Next week (May 30 to June 3), the market will usher in the baptism of heavy U.S. inflation and employment data, euro zone inflation and the ECB interest rate resolution. The former will become the latest clues for investors about how far the Fed will be from next rate hike. The latter also provides the market with the latest evidence of whether the ECB will remain easing for the rest of the year.
First of all, the inflation indicator favored by the Federal Reserve, the personal consumption expenditure (PCE) price index will be released next Tuesday (May 31), and the index is expected to rise 0.2% from the previous month in April.
The U.S. non-farm employment report released next Friday (June 3) will be the highlight of next week, after some members of the U.S. Federal Open Market Committee (FOMC) hinted that the Fed could raise interest rates as early as June if the U.S. economy recovers from a weak first quarter.
Analysts expect the number of non-farm jobs in the United States to increase by 170,000 in May, slightly higher than in April, with an average hourly wage expected to increase by 0.2% from the previous month.
Analysts at the Dutch International Bank said in a report that "the increase in non-farm jobs is higher than 160,000 last month, it should provide FOMC with sufficient reasons for raising interest rates. In addition, if wage growth is unexpected, it may make some people more confident that interest rates will be raised in June," Fed Chairman Yellen said on Friday that if the economic situation can maintain the status quo, a rate hike will be "appropriate." Analysis pointed out that Yellen's statement "everyone was surprised", and the market did not think that Yellen would discuss policy in this speech.
However, analysts say that the Fed raises interest rates, may bring shock waves to the world as the global economy is slowing, emerging markets remain fragile, and the results of the Brexit referendum on June 23 are unclear.
The above-mentioned Dutch International Bank analyst list pointed out, "In short, FOMC is not in a hurry, and may wait until the risks related to the Brexit referendum in July have subsided before taking action."
According to data from the Chicago Mercantile Exchange (CME), the U.S. federal funds rate futures have a foothold trend that suggests that the possibility of the Federal Reserve raising interest rates in June is 26%, and the possibility of action on the meeting from July 26 to 27 is 56%.
But some analysts pointed out that the rising expectations of interest rate hikes may ultimately go against their expectations, as they are tightening financial situations caused by rising USD and Treasury yields (yield rate).
This may harm emerging economies. Many businesses there borrowed dollar debt, lowering prices of some commodities and facing the risk of re-reflecting market turmoil caused by the Fed's interest rate hike in December.
Analysts at Deutsche Bank said, "The appreciation of the US dollar may increase the pressure on the RMB and lower commodity prices, thus reappearing important pressure factors that led to a sharp tightening of the financial situation earlier this year. If this view is correct, then the Fed's room for further interest rate hikes will be smaller." The
market shows that the US dollar index is expected to hit its best monthly performance since November last year, and the US dollar index has risen 2.91% in May.
In addition, there will also be concerning data and events in the eurozone next week, including the release of inflation and lending data earlier next week. The European Central Bank will also hold a policy meeting and announce an interest rate resolution on Thursday.
Reuters analysis pointed out that the ECB's resolution is expected to keep interest rates unchanged next week and reiterated its focus on implementing the stimulus measures announced in March. Previous resolutions stated that the purchase of corporate bonds and the new round of targeted long-term refinancing operations (TLTRO) for bankers are scheduled to be launched in June.
Societe Generale analyst Anatoli Annenkov said, "Given that the corporate bond purchase plan and TLTRO II have not yet started and overall inflation is expected to rise, the ECB is not in a hurry to introduce any new measures."
With the help of a rebound in oil prices, the ECB may be able to rarely raise some of its inflation forecasts for the next two years to win respite the policies it has launched. However, despite oil prices rebounding and lending activity continues to rebound slightly, inflation is expected to remain negative in May.
As inflation rates may still be below the ECB's nearly 2% target by the end of 2018, some analysts continue to bet on the ECB's further action by the end of the year.
JPMorgan analyst Greg Fuzesi said, "We suspect that the European Bank may tolerate to a certain extent (letting the timetable for achieving inflation targets). But we also believe that the inflation forecast for 2018 will pave the way for the final easing policy, which may be announced in September."
According to a previous survey released by Reuters, about three-fifths of the analysts surveyed believe that the European Central Bank will not be easing again this year, and the vast majority of analysts pointed out that the European Bank should not list "helicopter money" as one of the candidates for policy.
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