Day ahead of key economic events in the US on Thursday

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A look at day ahead from Dhara Ranasinghe. The recent calm on financial markets will be put to the test on Thursday with the release of US inflation numbers and a meeting of the European Central Bank.

The May CPI data is probably one of the most significant inflation readings in recent years, possibly showing whether the rise in prices is temporary or the beginning of something more sustained.

It could have consequences if the Federal Reserve starts to tighten its bond-buying stimulus or get rid of it altogether.

Economists from Reuters forecast U.S. headline inflation in May are 4.7% year-on-year on average, from 4.2% in April.

A stronger number could end the ebbing U.S. Treasury markets' tone, where inflation fears have driven yields below 1.5%, the lowest in a month. Breakeven rates, essentially where markets see future inflation, have also fallen sharply back.

The European borrowing costs have also fallen in their wake, but now they face their own test in the form of a ECB meeting.

The bank is all but certain to maintain a generous flow of stimulus to stop higher borrowing costs from smothering the nascent economic recovery. Still, any signs that the ECB is mulling further abreast of the pace of creating emergency bond purchases could renew upward pressure on yields

Finally, it's the eve of the G 7 heads-of state meeting and British Prime Minister Boris Johnson is to meet Biden later on Thursday; some expect Biden to wade in with a warning on the Brexit front amid a brewing Brexit dispute between Britain and Northern Ireland.

Also the stocks are treading water ahead of these events. Dollar is near five-month lows. Traders may be watching more stock shenanigans unfold after a fresh set of small companies led to share crashes on Wednesday.

Key developments that should provide more direction to markets on Thursday:

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