Five in focus: more drama on the horizon

LONDON, May 19 (Reuters) – Investors will not suffer from a lack of events, macro data and drama in the markets in the coming days.

Debate over the ceiling is underway in Washington, voters in Greece are going to the polls, and data from the US, China and Europe could show how quickly inflation and economic growth are falling.

Below is an overview of the most important events for the markets in the coming week:

1/ THE CLOCK IS TICKING

The April Personal Expenditure Index (PCE), the Fed’s preferred indicator of inflation, will be released on Friday and could allow investors to gauge whether the US central bank can halt the rate hike cycle that many on Wall Street expect.

In March, the index rose by 0.1%, showing the weakest month since July last year. As the rate fell below 5% y/y in April, hopes for passing the peak of key rates increased.

Minutes from the last Fed meeting published on Wednesday may provide more clues as to whether a pause in monetary tightening is imminent.

In addition, the markets are waiting for June 1 – the day when the US government, if the debt limit is not raised, may declare the state insolvent. There are positive signs that an agreement will be reached, but any information indicating that negotiations have broken down may put pressure on the markets.

2/ DELIGHTFUL

Sentiment towards China is shifting as sluggish consumer demand undermines the post-pandemic recovery markets had hoped to offset the downturn in the US and Europe.

The yuan is at a five-and-a-half-month low, and Citi’s China economic surprise index hit its lowest level since January. Expectations for stimulus — monetary, fiscal or both — are rising. Those expectations will be put to the test on Monday when China’s central bank sets its key interest rate.

On Friday, Tokyo is due to release its consumer price data, which is weeks ahead of the nationwide release. Traders have all but given up on the BOJ’s hawkish rebound in June, but too much data could force markets to brace for a nasty surprise.

The Central Bank of New Zealand will meet on Wednesday. In his case, investor expectations for a half-percentage-point rate hike rose after a more expansive budget than economists had predicted.

3/ PMI TEFLON

When it comes to stocks, good stats can be bad news.

Regarded as a real-time indicator of business conditions, the S&P Global Composite Purchasing Managers Index for the United States is up for its fifth month. If activity continues to pick up in the next review, which will be released on May 23 with PMIs from other countries, investors preparing for a recession may be disappointed.

Tech stocks, which make up a large proportion of Wall Street’s indices, do well when the economy is weak – due to investors’ expectations that the Fed will cut interest rates and the appetite for riskier assets of companies whose business plans include early-stage innovation.

In Europe, the picture is mixed. Higher-than-expected PMIs could be positive for equities in the region. But the Stoxx Europe 600 index, which has jumped 10% since the beginning of the year, was also supported by fears of a recession in the US, forcing investors to shift some of their funds to the old continent’s stock exchanges.

4/ DEAD STAR

Sterling is the best performer of all major currencies against the dollar this year, thanks in part to expectations that the Bank of England will raise interest rates from the current 4.5%.

However, the luster of the pound could dim if the April inflation figures, due to be released on Wednesday, show prices falling.

UK inflation stood at 10.1% in March – more than any other Western European country. However, since then there have been some signs of a slowdown in price pressures, with the UK unemployment rate rising to 3.9%. And although the annual increase in wages in March amounted to 5.8 percent, the number of people who changed jobs decreased even more.

Some economists believe that wage growth will continue to slow, indicating that rates in the UK are likely to have peaked, and with it the strength of the pound.

5/ TO THE ELECTIONS

Hot on the heels of neighboring Turkey, Greece will hold elections on Sunday. New Democracy, the party of Prime Minister Kyriakos Mitsotakis, is leading in the polls, but it is possible that the elections will not reveal a winner due to the introduction of a new voting system.

While forming a coalition or a second round of voting in July is likely, Mitsotakis hopes to run for another term to continue reforms and spur economic growth. Markets are optimistic: Greek stocks and bonds continue to outperform their competitors.

The election is seen by many as the final step towards Greece regaining its investment-grade credit rating, more than a decade after it was downgraded to junk.

Former Prime Minister Alexis Tsipras’ Syriza party, which once ran into conflict with Greece’s creditors and then softened its stance, is second in the polls. Syriza promises to increase spending, including wage increases, reversal of labor market reforms, nationalization of utilities and one major bank – ideas that could disrupt the market.

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(Dara Ranasinghe featuring Kevin Buckland in Tokyo, Lewis Krauskopf in New York, Naomi Rovnik in London and Yoruk Bahceli in Amsterdam, translated by Tomasz Kanik)