The week will feature inflation readings from major economies, providing clues about the interest rate trajectory of central banks.
Market focus will be on inflation readings from major economies this week, including France, Spain, Italy, the US, Canada, Australia, and Japan. Among these data, the Personal Consumption Expenditures (PCE) from the US hold the greatest significance in shaping global market trends. Additionally, the European political front remains a focus for the regional markets.
Europe
The spotlight for the euro area will be on the flash CPI from France, Spain, and Italy this week. Germany’s Ifo Business Climate Index will also shed light on the biggest economy in the region. Inflation in Spain rose for the third consecutive month to 3.6% year on year in May, due to accelerated prices in housing and utilities. On the other hand, consumer price pressure remained relatively low in both France and Italy, registering annual rates of 2.3% and 0.8% respectively. Energy prices rose again in both countries, while food and beverage prices eased. Consensus suggests that inflation in Spain may ease to 3.3% year on year in June. However, the data in France and Italy are expected to remain at elevated levels.
Additionally, business confidence continued to recover in Germany, with the Ifo Business Climate Index, an indicator of economic health, remaining steady at 89.3 in May, the same level as the reading in April and also the highest in one year. The data suggests that business expectations have improved, given the halt of rate hikes and hopes for more rate cuts by the ECB.
The first round of the French parliamentary election will take place this Sunday. Recent polls suggest that the far-right party holds a significant chance of winning, with the National Rally’s leader, Marine Le Pen, projected to win between 195 and 245 seats. A far-right win could alter the political landscape in France and even at the EU level.
The US
The key focus in the US will be on the country’s final GDP data for the first quarter and its PCE for May. The recent data showed that the US economic conditions somewhat softened and inflation is on a trajectory of retreat. The first two readings of the economic growth printed at 1.6% at an annualised pace, easing from 3.4% in the final quarter of 2023. Consumer spending weakened to 2.5%, down from 3.3%, which was the biggest dragging factor of the GDP growth.
The PCE index is considered the Fed’s favourite indicator for deciding on interest rates, making its release critical for market sentiment. In April, the reading stayed at 2.7% year on year, halting an acceleration in March. This level, however, was the highest in four months. On a positive note, US consumer prices eased slightly to 3.3% in May, and consumer spending also softened. Consensus suggests that the data may start cooling in May. Further cooling of the PCE is seen as a good sign for Wall Street, as it encourages the Fed to lower its interest rate sooner.
Asia Pacific
Australia’s monthly CPI data for May and Tokyo’s inflation reading for June are the key focus for Asia. Inflation was on an elevated trajectory in Australia, as the CPI climbed to 3.6% in April, the highest since November 2023, and it was well above the Reserve Bank of Australia’s targeted level of 2%. The RBA held the interest unchanged at a decades-high of 4.35% for the fifth time last week. Consensus forecasts that annual inflation in the country may slightly ease to 3.5% in May.
Additionally, Japan’s inflation also indicated signs of resurgence as its national CPI for May rose to 2.8% from 2.5% in April. Higher-than-expected inflation will put pressure on the Bank of Japan to address the sharp devaluation of the Japanese Yen. The bank is expected to intervene in the foreign exchange market and raise interest rates in July.