On the markets, PMIs put to the test of commercial and geopolitical tensions

(Repetition without change of a dispatch published on May 17)

May 20 (Reuters) – Markets want to believe in an improving economic outlook around the world despite growing trade tensions likely to dampen activity as monthly PMI figures are released soon.

The meeting of G7 finance ministers against the backdrop of Russia’s strategic offensive in Ukraine, the publication of Nvidia’s results, the relaunch of IPOs in London and the monetary policy decisions of the New Zealand central bank are the other major investor concerns.

Overview of the market outlook in the coming days:

1/ CLOUDS ON THE HORIZON FOR PMI

The May figures for activity in the major economic zones, which will be published in the coming days, should reinforce optimism about the global outlook.

A slow recovery in the euro zone appears to be underway after six consecutive quarters of stagnation, or even contraction, given data on gross domestic product published last Wednesday in the bloc, which stood at +0.3% over the January-March period. .

At the same time, inflationary pressures are falling according to the latest report on consumer prices (CPI) in the United States.

China, for its part, recorded faster growth than expected in the first quarter.

The PMI indices around the world expected next week should therefore remain on the positive side separating the 50 mark.

However, new tariffs imposed by US President Joe Biden on Chinese imports, ranging from electric vehicle batteries to computer chips, pose a threat to the outlook for global trade and growth. China has promised retaliatory measures against Washington’s customs policy.

Manufacturers in Germany, Europe’s largest economy, are already facing adjustments in global trade and geopolitics. The worsening of trade tensions, a few months before the election of the next American president, could penalize them further. These tensions could also compromise the recovery in China and revive inflation in the United States.

2/ NVIDIA FEATURED

Nvidia’s quarterly results, to be released next Wednesday, could set the tone for U.S. stock markets and ripple through companies exposed to artificial intelligence (AI), a promising area driving part of the rally actions.

The semiconductor giant, the main beneficiary of the AI ​​craze, is expected to announce a significant increase in its turnover and profit for the first quarter of its annual fiscal year.

Revenue is expected to rise to $24.8 billion, up from $7.2 billion a year earlier, while earnings per share are expected to rise to $5.57 from $1.09, according to LSEG data .

But for the stock price, which has soared by more than 90% since the start of the year, to continue on the upward slope, Nvidia will undoubtedly have to meet the high expectations placed on it. The stock has also more than tripled in 2023, making Nvidia the third largest American market capitalization.

3/ LONDON WANTS TO SEDUCE IN THE IPO

Studies showing a weakening of the London stock market are multiplying: according to Dealogic, since the start of the year London has only hosted 1% of initial public offerings (IPOs) in Europe in terms of volume.

But the situation could improve in the near future, with several big names being cited as potential candidates for a London listing.

Chinese fashion brand Shein is stepping up its preparations for a possible IPO in the UK market. This, valued at $66 billion, could be the largest in the history of the London market. An IPO of diamond company De Beers is also expected in London.

4/ PESSIMISM OF THE BANK OF NEW ZEALAND

The New Zealand Central Bank (RBNZ) was the first major monetary institution to ease monetary policy at the start of the COVID-19 pandemic and the first to subsequently increase it.

On Wednesday, it is expected to leave its key rates unchanged for the seventh consecutive meeting. But persistent inflation combined with a weakening economy should lead the central bank to remain in a posture it adopted a year ago, namely “watch, worry and wait”.

Markets expect the RBNZ to cut rates only in October, well after the European Central Bank (ECB), which is expected to ease its monetary policy in June. The first cut in borrowing costs from the Bank of England (BoE) is expected in August and that from the US Federal Reserve (Fed) in September. Switzerland and Sweden have started to reduce their key rates.

The RBNZ itself does not anticipate a drop in interest rates until next year.

5/ FROZEN RUSSIAN ASSETS

Finance ministers from the G7 countries will meet on May 24 and 25 in Italy, the country which holds the rotating presidency of the group of seven major democracies. They should on this occasion support a European Union plan to use part of frozen Russian assets to contribute to Ukraine’s war effort against Russia.

The likely release of additional funding comes at a critical time for Ukraine, which faces a new Russian offensive in the Kharkiv region in the east of the country, even though NATO believes that Moscow is not unable to make a strategic breakthrough in the region.

The G7 froze some $300 billion in financial assets shortly after its neighbor’s invasion of Ukraine in February 2022. Since then, a debate has started over whether to use these funds to help Ukraine. While Washington has proposed seizing all of the assets, Europe is opposed to it for the moment, citing risks for the euro and a potential legal conflict.

(Writing by Kevin Buckland in Tokyo, Lewis Krauskopf in New York and Anousha Sakoui, Dhara Ranasinghe and Karin Strohecker in London; graphics by Pasit Kongkunakornkul, Kripa Jayaram, Sumanta Sen, Prinz Magtulis and Riddhima Talwani; compiled by Karin Strohecker; French version Claude Chendjou, edited by Kate Entringer)