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Eye on the Markets: Eurozone GDP and US CPI in the Spotlight

Hopes for a rate cut by the European Central Bank (ECB) in June
Hopes for a rate cut by the European Central Bank (ECB) in June Copyright Michael Probst/Copyright 2024 The AP. All rights reserved
Copyright Michael Probst/Copyright 2024 The AP. All rights reserved
By Tina Teng
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This week, investors await the eurozone's flash Q1 GDP and final April CPI figures, alongside crucial US April inflation data, pivotal for central banks' interest rate decisions and investment sentiment.

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Some pivotal economic data will be lined up and drive the financial market sentiment this week. Investors will focus on the Eurozone's flash first-quarter GDP and the final CPI for April. More importantly, the US is also set to release its April inflation data, which is the primary economic indicator for the Federal Reserve (Fed) in determining interest rates, in turn, impacting investment sentiment.

Europe

The European Commission (EC) will release its second economic forecast on Monday this week. In February, the organisation downgraded its 2024 growth outlook to 0.9% for the EU and 0.8% for the euro area, compared to the previous forecasts of 1.3% and 1.2%, respectively. The EC anticipates easing inflation of 2.7% in 2024 and 2.2% in 2025 for the euro area. A higher revision of the economic outlook may bolster business confidence.

Additionally, the eurozone will release the second estimate (Flash) of the first-quarter GDP on Wednesday. According to the initial data, the region's economy grew by 0.3% quarter on quarter, which is the greatest pace since the third quarter of 2022. Notably, all major economies exhibited growth surpassing expectations, with Germany and France seeing GDP increases of 0.2%, Italy recording a growth of 0.3%, and Spain experiencing a rise of 0.7%. The eurozone economy stagnated in the second half of 2023 due to rising interest rates and high inflation.

On Friday, the final CPI for April is scheduled for release. Based on the flash data, headline inflation in the eurozone eased to 2.4%, while core inflation dropped to 2.7% compared to the previous year. Expectations are that the final figures will align with the initial estimates, indicating positive signals for the economy and raising prospects for a rate cut by the European Central Bank (ECB) in June.

Additionally, the German ZEW Economic Sentiment for May is poised to provide valuable insights into the country's economic trajectory. In April, the index climbed to 42.9, marking its highest level since February 2022. The consensus calls for 46.1, indicating that Germany's economy is progressing steadily towards recovery, buoyed by the alleviation of rate hikes and the moderation of inflation pressures.

In the UK, the employment data for March will be closely monitored. Recently, signs of a softening labour market have emerged, with the unemployment rate increasing to 4.2% from December 2023 to February 2024, up from 3.9% in the prior three months. Consensus forecasts suggest that the rate may rise further to 4.3% in March. Meanwhile, wage growth in the UK is anticipated to decelerate to 5.3% from 5.6% in the previous three months. This data presents positive indications for UK inflation, which stood at 3.2% in March. The Bank of England maintained the interest rate at 5.25% on Thursday and indicated that rate cuts remain a possibility later this year.

The US

The US is set to release the April CPI, a pivotal factor influencing the Fed interest rate decision. In March, the country's annual headline CPI increased to 3.5% from 3.1% in December 2023, while the core CPI rose to 3.8% year-on-year from 3.7% in the previous month. According to consensus estimates, the US headline CPI may moderately decrease to 3.4%. Recent economic data from the US has indicated signs of softening, and the Fed has confirmed that the next rate adjustment is "unlikely to be a hike." If the upcoming CPI data aligns with expectations, there is a possibility that Wall Street will further rally on hopes of rate cuts.

The US retail sales data for April will also provide insight into consumer spending trends this week. Retail sales experienced a 0.7% increase in April compared with the previous month, following a 0.9% rise in February, indicating that consumer spending in the US remained strong. Such robust spending tendencies typically exert upward pressure on inflation. Consensus forecasts anticipate a more modest 0.4% month-on-month growth in April, indicating a potential slowdown in US household spending.

Furthermore, major US retailers such as The Home Depot and Walmart are scheduled to announce their quarterly earnings, offering valuable assessments of the sector's overall health.

Asia

Some key economic data from major Asian economies will be in the spotlight, including Japan's first-quarter GDP, Chinese industrial production and retail sales, and Australian employment.

Japan avoided a technical recession after a revised 0.4% growth in the fourth quarter of 2023. Economists forecast that the country's economy returns to a negative growth of 0.4% in the first quarter. Japan faces the challenge of a sharp devaluation of the Japanese yen, leading to heightened import costs and contributing to inflationary pressures. This may promote the Bank of Japan to continue its monetary policy normalisation by increasing the interest rate.

China's economic data will be a key indicator for Asian markets as the country seems to accelerate economic recovery recently. Its industrial production is expected to increase 5.4% year on year in April, up from a 4.5% growth in March. China's retail sales index is also anticipated to gain momentum with a 3.9% increase from a year ago, compared to a 3.1% growth in the prior month.

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