European bourses are set for a softer open after solid gains in the previous session and despite a strong close on Wall Street.
· European bourses point lower today but are set for strong weekly gains after a choppy week
· US PCE data is expected to show inflation cooling, which could pull the USD lower & lift US stocks
· Oil trades at a two-month high and is set for its fifth straight week of gains
US stocks closed firmly higher yesterday with the Nasdaq leading the charge. US retailers provided the market with a more upbeat outlook, with the likes of Dollar Tree and Dollar General raising profit forecasts and Macy’s also posted decent numbers, calming market fears after the disappointing updates from Walmart and Target last week.
US GDP confirmed a contraction in the first three months of the year and US pending home sales fell to a two-year low. The weaker economic data helped rein in aggressive Fed bets sending the Nasdaq to close 2.6% higher, whilst the US dollar fell to its lowest level in over a month.
Overnight the Hang Seng was an outperformer thanks to a euphoric tech sector, boosted by earnings from Alibaba and Baidu, which topped estimates
Europe
Heading towards the European open the FTSE is set to kick off -0.3% lower after booking gains of 0.5% yesterday. The UK index shrugged off finance minister Rishi Sunak’s 25% windfall tax announcement on oil and gas companies’ profits. BP and Shell even finished the day in positive territory, unscathed by the news.
The UK index is set to gain over 2.3% across the week, outperforming its European peers, helped along by upbeat earnings from big-name retailers across the week.
Meanwhile, the DAX is pointing to a flat start, after gains of 1.5% yesterday and is looking at a weekly rise in the region of 1.7%.
PCE inflation data
The economic calendar is relatively quiet in the European session, with a speech from ECB’s Lane in focus. Instead, all eyes will be on US personal consumption expenditure (PCE) data due later, which is the Federal Reserve’s preferred measure for inflation. The data comes after US CPI edged lower to 8.3% YoY in April, down from 8.5%
The core PCE deflator is expected to tick lower to 4.9%, down from 5.2% in April, which could support the view that peak inflation has passed and that the US Federal Reserve could put the brakes on the rate hiking cycle in September.
Under this scenario, the USD could extend its decline whilst US stocks could power higher.
Gold is edging higher ahead of today’s PCE data, boosted by the weaker USD and a cooling off of aggressive Fed bets. Softer inflation data could help lift the precious metal back up towards $1869 the weekly high.
Oil
Oil prices are consolidating around two-month highs after strong gains in the previous session. WTI is on track to gain across the week, marking its fifth straight week of gains as supply remains tight and as the demand picture improves. Shanghai is expected to end its two-month lockdown next week and the US driving season is expected to continue ramping up. Meanwhile, OPEC is not expected to raise its output beyond the previously agreed 432,00 barrels per day, when it meets next week.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.
