World equities were firmly on track to post a fourth straight month of gains on Monday, while the dollar struggled broadly ahead of European and US data this week that will provide a clearer picture on the global economy’s recovery path.
MSCI’s broadest index of world stocks drifted 0.1% higher, putting the gauge on track for a 1.4% gain for May. It is the longest monthly rising streak for the index since August 2020, when it marked a five-month run of gains, according to Refinitiv data.
But US stock futures edged lower and European cash equities trading was subdued on Monday due to holidays in the United States and Britain, with benchmark indexes sticking to well-worn ranges.
May has proven to be a decent month for asset markets, but policymakers are increasingly faced with the dilemma that inflation is running hot while the underlying structural economy is still struggling to gain traction.
The main event of the week will be US payrolls on Friday with median forecasts at 650,000, but the outcome is uncertain following April’s unexpectedly weak 266,000 gain.
Although US inflation data last week was above estimates, another big miss on the jobs front would heap pressure on the Fed to postpone plans to wind down its stimulus.
“The question is, therefore, whether by September the Federal Reserve will be in a position to announce a tapering of its bond purchases starting next year, and the odds are quite decent though it might be delayed to December,” said Sebastien Galy, a strategist at Societe Generale.
The Fed next meets on June 16, and this week will be the last chance for members to discuss policy before a pre-meeting blackout period starts on June 5.
So far, investors have taken the Fed at its word that the labour market needs to improve a lot more before it speaks of tapering. That helped yields on US 10-year notes ease to 1.58% with Fed funds futures pricing in a first rate hike by the first quarter of 2023.
Asian shares edged higher, and in Europe indexes consolidated gains after last week’s record close ahead of manufacturing PMI data on Tuesday.
Among central banks debating inflation trends, the European Central Bank is perhaps the outlier with both policymakers and investors on the same page when it comes to expecting a return to below-target inflation, according to Ulrich Leuchtmann, head of FX and commodity research at Commerzbank.
That was evident in the bond markets too, where yields on benchmark German debt remained well below recent highs.