Will inflation in the eurozone reach an all-time high?
Will eurozone inflation accelerate to a new high?
Eurozone inflation has been on the rise for 10 straight months and most economists believe it still has to move forward. Annual growth in consumer prices is expected to accelerate in May, hitting its highest point since the single currency was created in 1999.
The fallout from Russia’s invasion of Ukraine has sent energy and commodity prices soaring, further disrupting the global supply chain, while the lifting of Covid-19 restrictions boosted demand across Europe. All this pushed inflation higher.
Economists polled by Reuters on average expected the harmonized index of consumer prices for the euro zone to rise 7.7 percent in the year to May, when Eurostat publishes the figures on Tuesday. This will rise from the record set in April, which amounted to 7.4 percent.
The rise in inflation, which is expected to reach a new 40-year high in Germany at 8 per cent, as well as rises in France, Spain and Italy when national data are released on Monday and Tuesday, have prompted policymakers to promise something is imminent. Response.
Christine Lagarde, the head of the European Central Bank, said last week she was on track to raise the deposit rate from 0.5 per cent to at least zero by September after an “unprecedented combination of shocks” pushed inflation well above its 2 per cent target. .
Economists at Goldman Sachs recently predicted that the European Central Bank would raise interest rates by a quarter of a percentage point at each of its eight policy meetings between July and June, raising the deposit rate to 1.5 percent.
“While a sharp slowdown in growth or persistent sovereign pressures could lead to a slower policy normalization, more visible signs of larger inflationary effects may require a faster exit,” they said. Martin Arnold
Can a strong jobs report reignite pressure on the Fed to raise interest rates aggressively?
Signs of weakness in US economic data released this week have prompted investors to lower their expectations of how aggressively the Federal Reserve will raise interest rates this year. But another hot work report can quickly invalidate the move.
The Labor Department is expected to announce on Friday that the US economy added 318,000 jobs in May, a slight slowdown from 428,000 the previous month, according to a FactSet survey of economists. Meanwhile, the unemployment rate is expected to fall to its lowest level since February 2020. What’s more, employment expectations for three of the previous four months were well below the reported figure.
Evidence of continued upward pressure on wages could ignite inflation fears that were just beginning to subside: market gauges of inflation eased in recent weeks, and consumer price growth slowed in April.
The strong report could also help reassure the Federal Reserve that the US economy is strong enough to withstand further sharp rate hikes. Bets on the Federal Reserve’s key interest rate by December 2022 fell from 2.8 percent to 2.6 percent this week after the Census Bureau reported that new home sales fell nearly 17 percent in April, and Standard & Poor’s PMI data shows A slowdown in the growth rate of business activity. The Federal Reserve’s key interest rate is currently set in a range of 0.75 percent to 1 percent. Kate Dugwid
How much rebalancing flows raise global stocks?
The FTSE All World broad index fell 7 percent for May at its worst point this month, as concerns about economic growth spread across global trading desks. The big rally at the end of last week erased those losses.
Upbeat midweek earnings released from major US retailers such as Macy’s, Dollar Tree and Dollar General helped ease concerns that US consumers, the backbone of the world’s largest economy, are putting their wallets away in light of fiery price growth. On Friday, a report showing US consumer spending rose more than expected in April helped reinforce that argument.
It’s a good story, but at the same time, there may also be technical factors driving recent gains in global stocks. The big drop in stocks earlier this month meant that funds that target specific allocations to their portfolios — such as 60 percent of stocks, and 40 percent of bond funds — have been phased out. This means that managers would have had to buy shares at the end of this month to rebalance their portfolios.
JPMorgan analyst Nikolaos Panigerzoglu noted earlier in May that “rebalancing” has been a topic of conversation with clients recently.
He noted that, “Given that a large part of the decline occurred in May, we expect to see significant inflows by both the monthly rebalancing funds by the end of this month and by the quarterly rebalancing of funds at the end of the quarter.”
The bank estimates that balanced mutual funds will have purchased between $34 billion and $56 billion of shares before the end of the month on Tuesday. Share buyback activity in US companies has also seen a “rise” in recent weeks, according to the bank, while CEOs appear to be taking advantage of the decline to buy their own company shares. Adam Samson