US and Eurozone Inflation Data Key on Tuesday
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Plenty of figures to come for data-dependent Fed this week;
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Core PCE inflation number could provide further support for summer hike;
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Fourth month of deflation to pile pressure back on ECB.
European equity markets are expected to open relatively mixed on Tuesday following a quiet start to the week as bank holidays in the UK and US hit trading volumes.
Fortunately, the week should pick up, particularly towards the back end of the week when we’ll get the latest policy decision from the ECB and the all-important jobs report from the US, the last before the June meeting. Fed officials have repeatedly claimed that a summer rate hike would be a reasonable assumption, a view that was supported as recently as Friday by Chair Janet Yellen, although as always, the decision will be data dependent. I imagine the UK’s referendum on EU membership will also be an important factor, depending on just how close the polls are come the Fed meeting.
While Friday’s jobs data will be the standout release for the US this week, this afternoon’s income, spending and inflation data is also very important. The core personal consumption expenditure price index is the Fed’s preferred measure of inflation and currently lies just below target at 1.6%. The Fed has made it clear that it expects future increases in the inflation data to be very gradual and yet, should we see it edge higher again today, it would further justify the need for a rate hike this summer.
There’s also plenty of data to come from Europe this morning, most notably the flash CPI figures for May. The euro area is expected to have remained in deflation territory for a fourth consecutive month despite the best efforts of the ECB to lift price pressures with a substantial stimulus package back in March. This obviously takes some time to filter through but another month of deflation shows just how difficult a job the central bank has on its hands. It will be interesting to see what Mario Draghi will have to say on this on Thursday and whether he anticipates another stimulus splurge in the months ahead.
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