U.S. inflation seems to have little chance of hitting 2% anytime soon and Friday’s inflation figures for August are expected to show core CPI rising 0.2% month-on-month and 1.6% on a year-over-year basis.
The Fed, which is now aiming for an average has said it won’t worry about inflation running above its 2% target, which is seen as giving it room to keep interest rates low for as long as it wants.
That’s good news for stock markets, property and other sectors that benefit from cheap money.
Tech wreck looks set to continue
Last week’s stock market shakeout looks set to continue as traders return to their desks after the U.S. Labor Day holiday on Monday amid persistent concerns about high valuations and an uneven economic recovery.
Following a steep selloff on Thursday that carried over into Friday, the three major indexes regained some ground late Friday to close well off the lows of the day, though trading remained volatile.
Thursday’s sell-off already reflected investor fears that valuations for mega-cap tech stocks had overheated and these worries were exacerbated on Friday when the Financial Times reported that options trading by Japan’s Softbank had inflated these stocks.
ECB officials will have plenty to discuss at their policy meeting on Thursday after the euro hit $1.20 for the first time since 2018 and euro zone inflation turned negative in August for the first time since 2016. The slide into deflation is a red flag for the central bank, which targets annual inflation of close to, but just below 2%.
Yet it may be premature for the ECB to announce any major new steps on Thursday.
Brexit and UK GDP
Brexit talks between UK and EU negotiators are due to resume in London on Tuesday, but an imminent breakthrough seems unlikely.
Talks have stalled over Britain’s demands on fishing quotas and its desire to use state aid to build up its tech sector.
Britain left the EU on Jan. 31 but talks have so far made little headway on agreeing a new trade deal for when the transition agreement ends on Dec. 31. There is less than a month to go before the Oct. 2 deadline for a deal which would then have to be ratified at an EU summit.
China and other countries’ data
Trade figures out of China on Monday are expected to show exports rose solidly for a second straight month in August, while imports edged back into growth.
Chinese exports have not been as severely affected by the global slowdown as some analysts had feared and are set to be a key driver in the nation’s economic recovery.
Export-import and trade balance for July will be published also in the UK, France and Germany. The two countries, as well as Italy, are expected to publish their July industrial production index. Japan, Russia, the EU and the United Kingdom will release their second-quarter GDP figures.
In addition, the updated unemployment rate for August will be published in Switzerland, while in the EU the second quarter employment rate will get known. At the end of the week, the August data on the federal budget balance in the US will be released.