Markets round-up: Investors look to economic updates this week

Next week highlights key economic indicators on both sides of the Atlantic. In the EU, the focus is on inflation data, while in the US, the focus shifts to employment figures. These key metrics provide insights into economic health, shaping market sentiment.

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European stock markets extended their winning streak in March, marking the fifth straight month of gains and ending a remarkable first quarter in 2024.

Focus on EU inflation and US jobs data

The Euro Stoxx 50 and DAX maintained their momentum, reaching new record highs as investors anticipated possible rate cuts by the European Central Bank (ECB). US stock markets also ended the month on a positive note as a surge of interest in artificial intelligence (AI) contributed to positive market sentiment.

However, a debate is emerging over whether stock markets can sustain their bullish run, as profit-taking and potential technical exhaustion lead to market corrections.

This week, investors' focus will be on two key economic indicators: inflation for the European Union and jobs data in the US. These metrics are of significant importance as they act as critical gauges in determining the monetary policies of central banks. In addition, major economies such as the EU, UK and US are set to release their final manufacturing and services Purchasing Managers' Index (PMI) data, providing further insights into the health of their respective economies.

Most major stock markets, including those in Europe, Australia and New Zealand, are closed, while the US market resumes trading on Monday.

European union

The Eurozone is set to release its Consumer Price Index (CPI) for March this week, a key economic indicator that will influence the European Central Bank's (ECB) rate decision. Given the stagnation experienced by the regional economy throughout 2023, the ECB finds itself at a critical juncture in reassessing its monetary stance.

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In February, headline inflation eased to 2.6% year-on-year, marking the lowest level in three months. A primary contributor to easing consumer price growth was the decline in energy prices. Core inflation excluding food and energy rose 3.1%, marking the slowest increase since March 2022. The upcoming data is expected to be influenced by the recovery in energy prices in the first quarter. This could lead to a delay in the ECB's decision to initiate a rate cut, which would dampen gains in the stock market.

Also, major economies in the region such as Germany, Spain, Italy and France are scheduled to release final manufacturing PMI data for March this week. While initial estimates indicate that manufacturing PMIs for all these countries are in contraction territory, expectations for stability in the pace of expansion in services PMIs for Spain and Italy remain.

With expectations of a second consecutive quarterly contraction in Q1 of 2024, Germany showed the weakest growth in these economies. Germany's manufacturing PMI fell to its lowest level in five months in March, according to preliminary data. Although the country's services PMI rose slightly from the previous month, it remained in contraction territory. Additionally, Germany is set to release its factory orders in February, showing a monthly decline of 11.3% in January. However, with expectations of a 1% increase in March, the number is expected to pick up again.

United States of America

Wall Street ended the quarter on a strong note, with the S&P 500 up 10.2%, the Dow Jones Industrial Average up 5.6% and the Nasdaq Composite up 9.1%. While the US Federal Reserve is expected to keep interest rates on hold until inflation aligns with its target level of 2%, market participants are speculating that the central bank will begin a rate-cutting cycle starting in June.

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This week, the focus will be on U.S. non-farm payrolls data for March, which is considered a key parameter for the central bank in making interest rate decisions. In February, the U.S. unemployment rate held steady at 3.9%, indicating a continued tight labor market. Consensus estimates point to roughly 200,000 new jobs being added in March, with the unemployment rate expected to remain unchanged. However, there may be a slower increase in average hourly earnings, expected to increase by 4.1% compared to 4.3% in the previous month. However, despite signs of a gradual easing, jobs data will likely contribute to persistent inflationary pressures.

Other data that shed light on the US economy are its ISM manufacturing and services PMIs. Manufacturing activity demonstrated a similar path to its global peers as the data extended a 16th consecutive month of contraction in February. The upcoming data is likely to continue the downward trend due to higher interest rates and inflationary pressures.

UK

UK stock markets ended the quarter with a modest gain of 2.6% and underperformed its global peers due to the drag of mining stocks on overall performance. However, signs of a rebound in commodity prices could instill bullish sentiment in the market, particularly benefiting mining and energy stocks.

It will be relatively quiet on the country's economic front, with key data focusing on its final manufacturing and services PMIs. Notably, UK factory activity rose to a 21-month high in March, almost reaching expansion territory, according to preliminary estimates. Additionally, PMI Services is expected to continue its expansion for the fifth consecutive month.

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Asia

As Easter Monday is a shortened week in both Australia and New Zealand, there will be a light week in the Asia-Pacific region. China also enters a three-day public holiday period from Thursday. Key events for the region include Reserve Bank of Australia (RBA) meeting minutes and Japan's household spending data for February.

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