1. US Stock Market: The week closed with a slight increase in stock market indices, driven by expectations of the Federal Reserve delaying an interest rate hike.
2. Economic Indicators to Watch: Keep an eye on the Federal Reserve’s interest rate decision and Chairman Powell’s speech, CPI and Core CPI figures for May, industrial production and capacity utilization data, and retail sales performance.
3. Labor Market Update: Stay updated on the weekly initial jobless claims, providing insights into the labor market’s health and jobless claims trend.
4. Consumer Sentiment Decline: Consumer sentiment declined in May, influenced by concerns over interest rate hikes and the debt ceiling issue, with implications for consumer spending and economic growth.
5. European Market Focus: Pay attention to the ECB’s interest rate decision, inflation data from Germany and the Eurozone, and ZEW Economic Sentiment Indices for Germany.
6. ECB’s Interest Rate Decision: The ECB is expected to continue its tightening cycle with a potential 25 basis points interest rate hike.
7. Inflation Data: Watch for Germany’s and the Eurozone’s CPI figures, indicating ongoing inflationary pressures and potential policy action.
8. ZEW Economic Sentiment Indices: Germany’s economic outlook can be assessed through the ZEW Economic Sentiment Indices for current conditions and expectations.
9. Other European Economic Indicators: Keep an eye on the Eurozone’s industrial production data and the UK’s monthly GDP growth figure.
Focus on China’s Economic Data: Pay attention to China’s industrial production, retail sales, and fixed capital investment data, providing insights into the state of the economy. Also, monitor the Bank of Japan’s interest rate decision.
US Stock Market Indices Close the Week with Slight Increase
Investors wrapped up the week with a slight increase in stock market indices, driven by growing expectations that the Fed will bypass an interest rate hike in its upcoming meeting.
On Friday, the Nasdaq index (NDX: USN) rose by 0.16%, the Dow Jones index (INDEXDJX: DJI) by 0.13%, and the S&P 500 index (SPX: USY) by 0.11% on a daily basis.
The US dollar index (DXY) closed the week at 103.6, marking a 0.4% decrease. Meanwhile, Brent crude oil (LCO07: USC) prices declined by 1.8% to reach $74.8 per barrel.
The US 10-year Treasury yield ended the week at 3.74%, recording a 5 basis point increase, while the 2-year Treasury yield closed at 4.60% after a 10 basis point rise. The market closely watches these developments due to their impact on monetary policy.
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Key Economic Indicators to Watch in the US Market
Looking ahead, the focus in the US market will be on the Federal Reserve’s interest rate decision and Chairman Powell’s speech on Wednesday.
Last month, the Fed raised interest rates by 25 basis points to a range of 5.00% to 5.25%, signaling potential future rate hikes. However, recent statements from Powell and an increasing number of Fed members calling for a pause in rate hikes have led to expectations that interest rate increases may be put on hold.
Expectations for May’s CPI and Core CPI Figures:
Key economic indicators to watch on Tuesday include the Consumer Price Index (CPI) and Producer Price Index (PPI) data for May.
In April, the headline CPI slightly accelerated to 0.4% monthly and decreased to 4.9% yearly, while the core CPI remained stable at 0.4% monthly and decreased to 5.5% yearly.
For May, a slower monthly increase in the headline CPI to 0.2% and a decrease to 4.1% yearly are expected, while the core CPI is anticipated to rise by 0.4% monthly and decrease to 5.3% yearly.
Insights into May’s Economic Activity:
On Thursday, industrial production and capacity utilization for May, along with the New York Fed Empire State Manufacturing Index wil be released.
The Empire State Index for June is expected to rise to -15.5, indicating a partial recovery from the contraction observed in May.
Retail Sales Data: Tracking Domestic Consumption Trajectory:
The retail sales data for May will be announced on Thursday, offering signals about the trajectory of domestic consumption. After two consecutive monthly declines in February and March (-0.7% each), retail sales partially rebounded with a 0.4% increase in April. However, the figure fell below expectations of a 0.8% increase.
In May, retail sales are expected to show a sluggish performance, with the monthly growth rate slowing from 0.4% to -0.1%.
Labor Market Update: Weekly Initial Jobless Claims:
On Thursday, weekly initial jobless claims will also be released, providing an update on the labor market. The previous report showed a higher-than-expected increase from 233,000 to 261,000, reaching the highest level since October 2021.
The upcoming report will provide further insights into the labor market’s health and jobless claims trend. Last week, new claims exceeded expectations, reaching the highest level since October 2021.
Decline in Consumer Sentiment: Factors and Implications for Economic Growth:
Finally, the preliminary University of Michigan Consumer Sentiment Index for June will be announced on Friday.
In May, the index declined from 63.5 to 59.2, hitting the lowest level in the past six months. Factors contributing to this decline included concerns about the Federal Reserve’s interest rate hikes and increasing worries regarding the debt ceiling issue. The June preliminary index will provide an early indication of consumer sentiment, which has significant implications for consumer spending and economic growth.
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European Market Focus: ECB’s Interest Rate Decision and Inflation Data
ECB’s Interest Rate Decision and Lagarde’s Remarks:
Last month, ECB raised interest rates by 25 basis points, signaling a commitment to gradual tightening. Lagarde emphasized the persistence of strong price pressures and the necessity of tight monetary policy until the medium-term inflation target of 2% is achieved. This suggests that further interest rate hikes are on the horizon.
While some members believe the need for additional rate increases has diminished, the majority supports continuing the tightening cycle. Market expectations lean towards a 25 basis points interest rate hike.
Key inflation indicators from Germany and the Eurozone will also shape the ECB’s decision-making process. Germany’s final Consumer Price Index (CPI) for May will be released on Tuesday, followed by the Eurozone’s final CPI on Friday.
Preliminary data showed a surprise monthly decline of 0.1% in Germany’s headline CPI for May, attributed to a decrease in energy and food prices. On a yearly basis, Germany’s CPI dropped from 7.2% to 6.1%, below expectations.
Similarly, Eurozone’s CPI slowed to 0% on a monthly basis and 7% annually, while core CPI declined from 5.6% to 5.3%. These figures indicate ongoing inflationary pressures, highlighting the need for further policy action.
ZEW Economic Sentiment Indices for Germany:
On Tuesday, the ZEW Economic Sentiment Indices for current conditions and expectations will shed light on Germany’s economic outlook.
In May, the current conditions index declined from -32.5 to -34.8, while the expectations index dropped from 4.1 to -10.7, indicating a return to contraction territory. Anxieties over high inflation and restrictive global monetary policies, coupled with the U.S. debt ceiling crisis, have weighed on economic sentiment.
With ECB’s indication of continued interest rate hikes, a further decline in the current conditions index to -40 and the expectations index to -12.7 is anticipated.
Other Economic Indicators:
On Wednesday, the Eurozone’s industrial production data for April will provide insights into the region’s manufacturing sector.
In March, industrial production contracted more than expected by 4.1% on a monthly basis and experienced a decline from 2% to 1.4% on an annual basis.
The monthly GDP growth figure for April in the UK will be announced on Wednesday, following a 0.3% contraction in March, a partial recovery of 0.2% in monthly GDP growth is expected for April.
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Focus on China’s Economic Data: Industrial Production, Retail Sales, and Fixed Capital Investment
On Thursday, China will announce the May data for industrial production, retail sales, and fixed capital investment, offering information about the state of the economy.
In April, the year-on-year growth rate of industrial production and retail sales, an important gauge of domestic demand, accelerated compared to the previous month but fell below expectations.
Similarly, the growth rate of fixed capital investment slightly slowed down despite expectations of a moderate increase.
Bank of Japan’s Interest Rate Decision:
On Friday, we’ll focus on the interest rate decision by the Bank of Japan (BOJ).
In April, the BOJ maintained its policy rate at approximately -0.10% and its target for the 10-year government bond yield around 0%. Monitoring the BOJ’s decision is essential as it influences monetary policy and has implications for Japan’s economic outlook.