Stocks were seen on the rebound as investors showed relief that a wider conflict in the Middle East might be averted. Gold and the dollar eased back as crude oil prices slipped following Iran’s Friday comments that it is not looking to retaliate after Israel’s reported drone attack.
With a majority of European stock markets posting a three-week losing streak, investors will be turning their attention to the manufacturing and services purchasing managers’ indices (PMIs) from major economies. Additionally, SAP and Saab AB are poised to release their first-quarter earnings.
Reflecting Wall Street’s trajectory, European stock markets declined for the third consecutive week amid prevailing risk-off sentiment. The ongoing conflict in the Middle East and a hawkish stance from the Federal Reserve (Fed) continued to weigh on equity markets, prompting investors to seek haven assets such as gold. However, the Isreal-Iran tension seems to be easing as equity markets saw a rebound in Asia, and the European stocks opened higher.
This week, investors attention will shift to leading tech company earnings results from Europe and the US. On the economic front, major global economies will unveil their flash manufacturing and services PMIs for April, providing insight into their respective economic activities.
Europe
The most influential economic data for this week will be the Euro area’s April manufacturing and services PMIs. This data is viewed as a leading indicator of economic health, as purchasing managers provide valuable insights into business confidence. While the Eurozone’s service PMI has been expanding for the past three months, the manufacturing PMI contracted for 12 consecutive months up to March. However, signs of recovery have begun to emerge as the pace of decline in manufacturing activities slowed. Consensus suggests that manufacturing activities may continue to contract, but at a softer rate in April, indicating a positive economic recovery trend.
Both France and Germany are scheduled to release their flash manufacturing PMIs for April. Germany’s economy is particularly closely monitored, given that its March data indicated expansion in the services sector for the first time in six months, with a slight easing of contraction in the manufacturing PMI. Germany’s composite PMI, which combines services and manufacturing, climbed to a four-month high of 47.7 (where 50 marks the threshold between expansion and contraction). In France, both the manufacturing and services PMIs stayed in contractionary territory due to weak demand in Asia, although the pace of decline slowed in March.
In contrast, British factories reported the first growth in 20 months in March, with the manufacturing PMI increasing to 50.3. The services sector has been expanding for the last five months, suggesting the UK’s economy started the first quarter on a positive note.
As for company earnings, the German software company, SAP and the Swedish aerospace and defence company, Saab AB, are set to release their first-quarter earnings this week. SAP’s earnings will be critical for the technology stocks’ trajectory following the sector’s sharp declines in the recent week. Meanwhile, the outcome of Saab AB’s earnings will provide insights into the outstanding defence sector. Saab AB’s shares surged approximate 45% year-to-date due to increasing defence spending. The share has more than tripled since the Ukraine-Russian war started.
The US
The US holds pivotal importance in guiding the global market sentiment due to the dominant volume in its financial markets and the size of the economy.
It will be a busy week on Wall Street with major US tech companies, including Tesla, Meta Platforms, Alphabet, Intel, and Microsoft due to release their earnings. The US technology stocks entered a correction phase in April following the record-breaking bullish runs in the first quarter. The magnificent seven stocks comprise more than 40% of the Nasdaq 100 and nearly 30% of the S&P 500. Hence, these major earnings results are critical in shaping the future market’s trends.
The economic calendar will also be packed with key indicators, such as the US first-quarter advanced GDP, the Personal Consumption Expenditure (PCE), and the manufacturing & services PMIs. The US economy showed surprisingly resilient in the final quarter of 2023 with its GDP revising up to 3.4% at an annualised rate. Consensus forecasts a 2.5% rate for the first quarter, indicating a potential slowdown in the country’s economic growth. Meanwhile, the PCE is considered the Feds’ favourite measure of inflation, influencing the central bank’s interest rate decision. The headline PCE increased by 2.5% year on year in February, remaining above the Fed’s target of 2%. The March data will be due for release this week.
Asia
Following the global trend, most Asian stock markets experienced declines last week. But notably, the Chinese mainland stock markets outperformed global peers following the stronger-than-expected first-quarter GDP data. The People’s Bank of China (PBOC)’s rate decision on its 1-year and 5-year loan prime rates will be in the spotlight for the country this week. The Chinese government has been implementing stimulus measures to support the faltering economic recovery, and any further steps to reduce these key mortgage rates will be viewed as positive signs for the economy.
Furthermore, the Bank of Japan’s (BOJ) rate decision is critical for the global markets, especially since the bank ended its negative interest rate regime for the first time since 2016 in March. With the Japanese Yen weakening to historic lows, expectations for the bank to intervene in the exchange rate have heightened. Signals indicating further tightening of monetary policy may lead to a rebound in the Yen but could exert further pressure on Japanese stock markets.