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Inflation takes centre stage as investors brace for data

This week, the spotlight will be on inflation, particularly in Australia and the United States, while the performance of the Chinese economy in June will also be closely monitored.

Amidst mid-month activity surveys indicating slowing growth across major economies, inflation concerns have become a top priority for investors, fueled by recent half-percent rate hikes in Britain and Norway and warnings of further increases elsewhere.

In Australia, two key inflation readings are eagerly awaited. The monthly measure of consumer prices for May will be released on Wednesday, along with May’s early retail sales figures from the Australian Bureau of Statistics.

Economists forecast a headline rate of 6.0%, with expectations that the reading, excluding the impact of the fuel excise cut, will dip below 6%. The anticipated decline is attributed to a significant fall in petrol prices this year and the removal of the 0.7% rise in May 2022 from the comparative base.

Should the inflation reading disappoint, the likelihood of a rate rise next month will increase, potentially paving the way for a half-percent hike. Additional economic data to be released includes May quarter job vacancy figures, which are expected to show a fourth consecutive decline, suggesting a cooling job market.

Furthermore, May retail sales are anticipated to rise by just 0.1%, adding to evidence of a consumer slowdown.

In the US, the focus remains on inflation, particularly with the release of the Federal Reserve’s favoured measure, the personal consumption expenditures deflator (PCE deflator), as part of the Personal Income and Spending data on Thursday. The reading is projected to remain unchanged at 4.7% on a core basis, which closely aligns with the Fed’s monitoring.

Market participants will also closely monitor two speeches by Federal Reserve Chair Jay Powell later in the week, following his comments to Congress last week that increased the likelihood of further rate hikes by the US central bank and other central banks worldwide.

On the corporate front, 14 companies are set to report earnings on Wall Street, including Carnival, Micron Technology, Bed Bath & Beyond (currently in bankruptcy), Nike, and Constellation Brands. Additionally, Thursday will see the release of the third and final GDP estimate for the US economy in the March quarter. The second estimate revealed an annual rise of 1.3%, following a 2.6% gain in the final quarter of 2022.

In China, industrial profit data up until May will be released on Wednesday, and the government’s purchasing managers’ indexes for June are scheduled for Friday. Despite a series of rate cuts at the end of June, it is unlikely that these measures were sufficient to boost factory and services sector activity significantly.

Japan will unveil employment and industrial production data for May on Friday, while Europe will release early readings on inflation and employment for June on the same day. These data releases will provide further insights into the economic landscape and serve as vital indicators for investors worldwide.