Yesterday, Americans and Brits were celebrating holidays. European stock markets ended the day in positive territory. The DAX and CAC40 each rose by over 0.4%. The dollar slightly lost value, with the main currency pair moving towards 1.09 this morning, although it has not yet reached that level. Investors continue to anticipate a soft landing for the US economy. Currently, the market gives about a 50% chance of a rate cut in September. This week, the focus will be on the report on American consumer spending. Today’s macro calendar mainly includes data from the USA.
It seems that the key event will be Friday’s publication of the core PCE inflation data for April. Considering the previously released April CPI and PPI data, the market consensus indicates that the month-over-month increase will be at 0.3%, and the year-over-year rate will remain the same as in March, around 2.8%. If inflation does not surprise with a higher than expected result, the probability of a rate cut in September will increase, and thus the US dollar may lose value again. Positive data, however, could benefit Wall Street. The indices are already very high, so the potential for further growth is somewhat limited.
Today’s macro calendar mainly includes March housing price data and May consumer confidence results from the USA. The latter is important because sentiment has been deteriorating since January, and the market will be watching to see if this indicator has hit a bottom and if a trend reversal will occur. The negative trend in sentiment is evidence that higher interest rates are being felt, and soon the effects of restrictive monetary policy will be noticeable in hard consumption data, impacting the slowdown in economic growth in the USA over the year.
The gains in European stock markets can partly be attributed to ECB officials signaling that further rate cuts starting in June will be considered. One such voice was Francois Villeroy de Galhau, who believes that the central bank should not rule out lowering borrowing costs at both the June and July meetings, opposing other policymakers who are uncomfortable with the idea of further cuts. ECB Chief Economist Philip Lane admitted that the institution will have to maintain restrictive policy until 2024, even after cutting rates next month.
Łukasz Zembik
Oanda TMS Brokers
