Week Ahead
The key event for markets this week is the FOMC meeting (Tue-Wed), we also have the BoJ and BoE rate decisions. Later today we have US empire manufacturing, and we will hear from the ECB’s Kocher. Eurozone industrial production and the bloc and Germany’s ZEW survey of expectations are due on Tuesday. The UK’s employment report will also garner market attention, as will the US retail sales, industrial production and business inventory releases. On Wednesday we have eurozone and UK inflation prints, the ECB wage tracker, and US housing starts. Later markets expect the Fed to cut rates by 25bps given the weak jobs data. Fed Chair Powell’s news conference and the new dot plot will be key to markets. The BoE is expected to hold pat on rates on Thursday, and we will hear from the ECB’s President Lagarde and the central bank’s Guindos and Schnabel. The week ends with the BoJ’s expected rate hold, and later we will hear from the Fed’s Daly.
Last week, US financial markets were primarily driven by evolving expectations for the Fed’s monetary policy. Weaker-than-anticipated US jobs data, which showed a further cooling in the labour market, and mixed inflation figures reinforced investor confidence that the Fed would cut interest rates at its upcoming meeting. This boosted sentiment pushing the S&P Index to new record highs last week, up 1.59%. Meanwhile US Treasury yields rallied at the longer-end, the 10-year fell 1bps, while the 30-year closed 8bps lower, at 4.68%. The DXY index, fell 0.22% as the likelihood of a Fed rate cut reduced the dollar's appeal. Brent crude was underpinned by concerns over Russian supply disruptions amid potential sanctions and geopolitical tensions, gaining 0.28% to close at $67.27pb.
China's economy is showing mixed signals. While a recent rise in PPI suggests a small rebound from deflation, weak domestic demand for consumer goods is hindering a broader recovery. This has been highlighted by disappointing factory output and retail sales data. However, there are structural shifts in the economy. Trade with Southeast Asia is strengthening despite US tariffs, reflecting deepening supply chain integration. Domestically, there are early signs that households are shifting their savings from deposits to the stock market, a "cautious re-risking" that could support equities. In response to the economic weakness, the government is expected to introduce further stimulus measures, such as interest rate cuts or targeted spending. The key focus for policymakers is on stabilising and upgrading key industries, like the auto sector, to achieve steady, qualitative growth rather than simply quantitative expansion.
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