What's on this week ? Yep, you've guessed it .....
ref :- "Week ahead. Market questions" , The Financial Times , Companies and Markets
Coming after the weekend, for obvious reasons Monday's financial media can be light on reporting market action. On the other hand, you will find both information and rumination on what's coming up for the new week. The FT's Market Questions column, in which they address (normally) three such topics, is generally worth a look. Apologies if two of this week's posers directly revolve around the subject neither we nor anyone else can escape, and which also impinges upon the third, albeit from a broader perspective. But if nothing else, that's a measure of just how key the issue of the day/week/month is to markets.
Q.1 Will US inflation unsettle markets ?
Thursday sees the release of May's US inflation data. Last month's numbers revealed a year-on-year consumer price inflation rate of 4.7%, with the core figure (excluding volatile food and energy sectors) coming in a 3.0%. The expectations for Thursday by which market reactions will be governed are 4.7% and 3.4% respectively, according to Bloomberg surveys.
If the data is in line with those expectations, or even above them, expect the volume to be turned right up by both sides in the great inflation debate : those (including many bond gurus afraid that the Fed's laisser faire policy is in danger of letting inflation get out of control (with decidedly detrimental effects on markets), and the Fed and its supporters maintaining its line that inflation rises are "transitory" and restating their intention to continue with the $120bn per month bond-purchasing programme.
Friday's softer-than-expected jobs data was a fillip for markets, but that probably won't count for much if we see strong numbers this week. Thursday could be a very big day .....
Q.2 How will eurozone outlook affect ECB policy plans ?
Also on Thursday is the latest ECB policy meeting. Now that the somewhat belated vaccination programme is boosting consumer confidence and business activity (and therefore inflation) in the EU, things are looking a lot rosier than they did at the last ECB meeting in April. Much is made of the differences between the situation and approach in the US and the Eurozone, though as we've said before the issues faced are very similar -- it's just that (so far at least) the numbers in the Eurozone are more muted (as they so often are).
ECB boss Christine Lagarde has only very recently said that it's far too early to start adjusting accommodative policies , and in contrast to the doubts raised about Fed policy in the US few are advocating any change yet. The problem highlighted by the FT is that the rates of recovery vary across the Eurozone ..... Germany is moving ahead more quickly than Italy and Spain, for example. In other words, a one-size-fits-all monetary policy may prove to be far from ideal in the relatively near future. Ah, it was ever thus !
Q.3 Will renminbi resume its ascent ?
Nice to talk some good old foreign exchange, though of course the inflationary effect of booming commodities on factory gate prices plays a role. China's Yuan/Renminbi may have taken a breather last week, but is still up 11% against the dollar over the past year. It's not hard to see why ..... China's remarkable and rapid recovery from the pandemic prompted very substantial investment inflows into China, and the resulting surge in industrial growth has been accompanied by booming exports despite the strength of the Yuan.
But authorities are concerned that a combination of high commodity prices and a strengthening currency must eventually take its toll on exports. Very interestingly, a People's Bank of China official recently published an editorial suggesting that the currency should be allowed to strengthen to find its own level. That piece was quickly deleted from official sites, so we can assume that it's not the approved stance of the authorities as a whole even if it does chime with the stated but not-always-obvious desire to tip the balance of the Chinese economy a little more towards domestic consumption rather than exports.
Chinese trade and inflation data out today and Wednesday will contribute to the PoBC's thinking on the yuan/renminbi along with everything else, but as to whether they'll make that clear to all .... well, don't bank on it.