This week, the European Central Bank (ECB) will hold a monetary policy meeting where it will provide clues about the path of interest rates and the economic outlook. In addition, the US will release inflation statistics for March, which will determine global market sentiment.
advertisementEuropean stock markets fell this week after rising for the first time in five months as uncertainty over central bank policy led to profit-taking. With oil prices rising to a six-month high amid continued tensions in the Middle East, global inflation could face the risk of rising again, potentially delaying central banks’ decision to cut interest rates. .
This week’s ECB policy meeting will provide insight into the ECB’s policy direction and the economic outlook for the euro area. Additionally, the US is scheduled to release its Consumer Price Index (CPI) data for March, which is important for global market sentiment. The Bank of New Zealand (RBNZ) and the Bank of Canada (BOC) will also decide on interest rates.
Europe
Inflation rates in the euro area are trending lower, with CPI estimates falling more than expected to 2.4% in March, the lowest rate of increase since November 2023. Given that this figure is still above the ECB’s 2% target, the ECB is likely to keep inflation on track. Policy interest rates were left unchanged. The ECB has kept its main lending rate at a record high of 4.5% for four consecutive periods since October 2023, and deposit rates at 4%. Despite the decline in inflation, wage growth and rising service prices remain a concern. Central Bank.
Nevertheless, the ECB is widely expected to start cutting interest rates in June as inflationary pressures ease in major economies. Germany, France, and Italy’s CPI in March all cooled more than expected, falling 2.3%, 2.3%, and 1.8% year-on-year, respectively. Meanwhile, Spain’s inflation rate remained at 3.2% year-on-year due to rising electricity and fuel prices. Core inflation in most countries, excluding food and energy, also remained high due to rising housing and energy prices.
The trajectory of inflation has been a mixed picture across the 20 member countries, but more dovish statements from central banks than expected could be interpreted as a positive signal for market bulls, and vice versa. Hawkish statements could have the opposite effect.
The UK entered a technical recession in the final quarter of 2023, so the focus will be on February’s monthly GDP. On the bright side, the economy expanded by 0.2% monthly in January, coupled with an acceleration in manufacturing. March’s PMI indicates that the UK economy may be on the road to recovery.
America
Wall Street saw a sharp rise in Treasury yields last Thursday as strong U.S. economic data dampened hopes for a June interest rate cut by the Federal Reserve. Despite rebounding Friday, the Dow Jones Industrial Average had its worst week of the year. The key economic indicator to watch is the Consumer Price Index (CPI) for March, which will determine when the central bank will start cutting interest rates. Fed Chairman Jerome Powell has said the Fed intends to lower interest rates “at some point this year,” but only if the board believes inflation is on a sustained path toward 2%. It will be done. U.S. headline CPI was 3.2% in February after surging to 3.4% in December. On the positive side, core CPI has consistently recovered, reaching 3.8% annually. Consensus is that sticker headline inflation for March is expected to be 3.4%. If the CPI numbers exceed expectations, there is a strong possibility that the correction phase in the US stock market will be prolonged. Conversely, if inflation declines further, bullish sentiment could rise again.
Additionally, the Fed is scheduled to release minutes this week summarizing discussions and decisions made by committee members in March, during which dot plots predicted three rate cuts per year. However, recent positive economic indicators may make such a development less likely. As a result, investors are scrutinizing the minutes for policy clues.
Canada
Canada’s benchmark index, the TSX, mirrored global trends and neared all-time highs last week. The Bank of Canada’s (BOC) interest rate decisions will be the focus of attention in the domestic market this week. The central bank kept overnight borrowing rates unchanged for the fifth consecutive time in March as annual inflation fell to 2.8% in February from a peak of 8.1% in June 2022. However, the central bank indicated it is in no hurry to cut interest rates. It cut interest rates because wage growth and house prices continue to put upward pressure on inflation. The central bank is widely expected to keep interest rates unchanged at 5% this week.
Asia Pacific
The focus in Asian markets will be on China’s release of a number of economic indicators in March, including new renminbi loans, consumer price index (CPI), producer price index (PPI), and trade balance. Despite continued difficulties in the housing market, China’s economy showed positive signs in the first quarter thanks to stimulus measures implemented by the Chinese government. Further improvement in these numbers could boost China’s stock market, as the region’s stock markets have shown signs of bottoming out since late January.
Another impactful event will be this week when the RBNZ decides on the cash rate. With the economy entering a technical recession in the final quarter of 2023, the central bank is most likely to keep the Official Cash Rate (OCR) unchanged at 5.5% for the sixth consecutive time.
