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HIGH ALERT

A shopper wearing a protective mask shops in a Walmart store on May 18, 2021 in Hallandale Beach, Florida.

Joe Raedle/Getty Images

A critical view into inflation comes with Thursday’s May U.S. consumer price index.

It is shaping up as one of the most watched numbers for some time after consumer prices jumped by the most in nearly 12 years in April and a debate rages over whether a pick-up in price pressures is fleeting or more sustained.

The reading is also one of the last key pieces of economic data before the Federal Reserve’s June 15-16 meeting.

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The Fed’s Randal Quarles believes a recent jump in inflation will prove transitory. Another strong inflation print that lifts Treasury yields could pressure valuations on tech and other growth stocks.

MADE IN CHINA

Containers are seen at Phases I and II of the Yantian International Container Terminal (YICT) in the southern Chinese city of Shenzhen on Nov. 25, 2008.

Bobby Yip/Reuters

Trade data from around the Pacific should show goods going west from Japan, China and South Korea, and money flowing east, from North America. Updates from the United States, Germany and Britain are also on the calendar.

The focus on the U.S.-China figures has shifted from “trade war” scoreboard back on fundamentals.

Currency markets will watch the trade data closely for signs that China’s huge surplus is moderating, which could stall the runaway yuan. The currency hit a three-year high versus the dollar in May, triggering a flurry of jawboning from policymakers.

Meanwhile Chinese producer price data on Wednesday will indicate how much inflation is exported as factories start to pass on higher raw material costs to customers.

ECB BALANCING ACT

The headquarters of the European Central Bank (ECB) is pictured on Jan. 23.

DANIEL ROLAND/AFP/Getty Images

The ECB meets Thursday. It has to find a balance between the need to support the euro zone recovery through emergency stimulus and accepting a brighter outlook means its PEPP scheme may not be needed for much longer.

Dovish comments suggest the ECB will continue buying bonds at close to the current pace. This view has pushed sovereign bonds yields down from May’s multi-month highs, the euro is steady, having risen since April.

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A modest slowdown in purchases is not ruled out, especially as the quiet summer period approaches. And any signs from ECB chief Christine Lagarde that the taper debate is underway will end the calm in bond markets.

TALKING TAX IN CORNWALL

A G7 logo is seen on an information sign near the Carbis Bay hotel resort, where an in-person G7 summit of global leaders is due to take place in June, St Ives, Cornwall, southwest Britain May 24.

TOBY MELVILLE/Reuters

Leaders of the G7 economies are set to meet in the English seaside county of Cornwall, their first face-to-face encounter since COVID-19 struck and the first for U.S. President Joe Biden.

The summit will be a major test of whether cooperation between Washington and the rest of the world has improved since Donald Trump’s departure, not least as Biden pushes for agreement on a crucial global tax deal.

Finance ministers meet first on Friday and Saturday in London. Hopes of a breakthrough were boosted after British finance minister Rishi Sunak said a U.S. proposal to focus on the world’s 100 biggest firms as part of a tax deal could work.

But considerable detail remains to be agreed. The summit will test the G7′s ability to prove it can work together on complex topics such as increasing taxes on multinationals enjoying a business boom during the pandemic.

ELECTION FEVER

German Chancellor Angela Merkel, left, talks to North Rhine-Westphalia's State Premier and candidate as leader of the Christian Democratic Union (CDU) Armin Laschet as they arrive to the 22nd German-French Ministerial Council videoconference at the Chancellery in Berlin on May 31.

MICHAEL SOHN/AFP/Getty Images

Germany’s ruling Christian Democrats face a key election test before September’s federal election.

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Chancellor Angela Merkel’s would-be successor, Armin Laschet, desperately needs his party to win Sunday’s regional vote in Saxony-Anhalt to fend off doubts about his ability to deliver success in September.

Laschet’s party is neck-to-neck with the surging Greens in national polls, both holding around a quarter of the vote.

The left-leaning Greens, meanwhile, kick off their party conference on June 11 and will formally declare Annalena Baerbock their first ever chancellor candidate. Less of a formality will be finalising the ecologist party’s election manifesto - a guide on what might lie ahead for policy in Europe’s largest economy.

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