Back on the rate cut track
2024.05.06 00:40
A look at the day ahead in European and global markets from Rae Wee
European markets will be waking up to a fairly quiet session with London closed for a holiday and little on the economic calendar to stand in the way of the latest rate-cut rally.
Investors will be hoping the rise in risk appetite following Federal Reserve Chair Jerome Powell’s relatively dovish steer on the U.S. interest rate outlook continues this week, after Wall Street and the hit three-week highs on Friday.
The index on Monday climbed to its highest since February 2023 while mainland stocks in China got off to a solid start after returning from the extended Labour Day break, in a sign that fragile investor sentiment is finally turning.
Even the long wait for a solid rebound in the Chinese economy seems to be bearing fruit, with a private gauge showing the country’s services activity expanded, albeit at a slower pace. Growth in new orders accelerated and business sentiment rose solidly last month.
Elsewhere, U.S. earnings have, on the whole, been strong and company guidance generally bullish, the Fed appears reluctant to raise rates again and signs of softer economic data are keeping hopes of rate cuts this year alive.
Global and emerging market financial conditions eased significantly last week, and are now the loosest since March 22, Goldman Sachs’ financial conditions indicators show.
A slew of Fed speakers are on the docket this week, and investors betting on an eventual rate-easing cycle this year expect policymakers to sing from the same hymn sheet as Powell after Friday’s benign U.S. jobs report.
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And while lower U.S. rates would ease the pressure on most other currencies, over in Japan, that would only have a miniscule impact given stark interest rate differentials are likely to remain.
The yen was back on the back foot on Monday after last week’s suspected intervention from Japanese authorities, which sent the currency swinging roughly eight yen in the span of a week.
Market participants bet last week’s moves are not the last we’ve seen of the Japanese authorities’ preference for striking during hours of thin liquidity. That could make Monday’s Europe session an opportune time for yet another round of yen buying.
Key developments that could influence markets on Monday:
– Germany HCOB services PMI (April)
– France HCOB services PMI (April)
– Euro zone producer prices (March)
