Stock Market - The Week Ahead

US PCE Data

The personal consumption expenditures (PCE) price index, the preferred inflation indicator of the Fed, is scheduled for release on Friday. It is anticipated to provide important insights into the trajectory of interest rates for the remainder of the year.

The data coincides with policymakers' cautious comments last week on the Fed's minutes and their growing acceptance of the higher-for-longer story on interest rates. The officials questioned whether inflation was, in fact, following a consistent downward track.

The Fed's Beige Book and updated first-quarter economic growth statistics are scheduled for this Wednesday and Thursday, respectively, on the economic calendar.
 

Eurozone

It is unclear how soon the European Central Bank would reduce interest rates after setting a record-high rate of 4% at its June meeting. This is especially true if Friday's inflation report indicates that price pressures are still erratic.

While underlying inflation is predicted to remain constant at 2.7%, economists predict that eurozone inflation will increase by 2.5% year over year in May from 2.4% in April.

Although the ECB is unlikely to stop reducing in June on its own, several policymakers are already resisting the need to loosen further.

The Ifo business environment index for Germany is scheduled for Monday, while the ECB's poll of inflation expectations is scheduled for Tuesday, rounding out the bloc's economic schedule.

China

Investors are curious to know whether earnings returned in April after a dramatic fall the previous month slowed the pace of increases for the first three months to 4.3%. China is scheduled to announce statistics on industrial profits for the year to far on Monday.

On Friday, China will officially disclose its PMIs for manufacturing and non-manufacturing. For a third month in a row in May, economists anticipate that the manufacturing index will stay slightly over the 50-point mark that divides expansion from contraction.

Beijing has set an ambitious growth target of about 5% for the economy this year, but many analysts believe it will be difficult to achieve as the second-largest economy in the world continues to be burdened by persistent weakness in the real estate industry and sluggish consumer demand.

Oil Prices

Despite a weekly loss, oil prices increased by almost 1% on Friday due to concerns that positive U.S. economic statistics would keep interest rates high for an extended period of time, which would reduce demand for fuel.

Brent ended the week down 2.1%. It saw its biggest losing run since January 2 last week, declining for four sessions in a row. Over the course of the week, U.S. crude fell 2.8%.

The cost of borrowing goes up with interest rates, which can stifle economic growth and reduce demand for oil.

Analysts at Morgan Stanley stated in a report that overall oil demand is still strong and that they anticipate an increase in total oil liquids consumption of around 1.5 million barrels per day this year.

(Sources: investing.com, reuters.com)