Market Outlook for the Week of 22 - 26 May

The upcoming week is expected to be relatively calm in terms of economic events, although there are still several important data releases to keep an eye on. On Tuesday, attention will be on the euro area's Flash Manufacturing PMIs and Flash Services PMIs, as well as the U.K.'s Flash Manufacturing PMI and Flash Services PMI. Additionally, the U.S. will release its Flash Manufacturing PMI, Flash Services PMI, New Home Sales, and the Richmond Manufacturing Index.

Wednesday all eyes will be on the RBNZ Monetary Policy Announcement. In the U.K., the focus will be on the CPI data, while BoE Governor Bailey is scheduled to speak at the Net Zero Delivery Summit in London. The U.S. will release the FOMC meeting minutes on the same day.

Thursday's highlight in the U.S. will be the release of the Prelim GDP GDP Gross Domestic Product (GDP) is the monetary value of all the goods and services produced within a country's borders in a specific period of time, typically a year. It is used to measure the economic activity and growth of a country. Periods shorter than a year are often presented in an annualized or year-over-year format.There are three ways to calculate GDP:The expenditure approach: GDP is calculated by adding up all the spending on goods and services within a country. This includes consumer s Gross Domestic Product (GDP) is the monetary value of all the goods and services produced within a country's borders in a specific period of time, typically a year. It is used to measure the economic activity and growth of a country. Periods shorter than a year are often presented in an annualized or year-over-year format.There are three ways to calculate GDP:The expenditure approach: GDP is calculated by adding up all the spending on goods and services within a country. This includes consumer s Read this Term q/q, providing insights into the country's economic growth.

Finally, on Friday, the U.S. will unveil the Core PCE price index m/m, revised UoM consumer sentiment, and revised UoM inflation expectations, shedding light on consumer spending and inflationary pressures.

Though the upcoming week may not be filled with many events, these key data releases and announcements have the potential to shape market sentiment.

The Eurozone PMIs reflect the recent performance of the eurozone economy, and at the start of the year, there were positive indications. The services PMI showed improvement, rising from its lowest level last year of 48.5 to reach 56.2 in April. However, the manufacturing PMI remained in contraction territory, recording a figure of 45.8 last month. As we look ahead to this month, the consensus suggests that the services PMI may decline, while the manufacturing PMI is expected to hold steady.

New home sales have shown resilience in the housing sector in previous months, with buyers managing to keep pace despite incremental mortgage rate changes. Earlier this year, there was an upswing in demand attributed to lower mortgage rates. However, it is important to note that the new higher financing costs likely presented a challenge for the housing sector and the new home sales data for last month will show a dip.

The highlight of the week is expected to be the policy rate announcement by RBNZ, where a consensus of analysts anticipates a 25bps rate hike to 5.5%. In the previous month, the RBNZ surprised the market with an unexpected 50bps rate hike, citing elevated and persistent inflation as the primary driver. The labour market data remains strong, although a slowdown in growth is necessary to achieve the desired inflation target. Recent data has aligned with those expectations, with positive employment figures and a slight decline in the April services PMI and a print of 49.1 for manufacturing PMIs, along with a decline in CPI. While the possibility of the RBNZ reaching the end of its tightening cycle exists, further rate hikes cannot be ruled out. Market attention will be focused on any updates regarding economic projections and the future direction of monetary policy.

Inflation in the U.K. economy is expected to decrease due to the high energy prices from last year falling out of the comparison. The consensus is for a headline CPI of 8.2% for the year-over-year data, while expectations for the core CPI suggest it will remain stable at 6.2%. If these projections hold true, the BoE may decide to keep interest rates unchanged at its upcoming meeting in June. However, if the data exceeds expectations, there is a possibility of a 25 bps rate hike.

The FOMC meeting minutes scheduled for this week are not anticipated to contain any significant developments. Market expectations for the next meeting in June are for the Fed to maintain interest rates within the range of 5% to 5.25%, which suggests a likely pause in the hiking cycle.

Regarding the Personal Consumption Expenditures (PCE), Wells Fargo expects that nominal personal spending will increase by 0.4% for April. However, with higher financing costs and tighter credit conditions, there could be potential pressure on the labour market. As a result, consumers may exercise more restraint in their spending until the end of the year.

This article was written by Gina Constantin.