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Weekly Market Outlook – European PMIs, Canadian CPI & Chinese GDP in Focus

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Weekly Market Outlook – There are no central bank meetings this week, but investors will still be kept busy with plenty of data releases. The week will begin with China’s GDP numbers, which will reveal the initial effects of the lockdown. The final PMI reads for Germany are scheduled for Friday. The Canadian dollar will be watching for inflation data on Wednesday and retail sales on Friday.

EUR – German PMIs Slowdown

Wednesday will be a busy day with the release of European industrial production, trade data, and German wholesale inflation data. Thursday’s final Eurozone inflation and flash consumer confidence numbers will also be of interest. Key figures for the week will be the preliminaries of the April private sector PMIs for France, Germany, and the Eurozone. In addition to the headline numbers, we can anticipate inflation, new orders, and supply chain updates to draw a lot of attention. 

The Eurozone economy appears to be slowing down. Increasing energy and food prices are reducing real incomes, forcing people to spend more on necessities and limiting their ability to consume everything else. With China’s economy slowing down, European exports will inevitably suffer. Although ‘hard’ data haven’t yet reflected this, soft indicators such as business and consumer confidence indices have begun to show. 

Weekly Market Outlook

The European Central Bank cannot help this time as the risk of recession is rising and inflation is running wild. Therefore, it has no choice but to raise interest rates, dampening growth even further. The PMI business surveys for April will reveal exactly how high the risk of recession is on Friday. Forecasts suggest only a slight decline, with the manufacturing and services indices remaining comfortably over the 50-point threshold.  

According to economists, the continued rollback of covid measures has negated the impact of rising living costs. Nevertheless, if the PMIs mirror the weakening of softer indicators, this view might be overly optimistic. As for the Euro, the current situation is negative, so any relief rally may be small until the growth outlook improves. It is unlikely for that to happen until there is a ceasefire in Ukraine and the French presidential election is over.

CNY – China’s GDP Growth Seen Slowing

China releases its GDP statistics for the first quarter as well as retail sales, fixed-asset investment, and industrial production data. It is expected that all the indicators for March will have cooled dramatically, with retail sales almost at a standstill.  

China’s economic growth has been hit hard by the latest round of draconian lockdowns. Authorities have increased efforts to stop a variant that is almost unstoppable and, in the process, has caused significant economic damage. The indications are strong. The PMI indexes dropped below 50 in March, indicating a contraction in economic activity. The upcoming batch of data is likely to confirm this. 

Weekly Market Outlook,Inflation Market Analysis
GDP growth

Despite this, real GDP growth is not expected to plunge below 4%, thanks to the infrastructure push, the reporting methods, and the surprisingly strong January and February data. According to the survey, quarterly growth will fall from 1.6% in October-December to 0.6% in the first quarter.

CAD – Loonie awaits more Rate Hikes

The inflation figures for Wednesday will be watched closely as a further pickup in inflationary pressures would support a second-rate hike, given the positive growth outlook from the Bank of Canada following its recent 50bp rate hike. Retail sales on Friday will also have a significant impact. 

BoC has clearly stepped-up efforts to combat high inflation. It will be welcomed by many market players, as the bank fell far on the inflation curve, with Macklem insisting that inflation would ease on its own. Canada’s labour market is doing well, and recent strong job report may have influenced the Bank of Canada to raise rates by 0.50%. According to the Bureau of Labor Statistics, 72.5 thousand jobs were added in March and the unemployment rate fell from 5.5% to 5.3%.

USD – The Reserve Currency Continues to Shine

In spite of expectations that the Fed will raise interest rates with brute force to tame inflation, the US dollar continues to dominate other currencies. The strong US economy has been complemented by the storm clouds gathering over Europe and China that have allowed the reserve currency to shine.

Weekly Market Outlook

Market PMIs will be a key release this week, which will give traders an early glimpse into how inflationary pressures are evolving and could thus be important in shaping Fed bets. In light of that, it’s difficult for market pricing to get even more aggressive, as there are already nine rate hikes scheduled for this year.

GBP – PMIs for April in Focus

Friday marks the release of the April PMIs as well as the March retail sales figures. Following the 7% inflation rate in the UK, the pound got a boost recently, fueling speculation that the BoE will slam on the brakes even harder. Nonetheless, the sterling seems to be more sensitive to swings in risk sentiment than to UK developments lately.  

On Thursday, BoE Governor Bailey may provide hints on the BoE outlook in his speech at Macro Week 2022. As things stand, the chances are he will not reinforce rate expectations and the GBP is likely get pressured.

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