After a rough week, it’s time for some peace and enlightenment from the speaker of the central banks. However, we still have some concerns there that can destroy the markets. Jitters over regional banks continued to spread, with PacWest, First Horizon, and Western Alliance. In the week ahead, we must follow any updates about them while BoE also holds its next monetary policy meeting.
US Economic Outlook:
It is not going to be a busy week in the US. The market should digest the previous week’s data, while earnings reports are also about to end. On Wednesday, we will have inflation numbers. After re-increasing prices in the first and second months, the headline inflation in March printed its most minor monthly raise in about a year by only a 0.1% price raise, which brought the annual inflation to 5.0%. We expect the overall prices to stabilize in April, so we do not expect a significant change. Some expenses, like new vehicles, increased, but others, like rents, decreased, creating a balance in the general situation. Core inflation still seems stickier. We expect the core gain to slow to 5.5% from 5.6% in March, with a 0.4% monthly rise. These numbers mean that while inflation is decreasing, deflation has been much slower than earlier estimates, so we have a long way to go.
On Friday, the University of Michigan Consumer Sentiment can give us a brighter idea of the economic condition. How consumers feel plays a vital role in the way they spend money. Considering the April measure of 63.5, roughly 40 points below the reading immediately before the pandemic, tells us the levels of concern among consumers. Re-increasing energy prices, especially Gas prices, lifted inflation expectations in April and surged an entire percentage point to 4.6%. In the short term, it will still be tricky to expect inflation to fall, as mentioned earlier. For May, Michigan Consumer Expectations are supposed to fall further to 59.8 from 60.5 in April, and Consumer Sentiment is estimated at 63.0, lower than the disappointing number of 63.5 in April.
The primary market driver in the US will be Wednesday’s inflation numbers, but Fed speakers should be followed more carefully. Considering banking concerns and worries about the inflation fate, pressures can continue to stay on the US stock markets for the week ahead. The US dollar index should also move between 101 and 103 marks.
Asian Economic Outlook
The week starts with BoJ meeting minutes, which market participants can ignore, as it will not have a surprise. Still, Tuesday’s Household Spending shows little progress, which can encourage the country’s economy, where the sun rises.
China can have a more exciting week, with the trade Balance numbers for April, which is expected to ease to 74.30 bln from 88.19 bln, inflation numbers, and New Loans data. After Tuesday’s trade balance data, we hope to see slow inflation growth in April, which can raise the annual pace to 1%, in numbers that are supposed to be out on Thursday. Friday’s new loan numbers will be vital because they will tell us how Chinese business owners see the economy’s future. Overall expected data can be positive, encouraging the energy market and preventing a sharp drop in oil prices.
Europe and Eurozone Economic Outlook
While in Eurozone, it will be a very light week with only German inflation numbers on Wednesday, which is supposed to ease to 7.2% in April with a 0.4% monthly gain, the UK will get more attention.
Before Friday’s GDP numbers, we expect the Bank of England to continue its hawkish policies with another 25 bps rate hike. The UK economy has proved better than expected progress, and we expect a growth of 0.1% quarter-over-quarter in Q1-2023, the same pace as Q4-2022. January’s GDP rose 0.4% month-over-month, in February was flat, and for March, the consensus forecast is for GDP to gain just 0.1% month-over-month. While economic growth is satisfactory, inflation reduction has been much lower than expected and has raised concerns; continuing rate hike by BoE is OK.
It is worth noting that consumer inflation rose 10.1% annually in March, while the core CPI remained persistent, with a gain of 6.2%. With these expected data and decisions, the UK sterling can be strengthened to some extent against its rivals, but London Stock Markets will be under pressure.