Ankur Banerjee, European and Global Markets Specialist The days of waiting are almost over as inflation reports from Europe and the United States are on the agenda, with any surprises likely to influence the markets then as investors assess changing expectations on global rates.
First, eurozone inflation is expected to settle at 2.5% in May, after remaining stable at 2.4% over the past two months, while core inflation is expected to remain stable at 2.7%, according to a Reuters poll.
Investors will analyze the data to gauge the path the European Central Bank is likely to take on rates. Although a June rate cut is all but certain, the focus is on what happens next.
This is why investors should be extremely sensitive to the slightest variation, whether positive or negative.
Markets are pricing in a 60 basis point cut in ECB rates this year, but much will depend on inflation and wage growth over the coming months.
Futures indicate that European stock markets are expected to open mixed, with the pan-European STOXX 600 index hitting a more than three-week low on Thursday, but on track for a 2% gain over the month.
A downward revision to U.S. GDP on Thursday fueled expectations that the Federal Reserve has room to cut rates this year, although investors for once took the bad news (of weaker growth) as bad news, sending U.S. stocks, the dollar and Treasury yields lower.
Markets are pricing in a 35 basis point rate cut from the Fed this year, with a 50% chance of a rate cut in September.
Constantly shifting expectations for US rates have weighed on the dollar, which is expected to record its first monthly loss of the year against the euro, pound sterling, Australian, kiwi and even the yen , although the yen’s tiny gain was the result of the alleged intervention earlier this month.
In Asia, stocks generally rose, while the dollar rallied. Chinese stocks rose even as data showed the country’s manufacturing activity fell unexpectedly in May, according to an official survey of factories.
Markets have so far shrugged off the verdict of Donald Trump, who on Thursday became the first US president to be convicted of a crime, when a New York jury found him guilty of falsifying documents to hide a payment intended to silence a porn star before the 2016 election.
Shares of The Truth Social parent Trump Media & Technology Group, majority-owned by Trump, fell 6.5% late Thursday after the verdict.
Main developments likely to influence the markets on Friday:
Economic Events: May inflation report for Eurozone and France, April retail sales data for Germany.
