Week Ahead: Global price pressures generally seen slowing

This week is jam packed with inflation data from across the globe. Economies appear to be improving with the recent PMI data backing this up. Strong labour markets and still-elevated wages remain too, which puts core and services inflation firmly in the spotlight over the next few days. The highlight will be the US Core PCE data, which is the Fed’s favoured price gauge and has been inching lower.

 The most recent CPI data finally came in below expectations in the US, although recent commentary by Fed officials suggests they are mostly sticking to the “higher for longer” interest rates narrative. Rate cut bets have been trimmed again, with the first FOMC move currently seen in September, with odds of this happening around 60%. Recent softer retail sales and benign earnings growth could see a cooler set of PCE data. That could weigh on the dollar, which turned down on Friday after four straight days of gains last week, while also hitting resistance at the 50-day SMA just below 105 on the dollar index.

Eurozone inflation may not move the market dial that much as a June ECB rate cut is virtually fully priced in. But a hotter print, with energy prices providing an upside risk to the headline, would be uncomfortable for policymakers. Last week’s stronger than expected wage growth data published last Thursday was a critical focus for the bank. Euro bulls need to conquer 1.0870/94 for more upside towards 1.0950.

CPI data is also released in Australia and Japan. The latter is seeing the disinflation theme continue with a contracting economy putting BoJ officials under pressure. That is because markets still see a high chance of around 75% that rate setters will deliver another 10bps hike in July. Markets will also have one eye on USD/JPY as it gradually edges higher closer to 158 and “yentervention” alert. Meanwhile, hot price pressures in Australia could add to rate hike bets, even though the RBA recently maintained its neutral stance. The aussie is back to the midpoint of this year’s high to low just above 0.66.

In Brief: major data releases of the week

Monday, 27 May 2024

– German Business IFO Survey: This gauge of business activity in the eurozone’s biggest economy is expected to tick higher to 90.0 from 89.4 in April. The virtually nailed on June ECB rate cut is helping to underpin recovery in economic confidence.   

Wednesday, 29 May 2024

–  Australia CPI: Consensus sees April inflation printing at 3.3%, a modest decline from the prior 3.5%. Economists say that electricity prices represent an upside risk to prices, with the end of energy rebates. 

Friday, 31 May 2024,

– Tokyo CPI: This data acts as a forerunner to the national figures, which slowed further in April to 1.6%, though in line with consensus expectations. An uptick above 2% is predicted. 

– Eurozone CPI: Expectations are for the headline reading to tick one-tenth higher to 2.5% in May. Wage growth data recently came in hotter than expected. However, policymakers are viewing that as a one-off. Core CPI is seen steady at 2.7%.

– US Core PCE: The key core reading is forecast to remain at 0.3% m/m and 2.8% y/y. Components of PPI data that feed into the PCE were not as strong as the headline made out. There is currently very little chance of a rate cut this side of the summer.