Ankur Banerjee’s outlook on the day ahead for European and global markets
The wait is almost over, with inflation reports from Europe and the United States dominating the day, with any surprises likely to impact markets as investors weigh changes in global interest rate expectations.
First is the euro zone inflation data. According to Reuters, after stabilizing at 2.4% in the past few months, euro zone inflation data is expected to reach 2.5% in May, while core inflation is expected to stabilize at 2.7%.
Investors will analyze the data to gauge the ECB’s likely interest rate trajectory. While a rate cut in June is almost a certainty, the focus is entirely on what happens next.
As a result, investors can be extremely sensitive to even small fluctuations or mistakes.
The market expects the European Central Bank to cut interest rates by 60 basis points this year, but this will largely depend on inflation and wage growth data in the coming months.
Futures pointed to a muted opening for European stocks, with the pan-European index hitting a more than three-week low on Thursday, but on track to gain 2% this month.
A downward revision to U.S. GDP on Thursday raised expectations that the Federal Reserve has room to cut interest rates this year, even as investors took bad news (weak growth) as bad news, sending U.S. stocks, the dollar and Treasury yields lower.
The market expects the Federal Reserve to cut interest rates by 35 basis points this year, and the possibility of a rate cut in September is 50%.
Changing expectations around U.S. interest rates are taking a toll on the dollar, which is set for its first monthly decline this year against the euro, pound and even the yen, although the yen’s small gains were due to suspected intervention.
During the Asian session, stocks were broadly higher while the U.S. dollar readjusted. Chinese stocks rose despite data showing an unexpected fall in manufacturing activity in May, according to an official factory survey.
Meanwhile, markets have so far buoyed Donald Trump on Thursday as he became the first U.S. president to be convicted after a New York jury found him guilty of forging documents to cover up payments to porn stars to silence them. The verdict was unimpressed.
Shares of Trump Media & Technology Group, the parent company of The Truth Social, in which Trump holds a majority stake, fell 6.5% on Thursday night.
Key developments that could affect the market on Friday:
Economic events: Eurozone and French inflation reports for May, German retail sales data for April
