Market landscape dominated by inflation and tariffs

Inflation data from the world’s three largest economies – China, the United States, and the eurozone – is expected to set the tone for global markets this week. Asia kicked off the week with the release of April figures out of Beijing, indicating that consumer price inflation in China was slightly stronger than expected, while producer deflation deepened.

Despite the positive market backdrop on Monday fueled by a potential U.S. interest rate cut in September, Wall Street hitting recent peaks, and European indexes reaching new highs, concerns were raised about the Biden administration’s plans to announce new China tariffs on strategic sectors, including electric vehicles. This news is expected to have a negative impact on market sentiment, with analysts warning of potential inflationary pressures and nerve-fraying in global government bond markets.

In addition to China’s economic data, new bank lending in China fell more than expected in April, while broad credit growth hit a record low, highlighting the sluggishness of the economic recovery and the need for further stimulus measures from Beijing.

Looking ahead, investors are eagerly awaiting the U.S. and eurozone inflation readings for April, scheduled for release later in the week. These reports are anticipated to provide insights into the future interest rate trajectory in the coming months.

Meanwhile, in Asia, attention is on India’s inflation data for April. Economists forecast a slight cooling to 4.8% from 4.9% in March, marking the lowest level since June last year. However, despite the moderation in headline inflation, elevated food prices continue to squeeze household budgets.

The Reserve Bank of India is expected to cut rates next quarter as inflation is projected to return to the bank’s 4% target. The central bank may wait for the Federal Reserve to make its move before adjusting rates to prevent further weakening of the rupee, which is currently at record lows against the dollar. Money markets place a 50-50 probability on a rate cut in the second quarter.

Key developments on Monday include India’s CPI inflation for April, Japan’s money supply data for April, and Australia’s business confidence figures for the same month.

As markets await further direction, uncertainties surrounding global trade tensions and economic recovery remain at the forefront of investors’ minds, shaping market sentiment in the days ahead.

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