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The financial markets are poised for a bustling week ahead, featuring the Eurozone’s flash CPI, the Fed’s interest rate decision, and the US non-farm payroll report. The Eurozone’s inflation figures will shape the European Central Bank’s interest rate outlook, while the Fed’s commentary on monetary policy holds significance for the global market’s direction. Moreover, earnings season continues with reports from HSBC, Amazon, and Apple, providing insights into the health of international firms.

Europe

This week, all eyes in the market will be on the estimated April Consumer Price Index (CPI) for the EU. This data is expected to offer valuable insights into the region’s inflation trajectory, thereby influencing the European Central Bank’s (ECB) interest rate decision. In March, inflation eased to a four-month low of 2.4%, prompting speculation that the central bank might initiate a rate cut as early as June this year. However, recent global inflation trends have seen a resurgence, driven by escalating commodity prices. Market consensus anticipates that the Eurozone’s headline CPI will remain steady at 2.4% in April, while the core CPI, excluding food and energy, is projected to marginally decrease to 2.8% from 2.9% in the previous month. This data could reinforce expectations of a rate cut in June and exert downward pressure on the Eurodollar against the US dollar, especially amid a relatively hawkish stance from the Federal Reserve. Nonetheless, the prospect of subdued inflation and ongoing rate-cut speculations may continue to buoy the European stock markets.

Additionally, this week will see major member countries of the EU, including Spain, Italy, France, and Germany, unveiling their preliminary first-quarter GDP figures. Among these nations, Germany has displayed the weakest growth, contrasting with Spain’s notable resilience. Germany’s economy stagnated in 2023, experiencing a negative GDP growth of 0.3% in the final quarter. The country has revised down its GDP forecast for 2024, now expecting growth of only 0.2% for the year, a decrease from the previous estimate of 1.3%. Factors such as the unstable global economic environment, diminished Chinese demand, and high-interest rates are expected to continue influencing economic performance. In contrast, Spain’s GDP expanded by 2.5% in 2023, and the International Monetary Fund (IMF) has raised its growth forecast for the country to 1.9% from 1.5% for 2024. Despite global challenges, Spain’s economy has demonstrated resilience, supported by robust domestic demand and improving employment conditions.

On the earnings front, investors will closely monitor HSBC’s first-quarter earnings results and Glencore’s first-quarter production report. European stock markets have demonstrated greater resilience compared to their US counterparts, largely attributed to the robust performance of banking and mining stocks. The forthcoming reports from HSBC and Glencore will offer valuable insights into the performance of these pivotal sectors, providing investors with a clearer understanding of their trajectory and potential impact on the broader market.

The US

The Fed’s interest rate decision is a pivotal event for the global market as it is seen as a leading indicator for other central banks’ rate path. Given sticky inflation in the past two months, the Fed reiterated “higher-for-longer” rates earlier this month. According to the CME Fed Watch Tool, market expectations have shifted, with projections now suggesting only one rate cut in 2024, down from the previously anticipated three cuts. The Fed held on to the interest rate at the decades-high of between 5.25% and 5.5% for the fifth consecutive time in March. While there are no expectations for the Fed to adjust interest rates at the upcoming meeting, a hawkish tone could potentially dampen recent gains in the US market, while a dovish stance could have the opposite effect. Investors will be closely monitoring the Fed’s commentary for clues regarding its future policy direction and its implications for market sentiment.

Another significant economic indicator to watch will be the April non-farm payroll data, given that employment is one of the key mandates guiding the Fed’s policy decisions, alongside inflation. In March, the US labour market exhibited tightness, with the unemployment rate decreasing to 3.8% from 3.9% in the previous month. A market nearing full employment typically contributes to persistent inflationary pressures by bolstering consumer spending. This data will provide crucial insights into the health of the labour market and its potential implications for inflation and monetary policy.

Furthermore, Apple and Amazon will mark the final major tech companies to report earnings before Nvidia’s results in late May. Apple recently slipped behind Microsoft, relinquishing its position as the largest market capitalisation company, partly due to perceived shortcomings in AI development. However, tempered expectations could pave the way for a potential upside surprise in its quarterly performance. Investors will be keenly observing these earnings releases for insights into the ongoing performance and future prospects of these tech giants.

Asia

In the past week, the Chinese stock market exhibited strong performance, with the benchmark index, the Hang Seng Index, surging nearly 9%. This week, all eyes will be on China’s manufacturing and services purchasing managers’ Index (PMIs), as they carry significant implications for global commodity prices. The expansion of manufacturing activities in March marked a notable turning point, indicating enhanced economic growth in the world’s second-largest economy. These PMI figures will be closely monitored for further insights into China’s economic trajectory and their potential impact on global markets.

Additionally, Australia’s retail sales data and New Zealand’s employment figures will take centre stage in their respective economies.