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Week ahead: Inflation in focus

week ahead

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Following a week of surprises namely:

  • the Bank of England losing its credibility by raising rates more than markets anticipated and ruining the concept of forward guidance
  • a hot situation which almost escalated to a kind of a civil war in Russia (Military – Wagner conflict)

It’s time to see what the potential market moving events have for us for this week.

Tuesday will reveal how the US consumer and Housing market are doing

US Building Permits and New Home sales for May will show us an indication of how the housing market is performing. The expectation is for a higher number of building permits than the previous month, however the new home sales figure is expected to be lower when compared with the April figure. In our view this indicates that builders believe that the demand will remain even though interest rates are high.

CB Consumer Confidence will show us how the US consumer has fared. It’s a key figure to follow for the confidence in the US economy. So far, the talk is that the hard landing scenario for the US economy has been avoided, but this can quickly change. A strong consumer is needed to keep the US and global economy out of recession.

Core durable goods orders for May is also released on Tuesday with an expectation of a negative reading of -0.2%. This is better than the reading from the previous month which was -0.3% but it still shows a contraction. If the number comes in as expected, it will indicate a prolonged decrease in manufacturing activity in the States.

Inflation Friday will keep you busy

China Manufacturing PMI

Friday promises to be the day which will keep all of us busy. Overnight we will get the China Manufacturing PMI which will give us an idea of how the global economy is doing. It’s key because China is one of the biggest exporters and manufacturers in the world. Analyst expectations are for a reading of 49 which already means a contraction. If we get a surprise with a lower figure, this will be a sign that the global economy is cooling down. In our view it’s likely that we will see a lower number, considering that we are already seeing some key European economies in recession. And considering that the talks Central Bank executives continues to be hawkish (Powell said he expects two more hikes after the current pause) we may see a continued contraction in global demand for goods.

EU CPI

The preliminary figure is going to be released later in the day and analyst expectations are for the YoY to go down to 5.6%. This will be a key number for traders and policymakers, as it will show whether the ECB will need to continue with its tightening policy. The markets to watch will be Euro pairs as well as DAX and Estoxx indexes.

US Core PCE price index

Closing inflation Friday with the US Core PCE price index for May. This one won’t be as key because we have already had the CPI for May and the result essentially made the Fed pause it’s hiking streak.

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