GEMFOREX - weekly analysis

U.S. data will shed more light on the future path of interest rates while megacap earnings will test this year‘s rally in tech stocks. European bank earnings will show the impact from last month’s banking crisis, Eurozone data will inform the ECBs decision making and the new BOJ governor chairs his first policy meeting.

U.S. data

Investors are trying to gauge whether the Federal Reserve will keep hiking rates to fight inflation after a widely anticipated 25 basis point hike at its May policy meeting. Many expect the central bank to cut rates later this year to loosen the grip of higher borrowing costs on the economy.

Thursday‘s figures on first quarter GDP along with the Fed’s favored measure of inflation, the core PCE price index and the employment cost index, both due out on Friday, will be closely watched.

GDP data is expected to point to solid growth, with consumer spending remaining strong. While the headline PCE price index is expected to fall the core reading is forecast to remain elevated. The employment cost index is also expected to tick higher, consistent with still sticky inflation.

The economic calendar also features reports on consumer confidence, durable goods orders, pending and new home sales, initial jobless claims, inflation expectations and regional manufacturing activity.

Megacap earnings

Earnings results from some of the biggest names in tech are due out in the coming week in what will be a key test for markets with investors on the lookout to see if strong gains in the tech sector so far this year are justified.

Three out of the four largest U.S. companies by market value - Microsoft (NASDAQ:MSFT), Google parent Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) - are all scheduled to report, with Microsoft and Alphabet due out Tuesday followed by Amazon on Thursday. Facebook (NASDAQ:META) parent Meta Platforms is sandwiched in between on Wednesday.

Amazon shares rose 3% on Friday after a research firm predicted the online retailer's business in North America would beat Wall Street's estimates.

Investors have gravitated towards tech and growth stocks this year thinking the Fed will soon stop hiking interest rates and that the sector will remain resilient as growth slows. This has helped shore up equity markets despite worries over the prospect of a recession and last month's banking crisis triggered by the collapse of Silicon Valley Bank and Signature Bank (OTC:SBNY).

European bank earnings

Some big-name European banks are due to report earnings in the coming week, including UBS (SIX:UBSG), Deutsche Bank (ETR:DBKGn), Santander (BME:SAN) and Barclays (LON:BARC).

The results are coming after what was a very turbulent first quarter for banks following the collapse of two regional U.S. lenders last month and the dramatic demise of Credit Suisse (NYSE:CS) and its hastily arranged takeover by rival UBS.

The episode wiped almost $180 billion off the value of Europe's banks at one point. The sector has since recovered, but it's still worth $70 billion less than it was before Silicon Valley collapsed in early March.

Credit Suisse has brought forward the release of its results to Monday, a day before UBS releases its first-quarter earnings.

Eurozone GDP

The Eurozone is to release advance data on first quarter GDP on Friday, while April inflation reports from the regions largest economies Germany, France and Spain are due out the same day.

Recent economic data has indicated that while the blocs economy remains resilient inflation is still persistent despite tighter monetary policy.

The strong performance in the Eurozones dominant services sector could mean that wage pressures remain elevated, hampering the European Central Bank's efforts to return inflation back to its 2% target.

The ECB is expected to raise interest rates for a seventh straight meeting at its upcoming May meeting, with most analysts expecting a 25-basis point hike, although a larger increase has not been ruled out.

New BOJ governor takes helm

New Bank of Japan Governor Kazuo Ueda chairs his first policy meeting on Friday and while analysts are not expecting any changes to the central bank's ultra-dovish monetary policy they are on the alert for any potential surprises.

Ueda is under intense scrutiny over how he might steer the BOJ away from the massive stimulus program in place over the last decade without posing risks to market stability.

Japanese inflation is outstripping estimates but comments by Ueda in recent weeks indicate he believes stimulus settings remain appropriate for now.

Source: investing.com

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