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From Markets to Economics – and Other Things You Need to Know – Executive Summary

From Markets to Economics – and Other Things You Need to Know – Executive Summary

The past week

US stock markets posted gains this week as stronger-than-expected corporate earnings from Tesla, Microsoft and Alphabet helped offset weaker-than-expected US GDP and inflation data in the first quarter of 2024.

– In the United States, durable goods orders in March rose by 2.6% versus 2.2% expected.

– US GDP in the first quarter of 2024 rose by 1.6% on a quarterly basis, lower than expectations of 2.5%.

The core PCE price index rose 3.7% year-on-year, compared to 2% previously.

– The Eurozone Composite PMI for April rose to 51.4 from 50.3 previously, marking its fastest rate in eleven months.

– In Germany, the Ifo business survey rose to 89.4, compared to the previous 87.9.

In the UK, the composite PMI for April rose to 54 from 52.8 previously, its strongest rate since May 2023.

– In Japan, the manufacturing PMI rose to 49.9 from 48.5, approaching expansion territory.

In Australia, global inflation in the first quarter of 2024 fell to 3.6% year-on-year, from 4.1% in the previous quarter, higher than market expectations of 3.4%.

Highlights from next week

Hey Flash PMI in China

Tuesday, April 30 at 2:30 AM (GMT)

China's official PMI numbers for March pointed to some positive signs for the economy, with industrial activities returning to growth territory (50.8) after five straight months of contraction. The non-manufacturing PMI also showed improvement, hitting a nine-month high of 53.0.

Going forward, market participants will be watching to see whether the recovery momentum continues to reflect some degree of policy success, and whether the improvement is not driven solely by seasonal factors. Expectations indicate that industrial activities will rise slightly to 51.2. Any loss of growth dynamism could lead to requests for political support for the second half of this year.

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Hey GDP for the first quarter of 2024 in the euro area

Tuesday 30 April at 10:00 AM (GMT)

In the last quarter of 2023 (Q4 2023), the Eurozone unexpectedly avoided a recession as strong growth in Italy and Spain offset contraction in Germany, resulting in a 0% growth rate after a 0.1% contraction in the third quarter.

The euro area's anemic growth during the second half of 2023 can be attributed to rising interest rates, rising inflation, a slowdown in the global economy and escalating geopolitical tensions. In recent months, the European Central Bank has recognized that inflation is on track to converge toward its target and has indicated that it expects to ease monetary policy as early as June.

The prospect of an imminent cut in interest rates by the European Central Bank and a resilient global economy have led to notable improvements in business surveys and the Eurozone PMI. This improvement should also be reflected in the upcoming GDP publication, where the market is anticipating a 0.5% QoQ increase.

Hey Federal Open Market Committee decision on interest rates

Wednesday, May 1, 7:00 PM (GMT)

In March, the Federal Open Market Committee kept interest rates unchanged at 5.25%-5.50%, for the fifth meeting in a row. The statement accompanying the meeting was almost identical to the one issued in January, reiterating that the Fed does not expect to cut interest rates “until it gains greater confidence that inflation is moving sustainably toward 2%.”

The Fed's “Dot Plot” showed that the average still expects three interest rate cuts of 25 basis points in 2024. On the heels of the Federal Open Market Committee meeting in March, the release of a third straight report on expectations Higher-than-average inflation will prompt the Fed to cut. Keeping interest rates at 5.25%-5.50% in April and adopting a more aggressive tone in the press conference.

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The Fed Chairman is expected to signal a lack of progress on inflation and that the Fed will wait “longer than expected” to cut interest rates. The message of patience will likely be accompanied by an announcement that the QT program will begin in June, reducing the maximum monthly redemption of outstanding bonds from $60 billion to $30 billion.

The interest rate market is already anticipating a tighter outcome for the next FOMC meeting, with the first interest rate cut delayed until December, after the US elections in November.

Hey US Nonfarm Payrolls Report

Friday, May 3, 1:30 PM (GMT)

In his comments in early April, Federal Reserve Chairman Jerome Powell signaled some caution regarding the timing of interest rate cuts this year, reiterating that policymakers want to have more confidence that U.S. inflation is trending sustainably lower relative to the Fed's target of 2% Jerome Powell said inflation was higher than expected.

Positive surprises in the latest set of US inflation data have tilted market expectations towards a 25 basis point interest rate cut by the Federal Reserve this year. This value is lower than the three interest rate cuts evaluated just one month ago.

A further hardening of US business conditions is likely to reinforce views that the Fed will be more patient in easing its policy and that interest rates will remain high for longer. The current consensus is that the US will create 210,000 jobs in April, compared to 303,000 jobs in March. With US employment numbers ahead of consensus over the past five months, markets will be watching to see if this trend can continue. The unemployment rate is expected to remain unchanged at 3.8% compared to March, while average wage growth is also expected to remain unchanged at 0.3% on a monthly basis.

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Hey Earnings season in the United States of America

Q1 2024 earnings release season continues this week, with some important companies like PayPal, Coca-Cola, Amazon, AMD, Apple, and Coinbase.

XTB analysis