In the US, the preliminary figures for the University of Michigan’s consumer sentiment index in May declined to 57.7, the lowest level in the past six months.
Last Friday, Wall Street indices closed lower due to the preliminary data of the University of Michigan’s consumer sentiment index, which recorded a larger-than-expected decline, and growing concerns about the US debt ceiling.
The Nasdaq-100 Index (NDX: USN) dropped by 0.36% on a daily basis, the Dow-Jones Index (INDEXDJX: DJI) was down by 0.03%, and the S&P-500 Index (SPX: USY) by 0.16%.
The US Dollar Index (DXY) closed last week at 102.7 with a 1.4% gain.
Brent Crude Oil (LCO07: USC) closed at $74.2 per barrel last week, with a 1.5% decline due to concerns about the weakening US economy and a slower-than-expected recovery in China.
The US 10Y Treasury yield closed up by a 3 basis point increase at 3.46% while the US 2Y Treasury yield, which is more sensitive to monetary policy developments, closed at 3.99% last week, up by 10 basis points.
In the US, the preliminary figures for the University of Michigan’s consumer sentiment index in May declined to 57.7, the lowest level in the past six months, from 63.5. This drop was below expectations (63). The weakening of consumer confidence, particularly beyond expectations, can be attributed to increased concerns among consumers about the economy due to tightening financial conditions, expectations of a slowdown, and issues surrounding the debt ceiling dispute in the country. These negative economic news factors played a significant role in amplifying consumer worries.
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Speeches by Fed officials throughout the week will be closely watched
Today the New York Fed Empire State Manufacturing Index for May will be released, providing signals about the outlook for the manufacturing sector.
In April, the index unexpectedly rose from -24.6 to 10.8, indicating a partial recovery and a shift from contraction to expansion in the manufacturing sector, contrary to expectations of continued contraction. However, for May, the index is expected to decline to -2.5, signaling a return to the contraction zone.
On Tuesday, the industrial production and capacity utilization rate in the United States for April will be monitored to assess the trend in manufacturing.
In March, industrial production recorded a monthly increase of 0.4%, surpassing expectations and extending its upward trajectory for the third consecutive month. However, a closer look reveals that the increase in industrial production was primarily driven by the growth in public utility output, while the manufacturing sector weakened, falling below expectations.
On Tuesday, the retail sales in the United States for April will also be announced, providing insights into the trajectory of domestic demand.
In March, retail sales declined by 1% on a monthly basis, surpassing expectations, as market volatility followed banking sector bankruptcies. The increased borrowing costs were also observed to exert pressure on consumer spending.
On Wednesday, housing market data including housing starts for April and building permits, an indicator of future housing demand, will be released.
On Thursday, existing home sales data for April will be published. It is expected that the housing market data will continue to show declines in April due to the tightening financial conditions following the Fed’s interest rate hikes.
On Thursday, the weekly initial jobless claims will be monitored as an indicator of the labor market.
Moreover, speeches by Fed officials throughout the week, including Federal Reserve Chair Powell on Friday and Federal Reserve Vice Chair Barr on Tuesday and Thursday, will be closely watched for possible signals regarding the Fed’s monetary policy. These speeches will provide insights into the potential direction of the Fed’s monetary policy.
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Euro Area external trade data for March will provide signals about the outlook for global trade
In Europe, the Euro Area industrial production index for March will be followed on Monday. In February, industrial production in the Euro Area exceeded expectations with a monthly increase of 1.5%, indicating a second consecutive month of growth and a faster pace compared to the 1% increase in the previous month. The annual growth rate also rose from 0.9% to 2%. However, for March, a monthly contraction of 2.5% and a slowdown in the annual growth rate to 0.9% from 2% are expected.
On Tuesday, German ZEW’s current conditions and economic sentiment indices for May will shed light on the economic outlook and the future. In April, the ZEW current conditions index showed a better-than-expected recovery, decreasing from -46.5 to -32.5, while the ZEW economic sentiment index declined from 13 to 4.1, reaching its lowest level this year.
Revised GDP growth data for the first quarter of this year in the Euro Area will also be released on Tuesday.
Additionally, the final Consumer Price Index (CPI) for April in the Euro Area will be released on Wednesday, which will also provide guidance on the ECB’s monetary policy. According to preliminary data, the headline CPI slowed down from 0.9% to 0.7% on a monthly basis in April, in line with expectations. However, on an annual basis, it increased slightly from 6.9% (the lowest level since February 2022) to 7%. The core CPI in the Euro Area decreased slightly from the record level of 5.7% in March to 5.6%, in line with expectations.
On Friday, the Producer Price Index (PPI) for April in Germany will be monitored. In March, the PPI declined by 2.6% on a monthly basis due to falling energy prices, marking the sixth consecutive month of decline. On an annual basis, it decreased from 15.8% to 7.5%, reaching the lowest level in the past 22 months. It is expected that the decline in the PPI will continue in April.
Furthermore, the Euro Area external trade data for March, which will provide signals about the outlook for global trade, will be announced tomorrow. In January, the Euro Area recorded a trade deficit of 31.6 bn. Euro on a monthly basis, but in February, it achieved a surplus of 4.6 bn. Euro marking the first trade surplus since July 2021.
Throughout the week, speeches by ECB officials, including ECB President Lagarde on Tuesday and Friday, and ECB Vice President Guindos on Wednesday, will be closely watched for possible signals regarding the ECB’s monetary policy.
China will release data on industrial production, retail sales, and fixed asset investment for the month of April
Last week, the People’s Bank of China (China’s central bank) kept the medium-term lending facility (MLF) interest rate, which serves as the benchmark interest rate, unchanged at 2.75%.
China will release data on industrial production, retail sales, and fixed asset investment for the month of April on Monday, which will provide insights into the trajectory of economic activity. The March data in China, when COVID-19 restrictions were lifted, showed a mixed picture of economic activity. Although the annual growth rate of industrial production in March stood at 3.9%, it fell below expectations of a 4% increase. Similarly, the annual growth rate of fixed asset investment was 5.1%, weaker than expectations of a 5.7% increase. On the other hand, retail sales, an important indicator of domestic demand, exceeded expectations with an annual growth rate of 10.6% compared to the expected 7.4% increase.
Furthermore, on Wednesday, preliminary GDP growth for the first quarter of this year in Japan will be monitored. In the final quarter of last year, despite the positive impact of government spending and net exports, the economy remained stagnant with 0% quarterly growth and recorded an annualized quarterly growth rate of 0.1%.