This week, the European Central Bank (ECB) will decide on the interest rate, a decision critical for the European stock market and the Euro’s trend.
ADVERTISEMENTSome influential economic data and events are set to drive sentiment and shape market trends this week. The ECB’s rate decision is one of the most critical events that investors will focus on. Federal Reserve (Fed) Chairman Jerome Powell is also scheduled to give a speech, providing outlooks for the rate path. Moreover, China is due to release its second-quarter GDP, alongside other important economic indicators.
Europe
The ECB will hold its policy meeting on Thursday, with expectations that it will hold the main refinancing rate, the interest rate on the marginal lending facility, and the deposit facility at 4.25%, 4.50%, and 3.75%, respectively.
The ECB delivered its first rate cut since 2019 in June after nine months of holding the rate steady. However, it was seen as a hawkish cut, as ECB President Christine Lagarde indicated that the rate path would be “data dependent” and decided “meeting by meeting.” Inflation in the Euro area dropped to 2.5% in June from 2.6% the previous month, remaining above the bank’s target level of 2%. While inflationary pressure still lingers in some member economies, a recent resurgence in wage growth and an ongoing tight labour market may delay the ECB’s second cut. Markets expect that the next rate reduction will be in September.
Additionally, Germany will release its ZEW economic sentiment for July. The ZEW economic sentiment rose to 47.5 in June from 47.1 the previous month, the highest since February 2022. This indicates that the German economic recovery may be picking up. However, consensus suggests that data may sharply decline to 41.2 in July.
In the UK, the monthly Consumer Price Index (CPI) for June is due for release on Wednesday. The country’s inflation cooled to 2% year on year in May from 2.3% in April, the lowest in nearly three years. The data is expected to further ease to 1.9% year on year in June. However, the Bank of England (BoE) may remain restrictive about its monetary policy as it may want to see more evidence that the cooling inflation is sustainable. Other economic data including the employment change, the average earnings, and the retail sales for June, are also due for release this week, gauging the UK’s economic trajectory.
The US
On Wall Street, the Fed Chair Powell’s speech at the Economic Club of Washington DC. will be in the spotlight this week. Last week, Powell indicated, “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.” His remarks heightened hopes for the bank to commence rate cuts as soon as September. And the cooler-than-expected inflation data for June further strengthened these bets.
The retail sales data for June is another influential indicator for investors. Consumer spending showed weakness in recent months, as retail sales only grew by 0.1% in May from the previous month, following a downwardly revised 0.2% drop in April. Falling retail sales tend to help ease inflation and provide a positive signal to the stock markets, as the data encourages rate cuts by the Fed.
Additionally, the US earnings season will roll on, with the first big tech, Netflix, reporting its quarterly performance on Thursday. Its result will measure the health of technology companies in the US and set the tone for tech earnings.
Asia Pacific
On Monday, China’s GDP data for the second quarter hold significant importance for the global markets. China’s economy grew by 5.3% at an annualised pace in the first quarter, slightly picking up from 5.2% in the final quarter of 2023. According to the survey conducted by Bloomberg, China’s economy is expected to grow by 5% in the second quarter, matching its target for economic growth of 5% for 2024. The second-largest world economy will also release other data, including industrial production, fixed assets investment, and retail sales on the same day.
Furthermore, China is set to start the third plenum, addressing the property downturn, measures to support technology advances, and other fiscal policies this week. The event is critical for the country and global markets, as more stimulus measures are expected.
Elsewhere, New Zealand’s second-quarter inflation data and Australia’s employment change will also be closely watched in the respective regional markets.
