Investors left scrambling after officials at the Federal Reserve convened to discuss monetary policy last month will gain more clarity on Wednesday when minutes from that meeting are released.

The US central bank surprised market participants in mid-June when it signalled a potential policy shift in the face of higher inflationary pressures and strong growth. Its interest rate projections opened the door to two rate increases in 2023, a sharp divergence from the last forecasts in March when the so-called “dot plot” indicator of rate setters’ predictions suggested it would maintain its ultra-accommodative policy until at least 2024.

US stocks endured their worst week in nearly four months in the June meeting’s immediate aftermath. Investors have also been reassessing their conviction in a popular reflation trade that profits when longer-dated Treasuries sell off at a faster pace than their shorter-term counterparts.

Top Fed officials — including chair Jay Powell and John Williams, president of the New York branch — have sought to allay fears that early interest rate increases are being considered, stressing instead the vast uncertainty about the economic recovery and the central bank’s broader commitment to achieving full employment. The comments helped to steady markets in the weeks that followed, but investors will be paying close attention to Wednesday’s minutes for further details.

“Legitimate questions about the direction of monetary policy and the Fed’s reaction function are now front and centre in the minds of market participants,” said Vishwanath Tirupattur, a strategist at Morgan Stanley. “Considering the role of the Fed’s ultra-accommodative policy in charting the course of the markets since the onset of the Covid-19 crisis, heightened policy uncertainties have profound consequences.” Colby Smith

The brightening prospects for the European economy will grab attention in Brussels on Wednesday when the European Commission looks set to upgrade its growth forecasts for the next two years.

Ursula von der Leyen, president of the commission, last week said the region’s growth prospects were getting “better and better” and expressed confidence that by the end of next year all 27 EU countries would be “fully recovered from the [Covid-19] crisis”.

After many countries eased their lockdown measures in recent months in response to falling coronavirus infections and accelerating vaccinations, business activity and consumer confidence have bounced back.

The EU’s economic sentiment indicator — based on a monthly survey of households and companies — surged to a 21-year high in June when it was released last week. Similarly buoyant readings are expected from the Sentix and Zew surveys of investors when they are published on Monday and Tuesday respectively.

In May, the European Commission forecast the eurozone would grow 4.3 per cent this year and 4.4 per cent next year. These already look conservative compared with the European Central Bank’s own predictions in June for growth of 4.6 per cent this year and 4.7 per cent next year.

There remains a risk that the Delta variant causes coronavirus infections to surge over the summer and requires containment measures to be restored in the autumn.

However, Holger Schmieding, chief economist at Berenberg, said more lockdowns were unlikely due to the rapid progress in vaccinations. “Unless the virus throws up a major nasty surprise, the assumption that economic performance can continue to decouple on trend from the evolution of the virus seems well founded,” he added. Martin Arnold

Chinese inflation data on Friday is poised to show a continuing rise in the country’s factory gate prices, which have surged this year on a global commodity rally.

Economists forecast by Bloomberg expect the producer price index to increase by 8.7 per cent. May’s PPI data showed an 9 per cent rise, which was the fastest rate of increase since the financial crisis of 2008.

Soaring prices for raw materials have pushed the index higher, which has fuelled concerns over a potential spillover into consumer price inflation, which remains muted.

Friday’s data is expected to show CPI remains low at just 1.3 per cent, the same level as in May. The Chinese government has taken measures to crack down on high commodity prices, with the country’s top economic planning agency last week predicting that coal prices would fall on higher production and imports.

Globally, inflation fears have mounted this year on the back of stimulus spending in the US, where consumer prices in May rose 5 per cent at their fastest pace since 2008. Analysts have scrutinised the role of China in broader price pressures after it benefited from strong exports to the rest of the world during the coronavirus.

Julian Evans-Pritchard, senior China economist at Capital Economics, suggested that prices were rising “in spite of China, not because of it”.

“While dollar prices of goods from China have risen over the past year, these price hikes have generally failed to keep up with the pace of renminbi appreciation,” Evans-Pritchard said. “In renminbi terms, export prices have been falling unusually fast.” Thomas Hale