A BIG, SHORT WEEK AHEAD
Last week, equity markets were weighed down by lacklustre economic data. Better-than-expected Q1 earnings towards the end of the week from Meta, Intel and Amazon helped markets recover somewhat.
The current, holiday-shortened week brings many watch points that could be pivotal for the short-term outlook. These range from the Fed and ECB meeting to April US employment and Eurozone inflation data.
Last week, the S&P 500 rose by +0.9% (April performance +1.5%, YTD +8.6%), while the Euro Stoxx 50 fell by 1.1% (April +1.0%, YTD +14.9%). Losses in the US were recovered towards the end of the week as Meta, Intel and Amazon reported better-than-expected Q1 earnings.
US Q1 GDP slowed more than expected, growing at an annualised rate of 1.1% from 2.6% in Q4. This was driven by weak inventories and investment, but personal consumption rose by 3.7%. Headline PCE also remained elevated in March at 4.2% year-on-year (yoy) and core PCE, the Fed's preferred price measure, by 4.6%. This suggests that further tightening may be required by the Fed to tame inflation.
Meanwhile, Eurozone Q1 GDP expanded by 1.3% year-on-year, slightly below expectations of 1.4%. Growth over the period was minimal, rising by 0.1% quarter-on-quarter amid zero growth in Germany and a 0.2% rise in France. This suggested that growth in the region remains lacklustre, though the positive is that the expected recession has been avoided for now.
Other data suggested a slowing activity in some sectors of the US. March pending home sales fell by 5.2%, the lowest since September, while core durable good orders fell by 0.4%.
The mixed economic picture meant that fixed income markets lacked clear direction last week. Nevertheless, the US Treasury 10-year yield fell 13bps to 3.44% and rate markets expect the Fed to hike by 25bps to 5.00-5.25% tomorrow before cutting by 25bps in December 2023. For the ECB, a 25bps hike in the deposit rate this week to 3.25% is projected by rate markets followed by two to three more hikes of the same magnitude for the rest of the year.
The holiday-shortened week brings a number of key watch points, including the Fed (Wednesday) and ECB (Thursday) decisions and press conferences. Guidance from the central banks on future policy is set to be of particular interest. Economic data is also in focus, including the ECB's Q1 bank lending survey, Eurozone March retail sales and US April employment data.
Tue 2nd
US - March job openings and factory orders
Eurozone - April consumer prices, Q1 bank lending survey,
Wed 3rd
US - Fed rate decision, April ADP employment, ISM services
Thu 4th
Eurozone - ECB rate decision
Fri 5th
US - April employment data, March consumer credit
Eurozone - March retail sales, Germany March manufacturing orders
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.