World shares firmed on Monday as investors braced for a busy week of inflation data that could set the scene for a European rate cut as soon as next week and a potential US policy easing within a few months. Despite the closure of UK and US markets for public holidays, European stocks edged higher, as the Stoxx 600 index rose modestly, driven by gains across most sectors. Thin trading ahead of Friday’s core personal consumption expenditures (PCE) figures, the Federal Reserve’s preferred measure of inflation, kept market activity subdued. As speculation about interest rate cuts by the European Central Bank (ECB) and the Federal Reserve mounts, markets are closely watching upcoming economic data to gauge future monetary policy adjustments.

Key Takeaways:

  • Stoxx 600 Index Edges Up: The Stoxx 600 index rose by 0.28%, with most sectors finishing in the green, reflecting a cautious but positive market sentiment despite the absence of trading in major UK and US markets.
  • Dax and CAC Gain: Germany’s Dax and France’s CAC both recorded gains of around 0.5%, demonstrating resilience in major European economies.
  • FTSE MIB and Ibex 35 Increase: Italy’s FTSE MIB and Spain’s Ibex 35 each saw increases of 0.7%, outperforming other European indices on a relatively quiet trading day.
  • ECB Rate Cut Speculation: ECB Governing Council Member Olli Rehn and Chief Economist Philip Lane indicated a potential rate cut in June, citing the disinflationary process and aligning inflation rates towards the 2% target.
  • Asian Markets Gain at the Start of Data-Heavy Week as China Industrial Profits Rise: Asia-Pacific markets rose on Monday as industrial profits in China increased by 4.3% year on year during the first four months of the year, while Hong Kong’s Hang Seng index added 1.27%. Australia’s inflation data for April is due on Wednesday, with analysts expecting a “modest dip.” South Korea’s Kospi rose 1.32%, while the small-cap Kosdaq gained 1.02%. Japan’s Nikkei 225 climbed 0.66% and the broad-based Topix rose 0.87%, rebounding from Friday’s losses. 
  • German Business Sentiment: The Ifo Business Climate Index in Germany remained unchanged at 89.3 in May, falling short of the forecasted 90.4, indicating mixed business sentiment amid economic recovery in manufacturing, trade, and construction sectors.
  • Crude Oil Stretches Gains, WTI Tests $78.50 Ahead of Inflation Data and Looming OPEC Meeting: WTI crude oil rose toward the $79 per barrel mark, extending the rebound from the three-month low of $76.9 touched on May 23rd as markets assessed this year’s supply outlook ahead of the OPEC meeting this weekend. Saudi Arabia is expected to pressure the cartel to extend voluntary output cuts, even though the organisation stated it expects oil demand growth of 2.25 million barrels per day for 2024.

FX Today:

  • EUR/USD Rebounds Amid US Data Miss: The EUR/USD pair climbed from the 1.0800 level to reach four-day highs around 1.0870 following disappointing US ISM PMI data that fuelled a risk-on sentiment among investors. Currently, EUR/USD is navigating around the 200-day Simple Moving Average (SMA) at 1.0830. Further gains could see the pair revisit the May top of 1.0890, the March peak of 1.0981, and the weekly high of 1.0100, before potentially reaching the 1.1000 level. On the downside, a breach of the 200-day SMA at 1.0790 may open the door to the May low of 1.0650.
  • GBP/USD Climbs Amid Weaker Greenback: GBP/USD accelerated its gains beyond the 1.2700 barrier, hitting new two-month highs. The pair broke the latest cycle peak at 1.2760, exposing further resistance levels. Momentum indicators suggest buying pressure might be fading as the Relative Strength Index (RSI) enters overbought territory. If GBP/USD retreats below 1.2750, the next stop could be the current day’s low of 1.2730, followed by the 1.2700 mark.
  • USD/JPY Flatlines Amid Low Volume: USD/JPY hovered around 156.90, slightly down by 0.08% amid subdued trading due to US Memorial Day. If USD/JPY clears the 157.00 figure, the next resistance would be the April 26 high at 158.44, followed by the year-to-date high at 160.32. Conversely, if it falls below the 156.05 point, it may head towards 155.72 and then 155.39, with the 50-day moving average (DMA) at 154.08 providing further support.
  • Canadian Dollar Gains Against Holiday-Weakened Greenback: USD/CAD fell back into familiar congestion on Monday, extending a decline from last week’s late peak near 1.3740. The pair is near the 1.3600 handle, with a long-term floor priced in at the 200-day Exponential Moving Average near 1.3553.
  • AUD/NZD Experiences a Slight Decline: AUD/NZD dipped mildly to 1.0820 during Monday’s session. Despite an uptick in the Relative Strength Index (RSI) to 30, the pair remains pressured. The RSI’s negative trend is further confirmed by the rising red bars of the MACD histogram. The pair currently trades above its 100-day (1.0813) and 200-day (1.0808) SMAs, indicating potential medium-to-long-term upward momentum. However, positioning below the 20-day SMA (1.0950) highlights anticipated near-term volatility.
  • GBP/JPY Continues March Higher: GBP/JPY rose again, climbing back above the key 200.00 handle as broad-market Yen selling continues. The pair is threatening to break into fresh multi-decade highs above 200.60, a level reached in late April. The pair fell to a near-term low below 192.00, but broad-market Yen weakness remains persistent. GBP/JPY has gained ground in all but three of the last 15 consecutive trading days.
  • Gold Price Rebounds from Two-Week Low: Gold prices rose close to 1%, bouncing off a two-week low of $2,325. If XAU/USD clears $2,350, it could expose the $2,400 mark, with further gains targeting the year-to-date high of $2,450 and potentially $2,500. Conversely, if bears keep the XAU/USD price below $2,350, a push below the May 8 low of $2,303 could follow, with the May 3 cycle low of $2,277 as the next support level.

Market Movers:

  • Societe Generale Surges: Shares of Societe Generale climbed 2.2%, driven by positive sentiment in the European banking sector.
  • Teleperformance and Veolia Environnement Gain: Teleperformance and Veolia Environnement each saw their shares rise by 2%, reflecting strong investor confidence in the services and utilities sectors.
  • Kaisa Group Jumps: Kaisa Group’s Hong Kong-listed shares surged 4% after a Hong Kong court adjourned a hearing for a petition seeking the liquidation of the firm until June 24, providing temporary relief to investors.
  • First Solar Leads Gains: First Solar was the biggest winner in the index, on track for a 39% gain, marking its best week since April 2013. The significant rise highlights investor optimism following a robust performance report.
  • Moderna and Deckers Outdoor Rally: Moderna’s shares surged by 27%, while Hoka-owner Deckers Outdoor saw a 15% increase. Both companies benefitted from strong quarterly earnings and positive market outlooks.
  • Nvidia Continues to Climb: Nvidia shares jumped 14% week-to-date following another strong quarterly report and optimistic guidance, underscoring the company’s leading position in the semiconductor industry.
  • Analog Devices, Enphase Energy, and Constellation Energy Rise: Analog Devices, Enphase Energy, and Constellation Energy all saw gains of over 8%, driven by strong earnings and favourable sector trends.
  • Nordson Corporation and Dayforce Decline: Nordson Corporation and Dayforce led the weekly losers, with shares down about 12% each, impacted by disappointing earnings forecasts.
  • Walgreens Boots Alliance Slumps: Walgreens Boots Alliance experienced a decline of more than 11%, reflecting investor concerns over weaker-than-expected earnings and future growth prospects.
  • Target and Lululemon Athletica Fall: Target and Lululemon Athletica shares were down by 9% for the week, as both companies faced challenges in meeting market expectations amid a competitive retail environment.

As markets navigate through a quiet trading day with the UK and US on holiday, European stocks have managed modest gains, reflecting some optimism. Key ECB officials hint at a potential rate cut in June, adding to the speculation in the financial landscape. Asian markets also showed strength, driven by positive industrial profit data from China and solid performances in Japan and South Korea. Meanwhile, investors brace for a busy week ahead with crucial inflation data from both the euro zone and the US, which will likely shape future monetary policy decisions. Despite the varied performances and sectoral shifts, the overall market sentiment remains one of careful hope as traders look for clarity in economic indicators and central bank actions.