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Weekly Market Outlook: Eyes on Inflation data and European PMIs

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Markets are expected to witness a calm trading week for the second consecutive week, in the absence of major market movers. Some central banks, including the Fed and Reserve Bank of Australia, are scheduled to release their policy meeting minutes, but neither is expected to be of interest to market participants. The focus will be on main inflation data to be released during the week and the PMIs in the eurozone area. 

Fed and RBA Meeting Minutes

Reserve Bank of Australia will release its policy meeting minutes on Tuesday morning, while the Fed is expected to release them on Wednesday. Neither of them is expected to show a different view of the local economies from those shared in the official statements from both sides. 

The Reserve Bank of Australia (RBA) kept the official interest rate at 0.10% as widely expected but revealed an upbeat outlook.  The Reserve Bank expects the economy to grow faster and unemployment to keep falling further than it did just three months ago. The Reserve Bank updated its key economic forecasts and now expects GDP to expand by 4.75 % this year and 3.5% over 2022.

In its April meeting, The Federal Reserve has kept the Fed funds rate range unchanged between 0-0.25%, while maintaining monthly QE asset purchases kept at $120bn. Despite no policy change from the Federal Reserve meeting this week, an upbeat economic outlook raised hopes about QE tapering. Some market participants now expect the Fed to taper asset purchases later this year and rates may rise sooner than the Fed expected in 2024.

GBP and CAD await Inflation Data

Annual inflation in the UK is expected to jump by 1.4% during April, after 0.7% recorded in the previous month. Expectations refer to a rise in core inflation as well, but at a slower pace. Core CPI is seen at 1.3% in April. The Bank of England has announced tapering its QE pace amid rising vaccination rates and receding Covid-19 transmission in the April meeting and now expects the economy to meet and maybe exceed its pre-pandemic level later this year. 

In Canada, CPI is projected to rise to 4.3% annually in April, up from 3.2% in March.  BoC Core CPI, the central bank’s preferred gauge, is expected to rise to 1.3%, slightly lower than the March read of 1.4%. Retail Sales data are scheduled on Friday after sparkling numbers recorded back in February. March consensus stands at 3.7% for the headline read and 4.0% for core sales. Consumer spending is closely watched by market participants and significant deviation from expectations could certainly move the loonie.

Eurozone Flash PMIs

For euro traders, the main focus of the week will be the PMIs data for May. Acceleration in vaccination numbers has allowed several European countries to reopen and the European economy is finally starting to show signs of recovery. Upcoming data are expected to confirm that.

Flash PMI index for the service sector, the driving sector of the Eurozone economy, is expected to climb to 52.0 from 50.5 in April, while the manufacturing PMI is seen at 62.5, slightly lower than 62.9 points back in March. However, data are mostly priced in, so we need to see significant readings to influence the euro. The single currency has achieved a solid recovery in the second quarter as the outlook improved.

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