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Amid European Central Bank (ECB) President Lagarde’s hints on a June rate cut, the European stock markets continued to refresh their all-time highs with the Euro Stoxx 50 Index hitting above 4,900 and DAX topping 17,800 for the first time in history. 

The movement also mirrored a continuous record-breaking momentum on Wall Street after Chair of the US Federal Reserve (Fed) Jerome Powell signalled to lower the interest rates sometime this year.

The trajectory for the global market indicates a decline in government bond yields, reflecting expectations that central banks will initiate a rate-cut cycle in the second half of the year. Consequently, the US dollar is currently trending downward, propelling gold prices to consistently reach new highs. 

This trend is accompanied by a eurodollar-led rally of G-10 currencies against the greenback. The question that arises is: is the bullish trend sustainable?

This week, our focus remains on crucial events and economic data from major global economies as we seek insights into the market trajectory. Two significant economic events are capturing the market’s attention: the Eurogroup meetings and the release of the US Consumer Price Index (CPI) for February. 

These events are expected to provide guidance on the economic development of EU members and influence the outlook for US interest rates.

Additionally, the UK is scheduled to disclose its employment data for February, offering valuable information on the labour market, while Japan’s third-quarter GDP figures will serve as a gauge for the potential rate hike by the Bank of Japan in March or April.

Eurozone

While Eurogroup meetings do not impact financial markets directly, the event will take centre stage for the region as it offers a platform for finance ministers from the EU member countries to deliberate on key economic issues and policies. This collaborative effort is crucial for fostering financial stability and sustainable growth across the eurozone.

In the January meeting, Eurogroup president Paschal Donohoe anticipated the euro area economy to grow around 1% in 2024 despite economic headwinds and the war in Ukraine. However, the European Central Bank lowered its forecast for regional economic growth and inflation for 2024, revising the GDP growth from 0.8% to 0.6% and inflation from 2.7% to 2.3% for the current year, as announced last week. 

That is likely to prompt further supportive fiscal policies to prevent the regional economy from slipping into stagnation. The group is expected to deliberate on measures aimed at supporting small and medium-sized businesses. Additionally, attention may remain on the energy sector and labour markets during these discussions.

Other noteworthy economic data to keep an eye on includes the eurozone’s industrial production for January, German CPI and French CPI for February, Italian Q4 unemployment rate, and retail sales for February. This data will provide valuable insights into various aspects of the Eurozone’s economic landscape.

The US

Some of the most significant US economic data is scheduled to be released this week, especially its February Consumer Price Index (CPI). Inflation hit 3.1% year on year in January, higher than the expected 2.9%, following a re-elevation to 3.4% in December. 

Signs of comeback inflation have dimmed hopes for the Fed to commence a rate cut in March. But this may not hold up the Fed for long as market indicators suggest a June rate cut, according to the CME Fed Watch Tool. 

Consensus sees inflation to stay sticky at 3.1% in February, which may cap the recent market gains. Wall Street’s bullish momentum showed exhaustion after data showed the jobless rate rose to a two-year high last Friday. 

The Fed’s policy meeting on March 20 is eagerly awaited, offering expectations for clearer signals on the commencement of a rate cut cycle. In addition to inflation, the country is poised to announce its Producer Price Index and retail sales for February.

The UK

The UK’s benchmark index, the FSTE 100, is underperforming its EU and US peers on a year-to-date performance. Recent data shows the country fell into a technical recession in the final quarter of last year, experiencing a negative GDP growth of 0.3%, following a drop of 0.1% in the third quarter. 

The monthly GDP figure for January is therefore especially important to gauge its economic trajectory. In addition to this, the country is slated to release employment change and earnings growth data for February, which play a key role in shaping its inflation outlook. 

Notably, wage growth has been on a declining trend since August, alleviating inflationary pressures in the country. 

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The Bank of England in February maintained the interest rate for the fourth consecutive time and hinted at the possibility of a rate cut later this year. The bank’s projections anticipate inflation dropping below 2% as early as May, with wage growth forecasted at 4.9% over the next 12 months, a significant reduction from the previous month’s 5.8%.

Japan

In Asia, the focus for the APAC region is on Japan’s final fourth-quarter GDP data. The country’s preliminary GDP release in February indicated a recession as it experienced a 0.1% month-on-month contraction in the economy, following a 0.8% decline in the third quarter. 

Last week, data revealed a larger-than-expected wage growth of 2% in January, putting upward pressure on inflation. With reduced spending power and negative GDP growth, there is growing expectation that the BOJ might contemplate moving away from its current ultra-loose monetary policy.