3 Things You Need to Know This Week | US Inflation, Global Trade, ECB Meeting

Transcript

Meg Leiken:

Hello and welcome to the Three Things You Need to Know This Week- our regular series designed to help you sift through the noise across financial media and understand what really matters for markets. To stay up-to-date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. And with that, here are three things you need to know this week.

First, US inflation.

On Wednesday, the Bureau of Labor Statistics releases May consumer price index—or CPI—data. This marks the third full month of inflation data since the onset of the Iran conflict, and many investors will be watching closely for signs that the war is pushing consumer prices higher. Last month's report showed headline inflation rose to 3.8% year-over-year, the highest reading since May 2023. The increase was largely driven by fuel prices, but other categories like shelter rose as well. We appreciate many families are feeling the pain of increased prices, paying more for essentials like gas and groceries stings, particularly if you're on a fixed income. It's understandable so many are worried about higher inflation ahead. But we don't believe conditions that fueled the last bout of serious inflation appear to be in place today. What drove inflation in 2022 was a sharp surge in pandemic-era stimulus and money supply combined with unprecedented supply constraints. That combination created the classic recipe of too much money chasing too few goods. Today, money supply growth looks historically normal. Without that key ingredient, we think fears of sustained inflation are likely overstated. Wednesday's report will get plenty of attention but we'd encourage investors to keep the broader context in mind.

Next, a global trade update.

This week, the US, UK and China all release updated trade data. While much of the attention will be fixed on Washington, we'd like to highlight a quieter story unfolding beyond US borders, one that suggests trade ties outside the US are stronger than many assume. As we noted in a recent MarketMinder article, the prevailing narrative treats trade deficits as a problem and tariffs as the fix. Yet actual trade flows tell a much more nuanced story. Global trade outside the US has grown robustly since the start of 2025 as many nations have worked to strengthen their trade relationships with one another. Consider a few recent examples. China and Canada reached a deal reducing tariffs on Chinese electric vehicle imports. The European Union finalized a major agreement with India. And the UK rolled back a range of tariffs before striking its own trade deal with India. With more agreements anticipated throughout 2026, it appears cooperation may be part of the world's response to US tariff policy. This is also a reminder of why global diversification matters. Non-US developed and emerging markets represent a meaningful share of global equity opportunities. When investors focus only on US headlines, they risk a broader and more encouraging picture, one where growing trade ties quietly support the bull markets foundation. So as tariff debates continue to dominate the news cycle, try not to view the world through a narrow lens. The strengthening of trade relationships outside the US may be an underappreciated positive for global stocks.

Finally, the European Central Bank policy meeting.

On Wednesday, investors turn their attention to the European Central Bank—or ECB —as policymakers meet to set interest rates. The ECB has held rates steady since June of last year. But that's expected to change. Analysts now anticipate the ECB will raise its key interest rate at this meeting. If they do raise rates, it would be the first rate hike in nearly three years. Resurgent inflation is seen as the main driver. Eurozone inflation rose to 3.2% in May, the fourth consecutive monthly increase and the highest readings since September 2023. Much of that pickup ties back to energy prices linked to the ongoing conflict in the Middle East. To us, the ECB and several other major central banks look like they're fighting the last battle. Policymakers seem haunted by 2022, when inflation in the eurozone spiked to 10.6% year over year following Russia's invasion of Ukraine. But that episode wasn't really about oil. As we mentioned before, 2022's hot inflation was about the lagging effect of massive stimulus and money supply growth during the pandemic. Absent a similar surge in money supply, higher energy prices typically push households and businesses to substitute and adapt rather than fuel broad-based inflation. That's why we think a rate hike here addresses a problem monetary policy actually can't solve. Rate hikes can't reopen the Strait of Hormuz or shield gas infrastructure from disruptions. Markets are already adjusting through rerouted shipping lanes, alternative pipelines and ease shipping restrictions. For long-term investors, the bigger risk worth watching is whether central banks overtighten and invert the yield curve. We're not there yet, and bond markets appear to be pricing this in appropriately.

And that's it for this episode of the Three Things You Need to Know this Week.

For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit FisherInvestments.com. Thanks for tuning in and don't forget to hit Like and Subscribe.