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Inflation Data and Property Woes: A Look Ahead at the Week

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Markets are eagerly monitoring the possibility of rate cuts, while major central banks are resisting the pressure, creating a tug of war in the financial world. This dynamic has placed increased importance on upcoming data releases. China is grappling with its property market issues, while Italy is facing scrutiny from ratings agencies. Here is a preview of what to expect in the week ahead.

Inflation is a key concern for Federal Reserve policymakers, with doubts remaining about whether interest rates are high enough to combat rising prices. Traders who anticipate three quarter-point rate cuts next year will be closely watching Tuesday’s inflation data to confirm their outlook. The October consumer price index is expected to show a 0.1% increase on a monthly basis. September’s CPI showed a surprise surge in rental costs, but also revealed a moderation in underlying inflation pressures. A more significant cooling in inflation could fuel discussions about reaching peak rates, especially after the recent employment report indicated a slowdown in labor markets. Additionally, the threat of a federal government shutdown looms if lawmakers fail to pass a funding measure by November 17, which could raise concerns about governance in the US.

The question of who bears the burden of China’s property market troubles may be partially answered, much to the displeasure of Ping An shareholders. Beijing has reportedly asked the insurer to take control of Country Garden, China’s largest private developer. This news has caused Ping An shares to plummet to one-year lows, despite the company’s denials. Worries about the sector continue to weigh on investor sentiment. Government efforts to stabilize the economy have so far been ineffective, although China’s central bank remains confident that the 5% growth target is achievable, a view shared by the IMF. However, recent data has pointed in the opposite direction, revealing signs of slowing factories and tepid consumption. Wednesday’s release of October retail sales and industrial production data will provide further insight into whether these trends are continuing.

The robust US dollar is now showing vulnerability due to uncertainties surrounding rate cuts. Although the dollar initially rebounded after Federal Reserve Chairman Jerome Powell dismissed claims that rates have peaked, bearish sentiment towards the currency is growing as expectations of rate cuts in 2023 rise. According to a recent Reuters poll, nearly two-thirds of analysts believe the dollar is likely to trade lower by the end of the year. Long positions in the dollar are decreasing, leading some experts to predict that the dollar/yen pair could fall back to around 145-150. While rate-cut discussions have a negative impact on the dollar, a significant slowdown in the US economy could reverse this trend, as demand for the safe-haven currency may increase.

UK inflation has proven to be more persistent than in other developed economies, posing challenges for consumers, the Bank of England, and Prime Minister Rishi Sunak. Sunak vowed to halve inflation, which was over 10% at the start of 2023, by the end of the year. The October consumer price index data, set to be released on Wednesday, will reveal whether Sunak is making progress towards this goal. Although a decrease from September’s 6.7% is expected, the extent of the decline remains uncertain. This data will also contribute to the ongoing debate surrounding potential rate cuts, with Bank of England chief economist Huw Pill suggesting that mid-2024 may be the appropriate time for such measures. Other important economic indicators to watch for in the UK include the latest jobs figures, retail sales, and the producer price index.

Investors are once again concerned about the fiscal risks associated with Italy, prompting many to avoid significant exposure to the euro zone’s third-largest economy. Moody’s, which currently rates Italy just one notch above junk with a negative outlook, will review the country on November 17. Fitch’s review will follow after the market closes on Friday. A downgrade from Moody’s poses a significant risk, potentially causing the closely-watched 10-year bond yield gap between Italy and Germany to widen to 250 basis points. This could have repercussions across the euro zone. Italian stocks are currently trading at a 50% discount compared to global stocks, marking the widest gap since 1988. However, some analysts see this as a buying opportunity due to stronger balance sheets of Italian banks and the attractive valuations of certain equities.

Overall, the coming week promises to be filled with important economic data and events that will shape market sentiment. Investors will closely monitor inflation figures, rate cut expectations, the health of China’s property market, and the fiscal risks facing Italy. These developments will undoubtedly have implications for global markets and could impact various sectors across the economy.

More detail via Yahoo! Finance here… ( a )

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