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A further decline in US inflation is expected this week, which could strengthen the case for multiple Federal Reserve interest rate cuts this year.
Economists forecast annual consumer price inflation of 3.1 percent in June, when the latest figures are released by the Bureau of Labor Statistics on Thursday, according to economists polled by Reuters, up from 3.3 percent in May.
Along with Friday’s data showing that the pace of US employment is slowing, the numbers could encourage the Fed to deliver the first reduction in borrowing costs sooner rather than later. Markets currently expect two interest rate cuts this year, with the first coming in September or November, but Fed officials suggested when they met in June that they expected to cut interest rates just once this year.
“June inflation results along the lines of our forecasts should strengthen [Fed’s] the belief that the disinflation process is underway after a series of strong inflation readings in the first quarter,” wrote Barclays economists led by Pooja Sriram. “We think that the tone of [Friday’s jobs data] will be important for [Fed’s] assessing whether the conditions necessary to support a sustainable return to the 2 percent target are in place.”
However, core inflation, which strips out the volatile food and energy sectors, is expected to be unchanged. The measure, which is closely watched by rate-setters, fell to a three-year low of 3.4 percent in May – helped by a change in methodology – but economists do not expect further progress in upcoming data. Kate Duguid
Is China still flirting with deflation?
Investors will get the latest data on Chinese inflation on Wednesday, which unlike developed economies has remained weak for more than a year.
Figures from China’s National Bureau of Statistics are expected to show that the consumer price index rose 0.3 percent year-on-year in June, the same level as in May. Producer prices, which are heavily affected by commodity prices, are expected to have fallen by 1 percent.
China’s consumer price inflation has dipped into negative territory repeatedly over the past year as a result of a challenging economic backdrop, including a slowdown in real estate.
Persistently low levels of inflation, which hit minus 0.8 percent in January, have raised concerns among analysts and investors over the strength of consumer demand in the world’s second-largest economy.
Beijing will hold a so-called Third Five-Year Plenum this month, a major event for top policymakers to decide the country’s economic direction. They are likely to focus on the real estate sector, which has suffered since the wave of developer failures in late 2021 and where new home prices are falling.
Analysts at Citi pointed to price levels as part of the economic backdrop that could shape policymakers’ thinking. “Soft domestic demand may continue to weigh on inflation and begin to erode output power,” they wrote last week.
They forecast a 0.3 percent CPI increase, noting that “reflationary momentum may recede in June.” Pork prices, which have a large impact on China’s basket of consumer goods used, rose month-on-month in June, but “they may not be enough to offset weakness in food prices others”.
“Online promotion events in June could also drive commodity prices lower,” Citi added. Thomas Hale
Will UK markets continue to rise for Labour’s first weeks in government?
The pound and domestic-focused UK shares gained on Friday, with an index of mid-cap shares hitting its highest level since 2022 as a landslide Labor election victory prompted investors to speculate that the markets may have further to go.
The moves build on modest gains for UK assets ahead of the election, with sterling the only G10 group of major currencies to have appreciated against the dollar this year, boosted by new prime minister Sir Keir Starmer’s focus on delivering financial stability and reforms . planning rules.
“The UK can look forward to a period of greater political stability that could attract foreign capital back to the country,” said Chris Forgan, portfolio manager at Fidelity International. “The economy is recovering from a slowdown in 2023 and the outlook is improving.”
Analysts said a brighter outlook for UK mergers and acquisitions, as well as expectations that the new government will be able to forge better relations with the EU, have also helped fuel optimism in the Kingdom’s markets. United, despite the tight fiscal constraints Starmer has inherited.
Unlike mid-cap stocks, sterling strength could be a headwind for the FTSE 100 index, due to the overseas earnings of its constituents.
However, after a dismal period for UK stock performance in recent years relative to US and European markets, Dirk Steffen, chief investment officer for Emea at Deutsche Bank, said policy stability and cyclical growth “will ‘make UK assets worth another look’. Mary McDougall