Eyes on China, US inflation, cenbank meetings in Canada, Europe

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Traders at the New York Stock Exchange. Global markets will screen through inflation data from the world’s top two economies this week. Image Credit: AP

Dubai: Global markets will screen through inflation data from the world’s top two economies, China and the US, with central banks in Canada and Europe separately scheduled to meet this week to decide on interest rates going forward.

In the US, employment data was weaker than expected at an increase of 559,000, versus an expectation of 650,000, disappointing analysts and investors seeking hints determining the US Fed’s next move.

Canada had also released employment data, which indicated a drop of 68,000 jobs. Economists were forecasting a decline of 20,000 jobs for the month of May.

Canada, Europe central banks meet

The Bank of Canada meets this week and analysts will check if the central bank will continue its tapering path. If stronger manufacturing and elevated inflation outweigh weaker employment data, the BOC will continue tapering. However, if weaker employment is too much now, they may pause their tapering.

With the European Central Bank also meeting this week, the big question for ECB board members will be whether they should cut back on the increased bond purchases they began in March.

European manufacturing and services data were strong in May, while inflation has been moderate. The ECB has no intention of tapering, however analysts opine that they may be looking to bring purchase amounts back down to pre-March levels.

Inflation data eyed from China, US

Additionally, with increased inflation on the top of investors’ minds lately, markets are also bracing for inflation data from China as well as the US. A key demand among analysts is whether higher inflation will signal a potential tapering for the Fed.

All inflation data releases and inflation components were stronger than expected for April. In the US, some Fed officials have expressed that it may be time to begin “talking about talking about tapering”.

US inflation expectations are for the headline year-on-year figure to be 4.7 per cent, compared to 4.2 per cent in April. In addition, the core inflation rate is expected to be 3.2 per cent versus 3.0 per cent in April.

Both figures are higher than the Fed would like, but they have said they were willing to let inflation run hot, while the labour market improves.

Earnings season wrap up

There is very little in terms of earnings due out next week. So with earnings season behind us and a relatively quiet corporate activity calendar next week, investors will focus on the economy and signs that the Fed may begin to tighten its monetary policies.

The second week of the month is usually slow in terms of economic data. However, there are the previously mentioned central bank meetings, as well as the inflation data.

G7 finance ministers gathering in London agreed Saturday to back a global minimum tax of at least 15 per cent on multinational companies. The G7 group also agreed that the biggest companies should pay tax where they generate sales, and not just where they have a physical presence.

Stocks powered by meme rally

Most global equities were higher in the past week, but the meme stocks stole the limelight, which contributed to concerns about froth in the stock market.

(A meme stock is a stock that has seen an increase in volume not because of the company’s performance, but rather because of hype on social media and online forums like Reddit. GameStop and AMC are the two most notable recent examples.)

AMC Entertainment gained another 83 per cent for the week, even after declines at the end of the week.

Oil price gains fuels energy sector

In most markets worldwide, energy was the best-performing major sector, gaining more than 6.7 per cent as oil prices jumped nearly 5 per cent in the past week.

Key US benchmark, the S&P 500, which is tracked by indices worldwide, gained 0.6 per cent in the past week, rising to 4,229, just 9 points from its all-time high. The Dow was up 0.7 per cent to 34,756, and the Nasdaq gained 0.5 per cent to 13,814.