Main factors:- Inflation data from the U.S., euro zone, and Japan will be crucial in the upcoming week, along with China’s manufacturing sector’s health and oil price concerns.
U.S. Inflation Data
- The personal consumption expenditures (PCE) price index due on Friday will provide insights into interest rate direction.
- Markets are resigned to the higher-for-longer interest rate narrative following recent Fed minutes.
- Policymakers express doubt about inflation’s reliable downward trajectory.
- Investors will hear from Fed speakers including Governor Michelle Bowman, Cleveland Fed President Loretta Mester, Governor Lisa Cook, New York Fed President John Williams, and Atlanta Fed President Raphael Bostic.
- Economic calendar includes revised data on first quarter economic growth and the Fed’s Beige Book.
Euro Zone Inflation
- European Central Bank plans to lower interest rates from 4% at June meeting.
- Expected inflation increase to 2.5% in May from 2.4% in April.
- Underlying inflation remains steady at 2.7%.
- Some officials argue against further easing.
- Economic calendar includes Germany’s Ifo business climate index and ECB’s inflation expectations survey.
Japan data
- Tokyo Inflation Data and Bank of Japan’s Monetary Policy Meeting
- Tokyo inflation data due on Friday, closely watched as markets gauge potential rate hikes.
- Two weeks before BOJ’s next monetary policy meeting, some predict second rate rise after March’s historic move.
- Pressure to hike rates due to yen weakness, inflating raw material import costs.
- Ministry of Finance to release intervention data on suspected intervention and BOJ’s bond buying schedule.
China’s Economic Activity
- China to release industrial profits data on Monday.
- Market watchers eager to see if profits rebounded in April after a sharp decline in the previous month.
- Official manufacturing and non-manufacturing PMIs to be released on Friday.
- Economists expect manufacturing index to remain above the 50 threshold for growth in May.
- Beijing sets an ambitious economic growth target of around 5% this year.
- Challenges include prolonged weakness in the property sector and tepid consumer demand.
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Investors await Tuesday’s U.S. inflation data to gauge Fed interest rate cuts, with February’s consumer price index expected to rise 0.4% after a faster increase of 0.3% in January.
Fed Chair Jerome Powell indicated that a rate cut may be appropriate this year, but he and his team are not yet prepared. Market observers will also be examining February’s retail sales data, which is expected to rebound 0.8% after a similar decrease a month earlier.
The economic calendar also features updates on industrial production, consumer sentiment and weekly data on initial jobless claims.
Fed officials will be entering the traditional blackout period ahead of their upcoming meeting next week.
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