Markets round-up: Economic updates investors are watching this week

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

EU inflation and US Job Data in focus

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

However, there is a debate emerging regarding whether the stock markets can sustain their bullish run, as concerns over profit-taking and potential tech exhaustion may lead to market corrections.

This week, investors’ attention will be squarely on two key economic indicators: the inflation reading for the European Union and job data in the US. These metrics hold significant importance as they serve as crucial gauges for central banks in determining their monetary policies. Additionally, major economies such as the EU, the UK, and the 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 exchanges, including those in Europe, Australia, and New Zealand, remain closed, while the US market resumes trading on Monday.

The EU

The Eurozone is poised to release its Consumer Price Index (CPI) for March this week, which is considered a pivotal economic indicator influencing the European Central Bank’s (ECB) rate decision. The ECB finds itself at a critical juncture in reassessing its monetary stance, given the stagnation experienced by the regional economy throughout 2023. 

In February, headline inflation dropped to 2.6% year-on-year, marking the lowest level in the past three months. The primary contributor to this easing of consumer price growth was a decline in energy prices. Core inflation, which excludes food and energy, rose by 3.1%, also representing the slowest increase since March 2022. The forthcoming data is anticipated to be influenced by the rebound in energy prices during the first quarter. This may lead to a delay in the ECB’s decision to initiate a rate cut, potentially capping gains in the stock market.

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

Germany exhibited the weakest growth among these economies, with expectations of a second consecutive quarter of contraction in Q1 of 2024. According to initial data, Germany’s manufacturing PMI fell to its lowest level in the past five months in March. Although the country’s services PMI saw a slight increase from the previous month, it remained in contraction territory. Additionally, Germany is set to release its factory orders for February, with data showing an 11.3% monthly decline in January. However, there is optimism that this figure will rebound, with expectations of a 1% increase in March.

The US

Wall Street concluded the quarter on a strong note, with the S&P 500 rising by 10.2%, the Dow Jones Industrial Average increasing by 5.6%, and the Nasdaq Composite gaining 9.1%. While the US Federal Reserve is anticipated to maintain interest rates until inflation aligns with its target level of 2%, market participants are speculating that the central bank will commence a rate-cut cycle starting in June.

This week, the US non-farm payroll data for March will be in the spotlight, which is seen as an important parameter for the Fed to make decisions on the interest rate. In February, the US unemployment rate held steady at 3.9%, indicating a persistently tight labour market. Consensus estimates suggest the addition of approximately 200,000 new jobs in March, with the unemployment rate expected to remain unchanged. However, there may be a slower pace of increase in average hourly earnings, projected to rise by 4.1% compared to 4.3% in the previous month. Nevertheless, despite indications of gradual easing, the job data is likely to contribute to persistent inflationary pressures.

Other data that sheds light on the US economy is its ISM manufacturing and services PMIs. The manufacturing activities demonstrated a similar trajectory with 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 high-interest rates and inflationary pressures.

The UK

The UK’s stock markets closed the quarter with a modest gain of 2.6% and underperformed its global peers, largely due to the drag from mining stocks on overall performance. However, signs of a rebound in commodity prices could potentially inject bullish sentiment into the market, particularly benefiting mining and energy stocks.

It will be relatively quiet on the economic front for the country, with key data focusing on its final manufacturing and services PMIs. Notably, the initial estimates showed that the UK’s factory activity rose to a 21-month high in March, nearly reaching expansion territory. Additionally, the services PMI is anticipated to continue its expansion for the fifth consecutive month.

Asia

There will be also a light week in the Asia-Pacific region due to a shortened week in both Australia and New Zealand for Easter Monday. China will also enter a three-day public holiday period for its Tomb-sweeping Day holiday starting from Thursday. Key events for the region will include the release of the Reserve Bank of Australia (RBA)’s meeting minutes and Japan’s household spending data for February.