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A look at the day ahead in U.S. and global markets

By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets

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Wall Street and world stock markets have cleared the first-quarter corporate earnings season comfortably enough to be back stalking record highs, but macro markets don’t want to budge much further until they see this week’s U.S. inflation update.

Wednesday’s U.S. consumer price report sucks much of the oxygen out of the early part of the markets week – critical as it is in revealing whether disinflation has resumed after a sticky Q1, and at least enough to keep Federal Reserve easing expectations this year in the frame.

For what it’s worth, consensus forecasts for the April print see monthly core CPI gains slowing to a 0.3% pace from 0.4% in March – dragging the annual rate down to 3.6% from 3.8%. The headline rate is expected to slip back to 3.4% from 3.5%.

A trader works on the floor of the New York Stock Exchange (NYSE) following a Fed rate announcement, in New York City, U.S., July 27, 2022. REUTERS/Brendan McDermid

The New York Fed’s survey of inflation expectations for last month gets released later on Monday to give color to the picture in advance – and provide a reality check to the uptick in the equivalent University of Michigan poll that ruffled feathers on Wall Street on Friday.

Despite the bumpier U.S. CPI readings through the first quarter, one-year ahead inflation expectations in the NY Fed survey stayed constant at 3% through the first three months of the year. The University of Michigan’s 1-year outlook, however, jumped to 3.5% this month from 3.2% in April – even as consumer sentiment fell sharply.

Also unusual compared to recent months is that the CPI data is released after the April producer price report, which is due out Tuesday. The core annual PPI rate is expected to be steady at 2.4%.

And whatever heat is left in U.S. inflation, it’s certainly not there in China. Although CPI rose above forecast there last month, it is still running at only 0.3% year-on-year while producer price deflation continues at an annual 2.5%.

With new bank lending in China falling more than expected in April, and broad credit growth hitting a record low, pressure for more stimulus to support the economy remains intense.

China’s finance ministry said it will this week start the long-awaited sales of 1 trillion yuan ($138.23 billion) of long-term treasury bonds, proceeds from which Beijing hopes to use to help spur key sectors.

Beginning on Friday, Reuters sources said there will be 300 billion yuan worth of 20-year bonds, 600 billion yuan worth of 30-year bonds and 100 billion yuan worth of 50-year bonds sold.

For Chinese stocks, however, geopolitics is never far from the headlines. Even though Hong Kong stocks rose again on Monday, mainland shares were more subdued as new energy vehicle shares  lost 2.2% following Friday’s news that U.S. President Joe Biden’s planned new China tariffs would including a major hike in levies on electric vehicles.

 World stocks were flat more generally, with Tokyo off a touch as a slightly weaker yen mostly held the line.