Read on for Michael Cramer's weekly market forecast, or watch the video above for RRG Research's analysis of the major stock indexes.
Here are Michael Kramer's top three market events to watch in the coming week.
In the US, markets will be closed on Monday, May 27 for Memorial Day, marking a holiday-shortened trading week. Nothing much is expected to happen in the first half of the week, so the holiday comes at a good time. All the excitement will be fuelled by Salesforce's announcement on Wednesday. [NYSE: CRM] First-quarter earnings are due to be released, and then on Friday we could see some market-moving inflation data, including the latest reading of the euro zone consumer price index (CPI) and the US personal consumption expenditures (PCE) price index.
Salesforce First Quarter Results
Wednesday, May 29: Salesforce is expected to report first-quarter revenue of $9.1 billion, up 10.9% year over year, and profits of $2.38 per share, up 40.6% year over year. Adjusted gross margins are expected to improve to 79.5% from 74.2% in the year-ago quarter. For the second quarter, analysts expect revenue to grow 8.7% to $9.3 billion and profits to rise 13.3% to $2.40 per share, while second-quarter adjusted gross margins are expected to be 79.8%.
Despite these solid fundamentals, shares of the Dow Jones-listed software company have risen 9% year-to-date to close just below $280 but have yet to close above resistance at $317, a level that dates back to a high in November 2021. After a strong start to the year, the stock has been in a short-term downtrend since hitting a 52-week high of $318.72 on March 1.
This downtrend and the $268 support level set last December appear to be forming a descending triangle pattern (bearish formation) as shown in the technical chart below. If this pattern continues, the next stop for this stock could be around $250 as the Relative Strength Index has been trending downward since late November. The 50-day moving average is also declining. However, if the stock can break above the 50-day moving average after the release of first quarter earnings, it could potentially gap up to around $295.
Salesforce Stock Price, 2022
Source: TradingView, Michael Kramer
US April PCE Inflation Rate
Friday, May 31: An update on the US PCE price index, reportedly the Federal Reserve's preferred measure of inflation, will be important. Even if the April data turns out as expected, it won't be a good read. Headline PCE is expected to grow 0.3% m/m and 2.7% y/y, both unchanged from March. Meanwhile, core PCE, which excludes volatile food and fuel prices, is expected to grow 0.3% m/m and 2.8% y/y, also unchanged from March.
A better-than-expected reading would signal continued inflationary pressures and could make it more difficult for the Fed to cut rates in the coming months, so policymakers are likely to expect core PCE to come in below expectations, especially on a monthly basis, rather than an upward revision from the previous month.
The US 2-year Treasury yield has returned to the 4.95% range over the past week after a big drop last week. The PCE reading could determine the future course of the 2-year Treasury. A lower than expected reading could make the Fed's path to rate cuts clearer, but a reading in line with expectations, i.e. “strong,” could mean no rate cuts in 2024 and rate hikes are back on the table. If the 2-year Treasury rises above 5%, the next stop could be 5.25%. This would be a signal that a rate hike is becoming more likely, which is not good for risk assets.
Eurozone May CPI
Friday, May 31: Provisional euro zone CPI estimates for May indicate that consumer prices are expected to have risen 0.2% m/m, down from 0.6% in April, and 2.6% y/y, up from 2.4% in the previous month. Meanwhile, core CPI is expected to have risen 2.8% y/y, up from 2.7% in the previous month. This inflation report is significant because it suggests that the European Central Bank may cut interest rates at its next meeting on June 6. Swaps markets are pricing in a more than 90% chance that the ECB will cut interest rates by 25 basis points at its June meeting.
A higher than expected CPI report could cast doubt on the ECB's rate cut plans, which could cause market turmoil, especially if it is significantly higher than expected. On the other hand, a lower than expected report would not necessarily change the June forecast, but could hasten a further ECB rate cut, which is not expected until late 2024.
In these scenarios, the euro would be the biggest winner or loser. Technical charts suggest that EUR/USD may see a short-term downside following a failure to break above the resistance near $1.089 on Monday. Currently, the euro is supported at $1.08, but a break above the $1.08 support would interrupt the uptrend and the euro could fall to $1.07. Meanwhile, upward resistance is fairly limited at $1.089.
Here's a summary of notable economic releases and company reports scheduled for the coming week.
Monday
• Germany: IFO business environment in May
• United States: Markets closed (Memorial Day)
Tuesday
• Australia: April retail sales
• US: March home price index, May consumer confidence
• result: Heiko (Q2)
Wednesday
• Australia: April Consumer Price Index (CPI)
• Germany: May CPI
• result: Agilent Technologies (2nd quarter), HP (2nd quarter), Pets at Home (fiscal year), Salesforce.com (1st quarter)
Thursday
• Eurozone: May business conditions, May consumer confidence, April unemployment rate
• Japan: Tokyo CPI for May
• New Zealand: Annual Budget Announcement
• Spain: May CPI
• Switzerland: First quarter GDP
• United States: First quarter GDP
• result: Autotrader (fiscal year), Costco Wholesale (Q3), Dell Technologies (Q1), Dollar General (Q1), Marvell Technology (Q1), Viva Systems (Q1)
Friday
• Canada: First quarter GDP
• China: Manufacturing and non-manufacturing purchasing managers' index for May
• Eurozone: May CPI
• France: May CPI
• Germany: April retail sales
• Italy: Q1 GDP, May CPI
• United States: Personal Consumption Expenditures (PCE) Price Index for April
• result: Frontline (Q1)
Note: While we have carefully checked all dates to ensure they are accurate at the time of writing, the above announcements are subject to change.
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