1 / HEADINGS OF FED-FLATION
Markets will listen carefully to what the Federal Reserve will have to say about inflation at the end of its two-day meeting on Wednesday, amid concerns that trillions of fiscal stimulus will drive a surge in consumer prices.
After years of very low inflation, a variety of metrics, including the Fed’s preferred personal consumption expenditure (PCE) price index, are on the rise. The PCE rose 3.8% in the 12 months through May, its biggest jump in three decades.
The Fed insists that the gains in consumer prices will be temporary and that it has the tools to combat rising inflation. Signs that policymakers may be looking for a more sustained rise in consumer prices could lead to fears of a demise of easy money policies earlier than expected and hurt stocks.
-ANALYSIS-Employment-inflation compensation, exiled from Fed policy, could mean a hot summer
Chart: Inflation Heats Up: https://fingfx.thomsonreuters.com/gfx/mkt/oakpebxjbvr/Pasted%20image%201623270566916.png
2 / DEBUT DEBUT
The EU will issue its first bond under the € 800 billion post-pandemic recovery fund, possibly in a few days.
The joint issuance of bonds may not do for Europe what Secretary of the Treasury Alexander Hamilton did in 1790 for the newly formed United States: create a fiscal union. There are no plans to make the fund permanent.
However, do not underestimate the importance: the EU will become one of the world’s largest issuers with € 80 billion in bonds for the recovery fund sold this year. And the arrival of large, liquid bonds will not be lost either to investors or to the ECB, which can buy debt for strong stimulus.
-As the EU prepares the debut recovery bond, a reality check on hopes for “safe assets” Chart: 2021 emission targets: https://graphics.reuters.com/GLOBAL-MARKETS/dgkvlnarbvb /chart.png
3 / UNLEVERAGING, AGAIN
China reports industrial production and retail sales data for May on Wednesday. Both are expected to be below April figures, although they will provide a new insight into the economic outlook for the world’s second largest economy.
So far, domestic consumption remains moderate. Exports were overcompensated this year, but that’s starting to change as the rest of the world opens up and spends less on Chinese manufactured goods.
Recent data shows that Beijing is back in the deleveraging campaign it abandoned last year when the pandemic hit, which means subtle measures to curb the rise of the yuan, limited and targeted fiscal spending, heavy scrutiny in property sectors and local government and measures to cool the uncontrolled prices of raw materials. .
China’s highest producer inflation in over 12 years highlights global price pressures
Chart: China Rates and Inflation: https://fingfx.thomsonreuters.com/gfx/mkt/xlbpgxlqbvq/Pasted%20image%201616060929088.png
4 / TOGETHER
High-level meetings in the coming days will keep geopolitical issues boiling over and the Turkish and Russian markets on edge.
On Monday (NASDAQ :), the NATO summit will begin in Brussels, including a first face-to-face meeting between US President Joe Biden and his Turkish counterpart Tayyip Erdogan. On the agenda are Syria, Afghanistan and “significant differences,” according to a senior US official, with Ankara and Washington at odds on a number of issues.
On Wednesday, Biden will face Russian President Vladimir Putin in Geneva for what promises to be heated talks with bitter disputes over election interference, cyberattacks, human rights and Ukraine.
-Biden and Putin will meet in an 18th century Swiss villa for the summit
Chart: The rising cost of geopolitics: https://fingfx.thomsonreuters.com/gfx/mkt/azgpooyyzpd/Russia%20Turkey%20CDS.PNG
5 / GROWTH WITHOUT FLIGHT
Is the recently aggressive Reserve Bank of New Zealand about to beat its growth forecast for the first quarter? GDP lands on Thursday and the central bank believes it will be negative, which will put the country back into a technical recession.
Partial indicators, however, say that this may not be the case. While the absence of foreign tourists will be deeply felt, domestic consumption has been robust and prices for staples, especially milk and wood, have moved favorably.
A heartbeat may not mean sustainable strength, but a surprise in the headlines would suggest an economy on a firmer footing than the RBNZ appreciates, adding pressure to normalize policy even faster than last month’s aggressive schedule.
-New Zealand Manufacturing Sales Increase in Q1 Chart: New Zealand’s economy is ready to grow: https://fingfx.thomsonreuters.com/gfx/mkt/nmopaebmqpa/Pasted%20image%201623314971746.png