Morning Bid: Inflation expectations

By Thomson Reuters May 27, 2024 | 11:34 PM

A look at the day ahead in European and global markets from Tom Westbrook

The European Central Bank publishes inflation expectation surveys on Tuesday, which along with policymaker speeches are the highlight of an otherwise quiet calendar.

Easing forecasts would reinforce market bets on a rate cut next week, which is priced at a 92% probability.

French central bank governor Francois Villeroy de Galhau gave succour to expectations of more cuts, remarking to a German newspaper that policymakers should keep freedom on the timing and pace of future moves.

Traders main focus this week is on U.S., European and Japanese inflation statistics due on Friday.

Sterling and the New Zealand dollar touched two-month highs as they poked towards the top of recent ranges, while Japanese officials have resumed verbal warnings about the yen’s weakness as the currency drifts back towards multi-decade lows.

Traders suspect Japan sold in the vicinity of $60 billion to defend the yen late in April and early in May and data due on Friday should reveal the scale of dollar selling in more detail.

Japanese corporate services prices rose at their fastest pace since early 2015 in April, data showed on Tuesday, an encouraging sign for sustainable inflation in Japan.

Australian retail sales crept higher in April, another sign that miserly household spending will add little to economic growth and may open the door to rate cuts.

U.S. markets return from a holiday on Tuesday and move to a shortened settlement cycle, with market participants and regulators on watch for any difficulties. Some dealers say it may draw Asian investors into early-morning currency trade.

Key developments that could influence markets on Tuesday:

Economics: ECB inflation expectations survey

Speeches: Fed’s Mester, ECB’s Schnabel and Knot

(By Tom Westbrook; Editing by Christopher Cushing)