LONDON, May 3 (Reuters) – The central banks of Australia, Britain and Sweden will meet next week as markets assess how much room the U.S. Federal Reserve (Fed) has to cut rates directors this year.
Overview of the market outlook in the coming days:
1/ QUESTIONING THE “GOLDILOCKS” SCENARIO?
American consumers will be at the center of attention next Friday with the publication of the first estimate of household morale for the month of May calculated by the University of Michigan.
This indicator will provide insight into their expectations on inflation and the economic outlook as the recent persistence of inflationary pressures begins to cast doubt on the narrative of resilient growth and falling consumer prices. This so-called “Goldilocks” scenario has so far supported the stock markets.
A sign that rising prices are denting consumer sentiment could encourage the Fed to keep rates high, putting further pressure on stocks and bonds.
The Fed deplored on Wednesday, at the end of its monetary policy meeting, a too slow reduction in inflation, while leaving the door open to rate cuts this year.
Economists polled by Reuters expect the consumer confidence index to rise to 77.9 from 77.2 in April.
2/ OUTSIDE THE AMERICAN MARKET
Faced with uncertainties linked to doubts about a rate cut by the Fed this year, investors are seeking to diversify to protect themselves from the turbulence in the American markets.
One of Wall Street’s flagship indexes, the S&P 500, fell more than 4% in April, while Treasuries last month posted their worst monthly performance since September.
In this context, eyes are turning to Europe, particularly in Great Britain, where the FTSE 100 index in London is considered a refuge compared to the S&P 500 dominated by technology stocks.
The FTSE 100, rich in so-called “value” sectors, that is to say undervalued, such as oil and mining, is currently close to its all-time highs.
But it’s difficult to insulate a portfolio from Wall Street’s fluctuations. Investment bank Baird estimates that the long-term correlation rate between the European Stoxx 600 and the S&P 500 is almost 90%. Barclays calculates that a one percentage point rise in U.S. Treasury yields typically leads to a 56 basis point rise in global yields.
3/ PATIENCE IN SIGHT
The Bank of England (BoE) is due to publish its monetary policy decision and new quarterly economic forecasts on Thursday.
While at the start of the year, members of its Monetary Policy Committee (MPC) openly discussed the possibility of a rate cut, actual data and business surveys have painted a rather mixed picture of pressures on prices in the British economy, a situation similar to that in the United States.
More and more investors are betting that the BoE could have to wait until September before a first reduction in its key rates, given the lack of new data expected by next Thursday.
Monthly UK gross domestic product (GDP) figures will be released on May 10.
Elsewhere in Europe, after the Swiss National Bank (SNB), Sweden is seen as the second major country likely to start cutting rates following the Riksbank’s May 8 meeting, with inflation falling faster than foreseen.
The Norwegian central bank opted for the status quo this Friday and could extend its restrictive policy.
4/ AUSTRALIAN INFLATION SURPRISES
The Reserve Bank of Australia (RBA) meets on May 7 and the timing is particularly good since first quarter inflation was higher than expected.
No policy changes are expected, but markets will closely monitor comments from Governor Michelle Bullock.
With inflation having risen to 1% in the first quarter compared to 0.8% expected, the markets have revised downwards the probability that the RBA will raise its rates again. Some observers note, however, that this revision also coincides with an unexpected drop in retail sales in Australia in March.
(Writing by Rae Wee in Singapore, Ira Iosebashvili in New York, Andy Bruce in Manchester, Naomi Rovnick and Marc Jones in London; graphics by Pasit Kongkunakornkul, Kripa Jayaram, Prinz Magtulis and Marc Jones; compiled by Dhara Ranasinghe; French version Claude Chendjou , edited by Blandine Hénault)
©2024 Thomson Reuters, all rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. “Reuters” and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.