Take Five: Push and pull

(Reuters) – Key jobs figures in the United States, Chinese business activity data and European inflation readings are giving more evidence on the pull and push factors impacting the world’s top economies as the debt ceiling saga in Washington rumbles on.

In Turkey, voters head to the polls to decide on their next president and tech investors are on the hunt for undervalued opportunities in an over-valued space.

Here’s a look at the week ahead in markets from Kevin Buckland in Tokyo, Lewis Krauskopf in New York, Dhara Ranasinghe, Naomi Rovnick and Karin Strohecker in London.

1/JOBS IN FOCUS

    Will U.S. jobs data out on June 2 show that the world’s top economy is strong enough to avoid a recession but not so hot that it forces another hawkish move by the Federal Reserve?

    Non-farm payrolls for May are expected to record job growth of 180,000, according a Reuters poll. In April, U.S. job growth accelerated to add 253,000 with wage gains increasing solidly.

    The jobs report will be one of the last pieces of data before the June Fed meeting, where the central bank is expected to hit pause on its aggressive 14-month-old rate hiking cycle to tamp down inflation.

Meanwhile, the clock is ticking down on the U.S. government hitting its $31.4 trillion debt ceiling, with the federal government potentially running out of money to pay all its bills as soon as June 1.

2/ECB 1, MARKETS 0

At its meeting three weeks ago, the ECB reiterated that it was very much in rate-hiking mode to tame inflation. Markets, not convinced, dialled back bets for further increases and focused on weakening growth. Germany just entered recession.

Yet, it is traders that – for now – have had to rethink their view. Thursday’s flash May euro zone inflation number and a slew of national data in the days ahead will likely stoke the peak rate debate. Euro zone business activity remains resilient, core inflation is sticky above 5% and wage pressures are picking up.

HSBC expects the ECB’s key rate to peak at 4% from a current 3.25%. Data on Wednesday meanwhile showed UK inflation eased by less than in April, sending gilt yields rocketing. Traders know that they, like central bankers and economists, don’t always get it right.

3/CHINA’S LOTTERY HOPES

    It’s China’s turn for PMI report cards – and there’s little reason to expect any turnaround in the ailing economy. From inflation figures to retail sales, recent data has without fail painted a dreary picture of lackluster domestic demand.

    It seems the only thing the Chinese consumer wants is lottery tickets, with sales soaring to a decade high, staking their fortunes on luck rather than policy makers.

    There is optimism in the interbank repo market, though, where record activity is a sure sign that traders expect central bank stimulus soon.

    Of course, burst hopes of a post-COVID boom aren’t the only reason for caution: the tit-for-tat tech export spat with the U.S. continues to ramp up, while the Asian giant keeps sidling closer to Russia, provoking much discomfort in the West.

4/VERDICT ON ERDONOMICS

On Sunday, Turks will choose their next president in a fiercely contested race that pitches President Tayyip Erdogan – seeking to extend his two decade rule – against opposition candidate Kemal Kilicdaroglu.

Erdogan is expected to have the edge after a strong first round showing, and his party’s coalition has already won a majority in parliament. Within his government, however, there is disagreement and uncertainty over whether to stick with what some call an unsustainable economic programme or to abandon it, insiders say.

But whoever rides to victory faces the tough task of steering an economy marred by high inflation and an ever sliding lira into steadier waters after years of unorthodox monetary policy.

5/AI MANIA

Artificial Intelligence is having a moment. Shares in AI chipmaker Nvidia (NASDAQ:) soared some 25% in a single day after issuing bullish revenue forecasts.

The technology took centre stage when Microsoft-backed Open AI unleashed its essay-writing bot ChatGPT last November. Industry insiders forecast huge progress in the competence of this so-called generative AI, while regulators and politicians fret about AI stealing jobs, or spreading misinformation.

For investors, it raises a whole other sort of questions: Will AI cause long-term deflation? Will it create new jobs and new industries? And how will it make money?

Stocks linked to AI are surging but all the tech’s ramifications are far from certain yet. Remember the dotcom bubble?

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