

Governor Andrew Bailey, chairman of the Bank of England, said that the bank was walking a tightrope between tackling inflation and causing a recession while the BoE expects inflation to exceed 10% later this year.

Data released on Monday morning show the UK economy slowed again in April, as industrial and manufacturing output slumped for a second straight month. 

According to the Office for National Statistics, gross domestic product for the three months through April increased only by 0.2% compared with an increase of 0.8% in the previous three-month period versus expectations of a 0.4% increase. Industrial production fell by 0.6% on the month and manufacturing output declined by 1.0%. 

The latest figures demonstrate the direct consequences of a sharp increase in household energy bills during April, which had an immediate impact on consumer disposable income.

The employment data released on Tuesday should indicate a continued tightening of the labour market, with unemployment expected to decrease and wage growth expected to accelerate.