The Week Ahead
3 June

The Week Ahead – 3 June

It was another challenging week for financial markets.  With bond yields continuing to rise, this continued to put pressure on both equity and bond markets, which were lower over the week. Domestically, the weakness in the local market was on the back of higher than f’cst inflation print (Apr), which saw bond yields move higher across the curve.  While US PCE data was in-line with market estimates, further comments from several US Fed Governors continues to point to higher-for-longer on rates given that inflationary pressures remain elevated to central bank targets.

Nevertheless, US yields were basically flat over the week. While Western countries continue to grapple with ongoing inflationary pressures, China’s manufacturing continues to struggle, with the latest data seeing a contraction in the outlook for the manufacturing sector.  This week sees the Caixin PMI data as well as export and import data.  Given the ongoing trade disputes between China and the US, export data will be closely watched by the market.  In the US, this week it’s all about jobs with nonfarm payrolls (f’cst 190k), jobless (f’cst 3.9%, no chng pcp) and labour force participation data (62.7%, no chng pcp) the main focus.

Overall, the US employment market continues to remain sound and continues to be a key driver of the economy and strength in financial markets. ISM data is also set for release this week, with service side of the economy expected to continue to show ongoing expansion.  Domestically, 1q24 GDP figure (f’cst 0.2% q/q, 1.2% y/y, -0.3% pcp) is set for release.  The data is likely to reflect an overall slowdown in the economy, particularly at the consumer level given the ongoing rise in living costs around key household expenditure items (i.e. rent, food, energy, insurance, financial services).

In Europe, the ECB meets this week with markets looking for a 0.25% cut in the main refinancing cash rate (f’sct 4.25%, -0.5% pcp).  European inflation has continued to move back towards the ECB’s target level and with further pressure on the near term growth outlook across the major European countries, this move will provide some positive news and ongoing impetus for European markets.  While in the UK the PMI data will be the main focus (f’cst 52.8 pts, no chng pcp) as the election cycle heats up with the Labor party looking at a landslide victory.

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