Investors will focus on manufacturing and services Purchasing Managers' Indexes (PMIs) in major countries as most European stock markets decline for the third consecutive week. Additionally, SAP and Saab AB are scheduled to announce first quarter earnings.
advertisementReflecting trends on Wall Street, European stock markets fell for the third straight week as a risk-off mood spread. Ongoing conflicts in the Middle East and the US Federal Reserve's hawkish stance continue to weigh on stock markets, prompting investors to seek haven assets such as gold.
Souring sentiment may continue to dominate the market this week as major European and U.S. tech companies prepare to report quarterly results. On the economic front, the world's major economies will release flash manufacturing and services PMIs for April, providing insight into their respective economic activity.
Europe
The most influential economic indicators this week will be the Eurozone manufacturing PMI and services PMI for April. This data is seen as a leading indicator of economic health, as purchasing managers provide valuable insight into business confidence. The euro area's services PMI has expanded over the past three months, while the manufacturing PMI contracted for the 12th consecutive month through March. However, the pace of decline in manufacturing activity has slowed and signs of recovery are beginning to appear. Consensus suggests that manufacturing activity may continue to contract, but at a slower pace in April, indicating positive economic recovery trends.
France and Germany are scheduled to release flash manufacturing PMIs for April. The German economy is being watched particularly closely given that March figures showed an expansion in the services sector for the first time in six months, and the contraction in the manufacturing PMI eased slightly. Germany's composite PMI, which combines services and manufacturing, rose to 47.7, the highest level in four months (50 is the dividing line between expansion and contraction). In France, the PMI for both the manufacturing and service industries remained in negative territory due to weak demand in Asia, but the pace of decline slowed in March.
In contrast, UK factories reported their first growth in 20 months in March, with the manufacturing PMI rising to 50.3. The services sector has expanded over the past five months, suggesting the UK economy had a strong start to the first quarter.
In terms of corporate earnings, German software company SAP and Swedish aerospace and defense company Saab AB are scheduled to report their first quarter results this week. SAP's earnings will be crucial to the trajectory of technology stocks after the sector's sharp decline over the past week. Meanwhile, Saab AB's earnings results will provide insight into the outstanding defense sector. Saab AB's stock price has risen about 45% since the beginning of the year due to increased defense spending. Since the beginning of the Ukraine-Russia war, its share has more than tripled.
America
The United States plays a pivotal role in guiding global market sentiment due to its overwhelming financial market volume and economic size.
This week will be a busy week on Wall Street, with major U.S. technology companies such as Tesla, Metaplatform, Alphabet, Intel and Microsoft set to report earnings. U.S. technology stocks entered a correction in April after a record first-quarter rally. This amazing 7 stocks make up more than 40% of the Nasdaq 100 and almost 30% of the S&P 500. Therefore, these key earnings results are of great importance in shaping future market trends.
The economic calendar will also be filled with important indicators such as first-quarter US GDP, personal consumption expenditures (PCE), and manufacturing and services PMI. The US economy showed surprising resilience in the final quarter of his 2023, with GDP revised up to 3.4% annually. Consensus forecasts growth of 2.5% in the first quarter, indicating the country's economic growth may slow. PCE, on the other hand, is considered the Fed's most preferred inflation measure and influences the central bank's interest rate decisions. Composite PCE rose 2.5% in February from a year earlier, continuing to exceed the Fed's 2% target. March statistics are expected to be released this week.
Asia
Following global trends, most Asian stock markets fell last week. However, it is worth noting that mainland China's stock market outperformed its global peers after the first quarter's GDP data came in better than expected. This week, the People's Bank of China's interest rate decisions on one-year and five-year loan prime rates will be in the spotlight in the country. With the Chinese government implementing stimulus measures to support the sluggish economic recovery, further steps to lower these key mortgage rates will be seen as a positive sign for the economy.
Additionally, the Bank of Japan's (BOJ) interest rate decisions are extremely important to global markets, especially since the Bank of Japan ended its negative interest rate regime in March for the first time since 2016. As the Japanese yen falls to historic lows, there are growing expectations that the bank will intervene in the currency. Signals of further monetary policy tightening could lead to a rebound in the yen, but could also put further pressure on Japan's stock market.
