WATCH: Animal spirits

Markets will be on tenterhooks ahead of the US consumer price report on Friday, especially after EU inflation shocked many with a record high last week.

Forecasts are for a steep rise of 0.7% in May, though the annual pace is seen holding at 8.3%, while core inflation is seen slowing a little to 5.9%. A high number would only add to expectations of aggressive tightening by the Federal Reserve, with markets already priced for half-point hikes in June and July, and almost 200 basis points by the end of the year. Some analysts thought Friday’s upbeat payrolls report suggested the Fed was on track for a soft landing though.

The European Central Bank meets on Thursday and president Christine Lagarde is considered certain to confirm an end to bond buying this month and a first rate hike in July, though the jury is out on whether that will be 25 or 50 basis points. Money markets are priced for 125 bps of hikes by year-end, and 100 bps as soon as October.

We’ve got first quarter GDP out tomorrow and in commodity markets wheat futures jumped 4% after Russia struck Ukraine’s capital Kyiv with missiles, dampening hopes for progress in peace talks. Oil prices got an added lift after Saudi Arabia set higher prices for shipments to Asia, while investors are wagering supply increases planned by oil cartel Opec will not be enough to meet demand especially as China is easing its lockdowns. Brent added 97c on Monday to reach $120.69 a barrel.

Let’s find out what the animal spirits are telling us with Chris Holdsworth, chief investment strategist at Investec Wealth and Investment.

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