WEEKLY UPDATE-On the markets, inflation under close surveillance

WEEKLY UPDATE-On the markets, inflation under close surveillance
WEEKLY UPDATE-On the markets, inflation under close surveillance

May 24 (Reuters) – Inflation data in the United States, the euro zone and Japan will punctuate trade in the coming days, while the shortening of the settlement-delivery cycle across the Atlantic could cause some turbulence. The South African elections will also be followed by investors.

Roundup of the market outlook for the days ahead:

1/ PRICE DYNAMICS

PCE inflation, the Federal Reserve’s favorite gauge of price dynamics, will be released on May 31 and will be key to the central bank’s next monetary policy decision.

The CPI inflation released earlier this month decelerated more than expected, giving investors hope that the institution would cut rates faster than expected, and more than expected.

The minutes of the latest Fed meeting show that the central bank is confident in the continuation of the disinflation process, but that it is prepared to wait several more months before lowering its rates to restore price dynamics. to its target.

2/ LIFE AFTER JUNE

The European Central Bank (ECB) has all but committed to easing rates in June, and the institution is now looking to maintain suspense over the rest of its monetary policy trajectory.

Inflation data for May, due on May 31, could show that price dynamics remain volatile: the consensus expects inflation to be 2.5% this month, compared to 2.4% in April.

According to economists at Société Générale, the ECB will lower its rates in June and September, then pause in order to wait for the first rate cut from the Federal Reserve and to have more information on wage dynamics. The expectations of market operators appear less certain as to the date of a second decline.

“With high wage growth and a Fed pushed to wait-and-see, we expect the ECB to maintain a restrictive discourse,” write the economists.

3/ JAPAN IN THE SIGHTS

Price dynamics in Japan will be closely monitored, as investors seek to anticipate when the Bank of Japan will raise rates again, following its historic decision taken during its March meeting.

The weak yen continues to erode consumption, and inflation figures released on May 31 could add to the pressure on monetary policy makers.

On May 31, data on the Ministry of Finance’s interventions in the foreign exchange markets will also be published, as markets estimate that the government has recently supported its currency, as well as the BOJ’s bond purchase schedule. Traders will look for indications of a reduction in central bank purchases.

4/ TIME AND MONEY

The transition from the two-day to one-day settlement cycle (known as “T+1”) in the United States, Canada and Mexico is not without its problems, while trading volumes are soaring beyond -Atlantic.

Rising trading volumes raise the risk that more trades could fail, triggering a liquidity rush for non-U.S. customers, who may need to quickly borrow dollars to cover suspended trades.

The move to a T+1 settlement cycle is generally considered essential to the deepening and efficiency of financial markets. However, and with the time difference, the shift means that Asia will move to a T+0 cycle, while preparations for the change of cycle are considered inadequate.

The transition will take place on May 28 in the United States for equities, credit, municipal securities and other categories of securities.

5/ END OF REIGN FOR THE ANC?

South Africa’s parliamentary elections will be held on Wednesday, and for the first time since the end of apartheid 30 years ago, the ruling African National Congress (ANC) could lose its parliamentary majority.

If the ANC is not able to gather 50% of the votes, the party will have to expand its coalition to be able to continue to govern.

The rand and South African assets could benefit from the entry into the coalition of the Democratic Alliance, a more business-friendly party than the far-left Economic Freedom Fighters (EFF). Markets would be concerned, however, if the EFF or MK, a party recently created by former president Jacob Zuma, joined the coalition.

President Cyril Ramaphosa’s legitimacy could also be called into question internally if the ANC’s electoral performance is deemed disappointing.

(Writing by Rae Wee, Lewis Krauskopf, Naomi Rovnick, Sinead Cruise and Marc Jones, graphics by Vineet Sachdev, Pasit Kongkunakornkul, Prinz Magtulis and Sumanta Sen; compiled by Karin Strohecker, Corentin Chappron for the French version, edited by Blandine Hénault)

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