Inflation, interest rates, and central banks are the focal points around which global markets revolve.
Three key data releases scheduled for next week are already under the spotlight, as they could significantly impact stocks, bonds, and commodities due to their close correlation with future monetary policy moves in major world economies.
The upcoming release of key data on US inflation – the Personal Consumption Expenditures (PCE) Price Index – on May 31 will provide further insights into the Federal Reserve’s ability to start reducing interest rates by the end of the year.
Following earlier data this month showing lower-than-expected monthly consumer prices, investor hopes for rate cuts sometime this year remain alive.
The Fed officials, as revealed in the minutes of the last meeting, maintain confidence in easing prices, although the process is likely to be gradual.
In line with this forecast, they have indicated that the Fed will likely wait several more months before any move towards rate cuts.
Some members have not ruled out the possibility of further interest rate hikes, a hawkish stance that has immediately strengthened the dollar and bond yields.
The European Central Bank (ECB) is almost certain to lower interest rates in June.
However, uncertainties remain about what will happen afterward, especially if the monthly inflation data released on May 31 highlight persisting price pressures.
Market analysts are less clear on when the second rate cut could come.
With high wage growth and the Fed delaying rate cuts for now, SocGen’s team expects the ECB’s language to remain aggressive.
The chief German monetary hawk has warned against following up too quickly on potential upcoming easing measures.
All eyes are on consumer prices across Japan as markets assess when the Bank of Japan (BOJ) might raise rates, with Tokyo’s inflation data on May 31 at the center of attention.
The data comes two weeks before BOJ’s next monetary policy meeting, where speculation mounts on a second rate hike after the historical move in March.
Politicians have been cautious about the timing of further hikes, but with a weak yen continuing to weigh on weak consumption, they face increasing pressure to act.
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