(Reuters) – Markets are looking for confirmation from the European Central Bank that a June rate cut is really coming, though oil is on the rise again, clouding the inflation picture – and giving policy makers in Canada, New Zealand and Korea food for thought.
China gears up to release a deluge of key data and U.S. banks kick off the earnings season.
Here’s your week ahead primer in world markets from Yoruk Bahceli in Amsterdam, Lewis Krauskopf in New York, Kevin Buckland in Tokyo, and Dhara Ranasinghe and Amanda Cooper in London.
1/ SEEKING THE GREEN LIGHT
The European Central Bank meets on Thursday in what is likely the final hurdle before it starts cutting interest rates.
Traders see a nearly 100% chance of a 25 basis-point cut in June, so a green light is crucial to uphold market sentiment. A flurry of policymakers have explicitly signalled June as the date of a first move. Even Austria’s uber-hawk governor Robert Holzmann is not opposed.
Data showing inflation falling unexpectedly to 2.4% in March should give the ECB further confidence.
So the ECB is very likely to signal rate cuts are coming.
The question is how explicit policymakers will be about June, given they want to review first-quarter wage growth figures that will be released in May.
2/ A CRUDE CIRCLE
Rising geopolitical turmoil and supply disruption in a number of production hot-spots are pushing oil prices back towards $90 a barrel for the first time in months.
Central banks tend to focus on so-called core measures of inflation that strip out energy and food prices. But for businesses on the ground, there’s no taking the crude price out of the equation. And the assumption that the U.S. Fed might cut rates by less than its peers has pushed the dollar up almost across the board this year.
That in turn has undermined the purchasing power of big buyers in China, Japan, India and South Korea, raising their energy import bills.
All this complicates life for those countries’ monetary authorities, which have either intervened, or threatened to intervene, to prop up their currencies to prevent a vicious-circle type of pickup in inflation.
3/ BANK LINE UP
Market fixation on U.S. monetary policy will be somewhat diverted in the coming week, as quarterly reports from major banks kick off earnings season.
Following strong fourth-quarter results to end-2023, S&P 500 companies are expected to post a 5% year-on-year rise in first-quarter earnings, according to LSEG IBES.
Investors are counting on robust corporate profit this year to support rising valuations as the stock market has rallied to record highs. The S&P 500’s price-to-earnings ratio is hovering at its highest in about two years.
JPMorgan Chase, Citigroup and Wells Fargo all report results on April 12. Delta Air Lines and BlackRock are among other notable companies set to provide quarterly updates in the days ahead.
4/ RED SHOOTS
Promising signs of a long-awaited turnaround in China’s economy keep building, helping keep stocks close to multi-month highs into a two-day public holiday from Thursday.
The Shanghai Composite recently enjoyed its biggest rally in a month after data showed the fastest expansion in manufacturing for more than a year. That was followed by even more hopeful numbers showing an acceleration in services activity, hinting that consumer animal spirits might finally be stirring.
The coming days bring a parade of fresh indicators that could support or subvert that optimism: consumer and producer price indexes on Thursday and trade data on Friday.
These will be important litmus tests of consumer appetite. The consumer price index meanwhile will be key since the first rise for six months in the previous batch of data is what helped Chinese stocks scale post-November peaks, though figures were potentially skewed by Lunar New Year holidays.
5/ DELICATE
Rate setters elsewhere in the world are sandwiching the ECB: Canada and New Zealand meet on Wednesday, Singapore and South Korea on Friday.
No rate changes anticipated, but traders want a sense of when rate cuts will come and how policymakers will navigate a delicate balancing act. Markets have trimmed bets for a June Canada rate cut after news the economy grew by 0.6% in January, its fastest growth rate in a year.
New Zealand is in technical recession but with inflation still above 4.5%, easing is not expected until August.
Singapore is grappling with sticky inflation and the risk of elevated price pressures for longer as recent Taylor Swift concerts fuelled service-sector price rises.
And Korea’s central bank said in February it was too early to pivot with the path for inflation, at 3.1%, uncertain. Markets only bet on it cutting rates late this year.
(Graphics by Pasit Kongkunakornul, Sumanta Sen, Vineet Sachdev and Kripa Jayaram, Compiled by Karin Strohecker; Editing by Christopher Cushing)
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