Important Week for Markets: Fed Interest Rates, ECB and BOJ Meetings, and China Data

Investing.com – This is expected to be a very important week for the markets – the Federal Reserve may on Wednesday halt its 15-month interest rate hike campaign, which is very likely but contingent on Tuesday’s US inflation reading. The European Central Bank and Bank of Japan will also hold their monetary policy meetings, while data from China may boost expectations of economic stimulus.

The Fed is tipped to keep interest rates unchanged at the close of its two-day monetary policy meeting through Wednesday, as investors focus their attention on the “dot chart”, which outlines policymakers’ expectations for continued tightening in the future.

Several Fed officials noted that the pause should not be taken as a sign that interest rates have already peaked, but rather that markets expect another 25bp hike in July before a similar cut by December.

Recent economic data paints a mixed picture of the US economy. inflation Moderate but still well above the central bank’s 2% target, while the economy added much more than expected 339,000 jobs in May even as wage growth slowed.

The Fed is also watching the impact of banking turmoil on the economy, and believes that tougher lending standards could help rein in inflation, reducing the need for aggressive monetary tightening.

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The Federal Reserve will have the latest report on US inflation when it begins its meetings on Tuesday.

Core consumer prices are expected to have increased by 0.3% on a monthly basis after increasing by 0.4% in April. Core inflation, which excludes volatile food and fuel costs, is expected to have risen 0.4% m/m.

Market participants will be watching the inflation report closely for signs that the Fed’s rate hike policy continues to cool inflation without hurting growth too hard.

The economic calendar on Wednesday also includes producer price inflation data for May, followed by retail sales figures for May along with the weekly report on Initial Jobless Claims on Thursday.

3. Stock market

US stocks defied fears slackthe banking crisis, and soaring yields that have risen by 20% from their lowest levels in October – one of the definitions of a bull market.

A 20% rally from bear market lows has in the past heralded further stock gains.

A rally in major stocks, a better-than-expected earnings season, and expectations the Federal Reserve is about to end its rate-hiking cycle have supported US stocks this year so far, despite concerns about a possible recession and persistent inflation.

“We’re seeing signs that the economy will be more resilient to headwinds,” Tim Murray, a capital market analyst in the multi-asset division of T Row Price, told Reuters. “There is reason to believe that the pessimism we saw at the beginning of the year is giving way to a stronger than expected market,” he added.

4. Central bank meetings

Coming a day after Fed meetings end, the European Central Bank is likely to buck its US counterpart as markets prepare for another quarter-point rate hike, with a similar hike expected to follow in July.

The European Central Bank set the pace to raise interest rates to 25 basis points at its meeting in May after a series of hikes starting from 75 and 50 basis points.

European Central Bank President Christine Lagarde said last Monday that it is too early to announce that the peak of core inflation has been reached, and that interest rates need to be raised again.

Inflation in the region is currently 6.1%, still more than three times the European Central Bank’s target of 2%, but down from a peak of 10.6% in October last year.

Meanwhile, the Bank of Japan is widely expected not to make any changes to monetary policy at its meeting on Friday after newly appointed Governor Kazuo Ueda indicated that the ultra-easy policy will remain in place until wage gains and inflation become stable and sustainable.

5. China data

China will publish May data on new home prices, unemployment, industrial production and retail sales on Thursday, after the latest data indicated that the post-Covid economic recovery is running out of steam.

Shares of real estate development companies rose in recent sessions amid speculation of a new real estate support package.

Last week’s data showed a big drop in China’s exports in May, however, it hardly caused a pullback in the market, as investors bet the weak reading boosts stimulus.

— Reuters contributed to this report