Wall Street endured a tough week, marked by significant declines driven by rising Treasury yields and hawkish comments from Federal Reserve officials. The market sentiment was further dampened by higher-than-expected inflation data from Germany and Australia, escalating global inflation concerns.
As the market braces for the key US personal consumption expenditures (PCE) inflation data, divided opinions persist on whether the Federal Reserve will initiate the first rate cut in September. The upcoming week promises to provide crucial insights into inflation trends and economic stability.
Recent economic data from China has been mixed, with strong first-quarter GDP and trade activities contrasted by weak domestic demand. The official PMI numbers for May were disappointing, with the manufacturing PMI falling to 49.5 and the services PMI also weaker than expected.
Expectations for the Caixin manufacturing PMI, which will be released on 3 June 2024 at 1:45 AM GMT, point to a slight increase to 51.5 from 51.4.
The manufacturing sector, a vital component of China’s economic health, has shown signs of contraction. This is reminiscent of the slowdown seen in 2015 when similar PMI figures preceded a period of economic restructuring and stabilization.
Traders are keenly watching for any signs of recovery in the services sector, with the services PMI due on 5 June 2024 at 1:45 AM GMT. The services sector has become increasingly important in offsetting manufacturing weaknesses.
Australia’s economy grew by 0.2% in the fourth quarter of 2023, translating to an annual growth rate of 1.5% year-over-year, which is below the typical 3%. Preliminary expectations for the first quarter of 2024 indicate a modest GDP growth of 0.3% and a 1.2% annual growth rate, with the data scheduled to be released on 5 June 2024 at 1:30 AM GMT.
The Reserve Bank of Australia (RBA) has adjusted its forecasts, anticipating a gradual GDP increase driven by household consumption growth. This cautious optimism mirrors the post-2008 financial crisis period when Australia, buoyed by strong household consumption and commodity exports, managed to avoid a recession.
The upcoming GDP data will be critical in assessing whether the RBA’s projections align with reality and whether household consumption can indeed drive the economy forward amidst global economic uncertainties.
During the April policy meeting, the European Central Bank (ECB) displayed confidence in controlling inflation and hinted at a potential rate cut. A 25 basis point rate cut is highly probable, with markets pricing a 97% chance.
Traders will be focused on the upcoming guidance and fresh economic projections for growth and inflation, with the interest rate decision announcement scheduled for 6 June 2024 at 12:15 PM GMT.
The ECB’s potential rate cut comes at a critical juncture, drawing parallels to the 2014 period when the ECB implemented negative interest rates to combat deflationary pressures and stimulate growth. The market will be watching closely to see if the ECB’s measures can successfully navigate the current economic landscape marked by persistent inflation and sluggish growth.
In April, the US economy added 175,000 jobs, with the unemployment rate rising to 3.9%. Federal Reserve officials have suggested that further rate hikes might be necessary, but a weakening labor market could prompt quicker rate cuts.
Expectations for May include an addition of 180,000 jobs, a stable unemployment rate at 3.9%, and unchanged participation and hourly earnings rates, with the data to be released on 7 June 2024 at 12:30 PM GMT.
This employment data will be closely scrutinised. The labor market’s performance will be a key indicator of economic resilience and will influence the Federal Reserve’s decisions on future rate adjustments.
