Global Markets Steady Ahead of Key Inflation Data, Anticipating Potential Rate Cuts

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LONDON,- World shares firmed on Monday as investors prepared for a significant week of inflation data that could prompt a European rate cut as early as next week and signal a potential easing of U.S. monetary policy in the coming months.

With markets in Britain and the United States closed for holidays, trading volumes were thin ahead of Friday’s core personal consumption expenditures (PCE) report, the Federal Reserve’s preferred inflation gauge.

MSCI’s broadest index of global stocks edged up 0.2%, recovering from a 0.38% decline last week and hovering near its record high of over 796 points.

“The pathway to the Federal Reserve’s 2% target appears longer and more arduous than anticipated last year,” said Bruno Schneller, managing director at Erlen Capital Management. Median forecasts suggest the PCE price index for April will rise by 0.3%, maintaining the annual pace at 2.8%, according to a Reuters poll, though risks remain on the downside.

“The U.S. economic recovery is uneven,” Schneller told Reuters, noting that while the manufacturing sector shows signs of slowing, services remain resilient. “This complex scenario likely delays any potential rate cuts to late 2024 or beyond, requiring continuous monitoring of incoming data to gauge the appropriate timing and pace of monetary policy adjustments.”

In the euro zone, inflation figures due Friday are expected to show a rise to 2.5%, which economists believe will not deter the European Central Bank (ECB) from easing policy next week. Policymakers Piero Cipollone and Fabio Panetta indicated over the weekend that a rate cut is forthcoming, with markets pricing in an 88% chance of an easing to 3.75% on June 6. Societe Generale analysts noted that by Thursday, the ECB will enter a quiet period before its June 6 meeting.

The Bank of Canada might also ease its policy next week, while the Federal Reserve is anticipated to hold off until September for its first move. At least eight Fed officials are scheduled to speak this week, including two appearances by the influential New York Fed President, John Williams.

On Monday, the head of the Bank of Japan (BOJ) stated that the BOJ would proceed cautiously with its inflation-targeting frameworks, acknowledging the unique challenges Japan faces after years of ultra-easy monetary policy. The BOJ holds its policy meeting on June 14, with a slim chance it may increase rates modestly to 0.15%.

European Markets Cautious

European stocks remained subdued on Monday with several major markets closed and investors cautiously awaiting this week’s inflation data. The pan-European STOXX 600 index (.STOXX) rose 0.2% by 1228 GMT. With U.S. and UK markets closed, trading activity was light.

S&P 500 and Nasdaq futures held steady, with U.S. markets set to reopen on Tuesday. Last week, the Nasdaq hit record highs after Nvidia (NVDA.O) surpassed expectations.

Currency and Commodities Update

In currency markets, focus remained on the yen amid concerns over potential Japanese intervention if the dollar approached the 160.00 level. The dollar stood at 156.84 yen, close to its recent peak of 160.245. Japan reiterated its stance against excessive yen depreciation during a G7 finance leaders’ meeting over the weekend.

The euro stabilized at $1.0850, below its recent high of $1.0895. Gold rose about 0.6% to $2,348 an ounce, recovering from a 3.4% drop last week and below its all-time high of $2,449.89.

Oil prices remained near four-month lows due to demand concerns as the U.S. driving season begins. Investors await the outcome of the OPEC+ online meeting on June 2, though analysts doubt there will be consensus on new output cuts. Brent crude was up 55 cents at $82.67 a barrel, while U.S. crude rose 55 cents to $78.27 per barrel.