Focus on the market: Eurozone GDP and US CPI in focus

advertisement

Several key economic indicators will be released this week that will drive financial market sentiment. Investors will be keeping an eye on the Eurozone's preliminary first-quarter GDP figures and April's final CPI. More importantly, the US is also scheduled to release inflation data for April. Inflation statistics are a key economic indicator that the Federal Reserve uses to determine interest rates, which in turn influences investment sentiment.

Europe

The European Commission (EC) will publish its second economic outlook on Monday. In February, the organization lowered its 2024 growth forecasts to 0.9% for the EU and 0.8% for the euro area, from previous forecasts of 1.3% and 1.2%, respectively. The EC expects inflation in the euro area to ease to 2.7% in 2024 and 2.2% in 2025. An upward revision to the economic outlook could boost business confidence.

Furthermore, the euro area will release its second preliminary figures for first quarter GDP on Wednesday. Initial data shows the region's economic growth rate was 0.3% sequentially, the fastest pace since the third quarter of 2022. In particular, Germany and France saw GDP increase by 0.2%, with all major countries showing better-than-expected growth. Italy recorded a growth of 0.3% and Spain an increase of 0.7%. The euro zone economy stagnated in the second half of 2023 due to rising interest rates and high inflation.

The final CPI for April is expected to be released on Friday. Based on preliminary data, headline inflation in the euro area fell to 2.4% year-on-year, while core inflation fell to 2.7%. The final figure is expected to be in line with initial expectations, indicating a positive signal for the economy and raising the prospect of a June interest rate cut by the European Central Bank (ECB).

Additionally, the German ZEW Economic Sentiment for May is expected to provide valuable insight into the country's economic trajectory. In April, the index rose to 42.9, the highest level since February 2022. The consensus forecast is 46.1, indicating that the German economy is well on its way to recovery, supported by easing interest rate hikes and easing inflationary pressures.

In the UK, the March jobs report will be closely monitored. There have been recent signs of a softening labor market, with the unemployment rate for December 2023 to February 2024 rising to 4.2% from 3.9% in the previous three months. Consensus forecasts say the rate could rise further to 4.3% in March. Meanwhile, UK wage growth is expected to slow to 5.3% from 5.6% in the previous three months. The data is a positive sign for the UK's inflation rate, which was 3.2% in March. The Bank of England left interest rates unchanged at 5.25% on Thursday, suggesting a cut before the end of the year remains a possibility.

America

The US is scheduled to release the CPI for April, a crucial factor that influences the Fed's interest rate decisions. The country's annual headline CPI rose to 3.5% in March from 3.1% in December 2023, while its core CPI rose to 3.8% year-on-year from 3.7% in the previous month. According to consensus estimates, the US headline CPI is likely to decline moderately to 3.4%. Recent U.S. economic data has shown signs of softening, and the Fed acknowledged that its next rate adjustment is “unlikely to result in a rate hike.” If the upcoming CPI data is in line with expectations, expectations for a rate cut could send Wall Street higher.

This week, U.S. retail sales figures for April will also provide insight into consumer spending trends. Retail sales increased 0.7% month-on-month in April, following a 0.9% increase in February, indicating that consumer spending in the United States remains strong. Such strong spending trends typically exert upward pressure on inflation. Consensus forecasts are for even more modest growth in April, at 0.4% month-on-month, indicating that U.S. household spending may slow.

Additionally, major U.S. retailers such as Home Depot and Walmart are scheduled to report their quarterly results, providing a valuable gauge of the overall health of the industry.

Asia

Key economic data from several major Asian countries will be in the spotlight, including Japan's first-quarter GDP, China's industrial production and retail sales, and Australia's employment.

Japan has revised its growth rate for the fourth quarter of 2023 to 0.4%, avoiding a technological recession. Economists expect Japan's economy to return to negative growth of 0.4% in the first quarter. Japan is facing the challenge of a rapidly depreciating yen, leading to higher import costs and contributing to inflationary pressures. This could encourage the Bank of Japan to continue normalizing monetary policy by raising interest rates.

China appears to be accelerating its economic recovery recently, and Chinese economic data will be an important indicator for Asian markets. Industrial production is expected to increase by 5.4% year-on-year in April, up from 4.5% in March. China's retail sales index is also expected to gain momentum, rising 3.9% year-on-year, compared with the previous month's 3.1% increase.