Investors trying to gauge the inflation threat will keep a close eye on Thursday’s U.S. consumer price data, amid concerns that rising inflation could prompt the Federal Reserve to begin pulling back on stimulus. Markets will also be monitoring the progress of President Joe Biden’s proposed $1.7 trillion infrastructure plan, which has already boosted the industrials and materials sectors this year. The European Central Bank is to meet on Thursday and may discuss tapering stimulus. The UK is to release monthly GDP figures amid growing doubts about pushing ahead with the final step of the government’s reopening plan. Here’s what you need to know to start your week.
U.S. Inflation Threat:
All eyes will be on the latest CPI data on Thursday, after a much stronger than expected inflation number sparked a selloff last month, as many worried rising price pressures could force the Fed to begin unwinding stimulus soon.
Friday’s jobs report indicated that while jobs growth picked up from the previous month wage growth also accelerated. This could bolster the argument that higher inflation may persist rather than being transitory, as is currently viewed by the Fed.
The inflation reading is one of the last major pieces of economic data ahead of the next Fed meeting on June 15-16 and Fed officials will be in their traditional blackout period during the coming week ahead of that meeting.
The economic calendar also features Thursday’s figures on initial jobless claims, which fell below 400,000 in last week’s release for the first time since the start of the pandemic.
The Biden Infrastructure Deal
Market participants will be closely following negotiations between Democrats and Republicans in Washington over President Joe Biden’s proposed $1.7 trillion infrastructure deal.
Transportation Secretary Pete Buttigieg had said the White House sees Monday – when Congress returns from a one-week break – as a critical date to see progress in talks.
Expectations of government spending on infrastructure have already boosted value stocks this year, particularly the industrials and materials sectors, which have both gained around 20% since the start of the year, against a 12.5% gain for the S&P 500.
Biden previously offered to not raise the corporate tax rate and in effect reverse the 2017 Trump tax cuts, which Republicans called a red line in negotiations.
The ECB Dilemma
The ECB meets on Thursday and will release its updated growth forecasts for 2021 and 2022.
Policymakers will debate whether to prolong their support for the euro zone recovery through emergency stimulus, a decision that will hinge on how strong they believe the region’s economic recovery is.
Recent dovish comments by several ECB policymakers have highlighted the risks of premature tightening. Any indication from ECB head Christine Lagarde that the debate on tapering is getting underway could push euro zone bond yields still higher and undermine the economic recovery in the bloc.
“Given the still-fragile state of the economy, we think the ECB will maintain the level of asset purchases at its upcoming June policy meeting”.
UK Economy GDP
With the planned full reopening of the UK economy on June 21 looking increasingly doubtful investors will be paying close attention to Friday’s figures on monthly GDP growth.
While the reopening of shops and the hospitality sector in April is unsurprisingly expected to have contributed to another solid monthly increase in growth, the recovery is likely to face its first real test over coming weeks as concerns surrounding the new ‘delta’ Covid-19 variant (first detected in India) grow.
The latest estimates indicate that it may be 50% more transmissible than the previous dominant strain, which means that hospitalizations could rise rapidly among unvaccinated groups.
While 50% of the population is now fully vaccinated there is likely to be a move to delay the planned reopening to allow for more vaccine coverage.
Bitcoin Falls Amid China Crypto Clampdown Concerns
Bitcoin falls as traders fret over a further tightening of China’s regulation on cryptocurrencies.
Bitcoin drops 7.6% to $32,905, having earlier reached a near three-week low of $32,115, according to FactSet.
“The major price support stands at the $30K level, and a slide below this handle could run into stops and accelerate the sell-off in the short run,” Swissquote Bank analyst Ipek Ozkardeskaya says.
China blocked a number of cryptocurrency related accounts on the Twitter-like Weibo platform over the weekend as part of its efforts to crack down on trading and mining of the digital currencies.