Data Is Key

The data is critical for markets attempting to gauge the likelihood of interest rate movements.

This highlights Tokyo's CPI index, a widely followed U.S. inflation indicator, and early June data from many euro zone nations.

There's a lot going on, including central bank meetings in developing economies and the lead-up to elections in France and Britain.

Although the much-needed fall in U.S. inflation has been elusive, investors remain optimistic—possibly even more so than the Fed policymakers who only see one rate drop this year.

The personal consumption expenditures (PCE) price index, the primary inflation indicator, is expected to reveal if the trend towards decreasing inflation is sustained on Friday.

However, there are grounds for some concern.

Expectations have not always been met by recent PCE levels. The latest, released on May 31, revealed that U.S. inflation surprisingly followed a sideways path in April.

Any belief that rate cuts are imminent might be undermined by another reading of this kind on June 28. The markets are holding out for nearly two rate decreases this year, in contrast to the Fed.

Across the globe, a rate increase in July is still possible, according to the Bank of Japan. The markets are not persuaded and give a quarter-point gain less than a one-in-three chance.

The BOJ's previous announcement that it will also discuss quantitative tightening next month is a major factor in this. One reason is that taking on too much at once may cause the bond markets to tremble.

Naturally, the BOJ is dependent on data just like everyone else. Furthermore, there isn't exactly pressure to tighten based on the facts to date. A major concern is the weakness of consumer spending, as demand-driven inflation has decreased for nine consecutive months.

The future outlook will be clarified by a few important macro indicators in the following days, including the Tokyo CPI one day later and retail sales data scheduled on Thursday. On Monday, the BOJ also makes public the minutes of its June meeting.

Over in Europe, Friday saw the trickle-down of June inflation statistics for the euro zone, showing flash prints for France, Italy, and Spain.

On July 2, speculators will be able to determine how many times the European Central Bank will cut rates this year based on the tone established by the data.

The European Central Bank (ECB) lowered interest rates on June 6, but it is unclear how many more would be implemented given the country's persistently high salaries and inflation.

By the end of the year, traders anticipate one more reduction and a roughly 64% likelihood of a second, down from over 80% prior to the June meeting.

Any positive surprise would be seen with disapproval by investors who are already dealing with new political unpredictability following the announcement on June 30 by French President Emmanuel Macron of a first-round election.

(Sources: investing.com, reuters.com)