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This week, experts are anticipating a further drop in US inflation, which could support the argument for multiple interest rate cuts by the Federal Reserve in the coming months.
According to a Reuters poll, economists are predicting a 3.1% annual consumer price inflation rate for June, down from 3.3% in May, based on data to be released by the Bureau of Labor Statistics on Thursday.
With signs of slowing job growth in the US revealed on Friday, the data may prompt the Fed to act sooner than expected on reducing borrowing costs. While markets are currently projecting two rate cuts this year, Fed officials hinted at a single cut during their June meeting.
Barclays economists, led by Pooja Sriram, stated, “June inflation outcomes along the lines of our forecasts should bolster the [Fed’s] confidence that the disinflation process is under way after a series of robust inflation readings in the first quarter.”
Despite this, core inflation, excluding food and energy prices, is expected to remain unchanged. The measure dropped to a three-year low of 3.4% in May, but analysts do not foresee further improvement in the upcoming data. Kate Duguid
Is China still grappling with deflation?
Investors will receive the latest Chinese inflation data on Wednesday, with weak inflation persisting for over a year in contrast to developed economies.
Projections indicate that China’s consumer price index will show a 0.3% year-on-year increase in June, consistent with May’s figures. Meanwhile, producer prices, influenced by commodity prices, are expected to have declined by 1%.
China has experienced negative consumer price inflation multiple times in the past year due to economic challenges, including a slowdown in real estate.
The continuous low inflation levels, which plummeted to -0.8% in January, have raised concerns about consumer demand in the world’s second-largest economy among analysts and investors.
Beijing’s upcoming Third Plenum meeting this month is expected to focus on the real estate sector, which has been struggling since late 2021 due to developer defaults and falling new home prices.
Citi analysts highlighted price levels as a factor influencing policymakers, suggesting that weak domestic demand could impact inflation and production strength. They anticipate a 0.3% CPI increase, noting that “reflationary momentum could retreat in June.”
“Online promotion events in June could also send goods prices lower,” Citi added. Thomas Hale
Will UK markets continue to rise under Labour’s new government?
Following a decisive Labour election victory, the pound and UK-focused stocks saw gains on Friday, with mid-cap equities reaching their highest level since 2022. Investors are optimistic about the markets’ potential for further growth.
These gains build on modest increases in UK assets prior to the election, with sterling being the only G10 currency to appreciate against the dollar this year. Analysts attribute this to Prime Minister Sir Keir Starmer’s focus on financial stability and planning reform.
“The UK can look forward to a period of greater political stability that could attract foreign capital back to the country,” said Chris Forgan, portfolio manager at Fidelity International. “The economy is recovering from a slowdown in 2023 and the outlook is improving.”
Expectations of improved relationships with the EU and a brighter outlook for mergers and acquisitions in the UK have also contributed to market optimism, despite fiscal constraints faced by Starmer’s government.
While sterling strength can hinder the FTSE 100 index due to its overseas earnings, policy stability and cyclical growth are seen as factors that could make UK assets more attractive, according to Dirk Steffen, chief investment officer for Emea at Deutsche Bank. Mary McDougall