Week Ahead – Wall Street Believes Inflation Will be Transitory

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Treasury yields are stuck in no man’s land as Wall Street now agrees with the Fed that inflation will be transitory. The underlying components of inflation look temporary and that has financial markets looking complacent. The economic recovery will warrant Fed tapering closer to the end of the year, but for now we wait and see how big the deficit gets and how quick the labor market recovery is and if wage pressures continue to grow.

The upcoming week is filled with a wide range of market moving events. US and UK markets are closed on Monday, but that won’t stop the OECD from presenting its latest Economic Outlook. Tuesday’s trifecta of events include the OPEC+ meeting on output, an RBA rate decision, and the US ISM manufacturing reading. Wednesday is quiet with the release of Eurozone PPI and the Fed’s Beige Book. Thursday is all about the final PMI readings across Europe and the US.

The main event appears to be the US May Unemployment Report on Friday. The US is expected to see 650,000 jobs created with the unemployment rate to decline to a still-elevated 5.9%. Fed Chair Powell will also speak on climate change at the Green Swan panel discussion. Lastly, cryptocurrency traders will keep a close eye on the Bitcoin 2021 conference in Miami.

Country

US

With US markets closed on Monday, the rest of the week is jam-packed with critical updates over the manufacturing and service sectors, the final durable goods orders reading, and the latest nonfarm payroll report. Fed watchers will pay close attention to Quarles and Brainard on Tuesday. The next day the focus shifts to the Fed’s Harker, who will speak on the outlook, Evans, Bostic, and Kaplan will also take part in a panel, and the Fed will release its Beige Book. On Thursday, Bostic, Harker, and Quarles all make appearances at separate events. Lastly, on Friday Fed Chair Powell takes part in the BIS panel on Climate, while Treasury Secretary Yellen participates in the G-7 summit.

Wall Street will fixate on the May employment report, which is expected to show 663,000 jobs created, and possibly an upward revision to last month’s disappointing 266,000 print. The consensus range for May hiring is between 335,000 and 925,000. Any miss with the jobs number would accentuate the labor supply problem and draw more pressure for states to end extra pandemic unemployment benefits. If wages surprise to the upside that could get the bond market going.

The ISM manufacturing report is also expected to show overall economic expansion remained steady. Traders might focus on prices paid which surged last time.

EU

On Monday, Germany releases consumer inflation for May. CPI is expected to rise to 2.3%. ECB Governing Council member Ignazio Visco delivers the annual Bank of Italy address.

On Wednesday, ECB President Lagarde delivers remarks at the Green Swan Conference. Also, the ECB will publish a report on the international role of the euro.

On Thursday the EU’s top court, the European Court of Justice, will hand down a binding ruling over Hungary’s challenge of the EU Parliament’s decision to open its Article 7 procedure for allegedly undermining the rule of law. Technically, the ruling could lead to the suspension of Hungary’s EU voting rights.

Sweden

The Riksbank’s Governor Ingves discusses payments, monetary policy and financial stability at the Swedish Economics Association annual meeting.

UK

UK markets will be closed for the Spring Bank holiday on Monday. The UK releases Manufacturing PMI for May on Tuesday, which is expected to remain unchanged at 66.1. This points to strong growth in manufacturing.

On Tuesday, BOE Governor Andrew Bailey speaks at Reuters Global Responsible Business 2021 conference. The opening address will be delivered by Prince Charles.

UK Chancellor Sunak will host G-7 summit next week.