Hey June
As markets will become more fixated with election fever in the coming weeks and months, as over half the world’s population will vote on its leaders this year. At next weekend’s European elections, it’s quite possible we could see a move to the right, which may have implications for the euro at some point in the future. We still look on course to lurch the opposite way after many years of a Conservative government. Before the European elections next weekend, the ECB may be the first major developed market to cut interest rates at its meeting on Thursday.
On Friday, the Fed’s preferred measure of inflation, the Personal Consumption and Expenditure price index, rose by 0.3% month over month and 2.7% year over year in April, which was pretty much in line with expectations. So, it was at least no worse, possibly indicating that there remains hope that the Fed’s 2% target may be achieved at some point. Sentiment about where US interest rates may finish the year has gone 180 degrees from the start of the year, as the market has now convinced itself the probability of the Fed moving is practically zero, especially with an election in the middle of it all.
Stocks appear to be moving in tandem with interest rate expectations. April started on the back foot as markets started to rule out the possibility of a June cut. As the month wore on, some slightly more encouraging data pushed yields lower, and stocks recovered into May. Then, we had a weak end to May as the 2-year treasury yield came close to 5% again. There are signs of the US economy slowing in the second quarter, but not too drastically. Hopefully, it is just enough to bring inflation back to the Fed target, which is probably where equity market heads are, pricing in the return of Goldilocks.
This month starts, as it does every month, with the global Purchasing Manager Surveys. According to the flash PMI data, the major developed economies are showing signs of gaining further growth momentum on average midway through the second quarter. On Tuesday, there is a series of US data reports, including a jobs report and The Real Clear Markets/TIPP Economic Optimism Index, which has been on a downward trend throughout the year. There are more employment reports for the US on Thursday and the ECB rate decision. Jobs reports are important indicators for an economy and the inflation outlook. On Friday, we get the 3rd estimate for economic growth in the euro area for the first quarter. It’s a bit historic by now. As for the UK, the latest Halifax price index may generate a few headlines as we continue to hear why Sunak and Starmer lead their parties towards July 5th. This week, we get the first of the live debates. The month of June appears to be starting on a positive note for stocks in Europe. helped by a strong close in Asia.