Next week is jam packed with inflation data from across the globe. Economies are certainly still pretty solid with the recent PMI data backing this up. Strong labour markets and still-elevated wages remain, which puts core and services inflation firmly in the spotlight over the next few days. The highlight will be the US Core PCE data, which is the Fed’s favoured price gauge and has been inching lower.
The most recent CPI finally came in below expectations in the US, although recent commentary by Fed officials suggests they are mostly sticking to the “higher for longer” interest rates narrative. Rate cut bets have been trimmed again, with the first move currently seen in September, with odds of this happening around 60%. Softer retail sales and recent benign earnings growth could see a cooler set of data. That could weigh on the dollar, which turned down after four straight days of gains this week, while also hitting the 50-day SMA just below 105 on the dollar index.
Eurozone inflation may not move the market dial that much as a June ECB rate cut is virtually fully priced in. But a hotter print, with energy prices providing an upside risk to the headline, would be uncomfortable for policymakers. That is also down to the stronger than expected wage growth data that came out last Thursday and was a critical focus for the bank. Euro bulls need to conquer 1.0870/94 for more upside towards 1.0950.
CPI data is also released in Australia and Japan. The latter is seeing the disinflation theme continue with a contracting economy putting BoJ officials under pressure. That is because markets still see a high chance of around 75% that rate setters will deliver another 10bps hike in July. Markets will also have one eye on USD/JPY as it gradually edges higher closer to 158 and “yentervention” alert. Meanwhile, hot price pressures in Australia could add to rate hike bets, even though the RBA recently maintained its neutral stance. The aussie is back to the midpoint of this year’ high to low just above 0.66.
