The Bottom Line:
- European stocks experienced their worst week since October due to French parliamentary elections and potential leadership changes
- Central banks in Australia, China, Switzerland, and Norway meet to decide on interest rates, with China and Switzerland likely to deliver rate cuts
- China’s economic data this week is expected to be discouraging
- US retail sales and industrial production data for May will be released on Tuesday, with modest gains expected
- June PMI survey of Business Leaders offers insight into the pace of recovery in many countries, including Europe, where economic rebound has been lifting earnings estimates
European Stocks Plummet Amid Political Uncertainty
French Election Uncertainty Rocks European Markets
European stocks experienced their worst week since October last week, as the low volatility environment came to an abrupt end. The catalyst for the market turmoil was the French President’s decision to call a snap election for the end of the month, following the European parliamentary elections. This move has raised concerns about a potential change in domestic leadership that could significantly impact the French budget. As a result, French government bonds sold off, dragging down the banks that hold them.
Central Banks in Focus Amid Economic Challenges
This week, central banks in Australia, China, Switzerland, and Norway are set to meet to decide on interest rates. While Australia and Norway are expected to maintain their current rates, China and Switzerland are likely to deliver rate cuts. China’s decision comes amidst a flow of discouraging economic data, while Switzerland is poised to follow up on their first cut this cycle, which occurred back in March.
Key Economic Indicators to Watch
Investors will be closely monitoring the U.S. economy in May, with retail sales and industrial production data set to be released on Tuesday. Both indicators are expected to post modest gains. On Friday, the preliminary readings for the June PMI survey of Business Leaders will provide insight into the pace of the recovery in various countries, including those in Europe. The economic rebound in Europe has been helping to lift earnings estimates for the second half of the year. Economists anticipate the composite reading to come in at 52.5, a slight increase from last month and a level consistent with solid GDP growth in Q2.
Central Banks Convene to Decide Interest Rates
Volatility Returns to European Markets
The French President’s decision to call a snap election at the end of the month has reignited volatility in European markets, which had been relatively calm in recent weeks. The uncertainty surrounding the potential for a change in French leadership has caused French government bonds to sell off, taking the banks that hold them along for the ride. This volatility could persist in the coming weeks as investors await the outcome of the election.
Central Banks Convene to Decide Interest Rates
This week, central banks in Australia, China, Switzerland, and Norway are set to meet to determine interest rates. While Australia and Norway are expected to keep rates unchanged, China and Switzerland are likely to implement rate cuts. China’s decision comes amid a stream of disappointing economic data, while Switzerland is expected to follow up on its first rate cut of the cycle, which took place in March.
U.S. Economic Data and Global PMI Surveys in Focus
Investors will be closely monitoring U.S. retail sales and industrial production data, set to be released on Tuesday, with both indicators expected to show modest gains. On Friday, the preliminary readings for the June PMI survey of Business Leaders will provide insight into the pace of the recovery in various countries, including those in Europe. The economic rebound in Europe has been helping to lift earnings estimates for the second half of the year, and economists anticipate the composite reading to come in at 52.5, a slight increase from last month and a level consistent with solid GDP growth in Q2.
China’s Economic Data Paints a Gloomy Picture
Disappointing Economic Indicators
China’s economic data this week is expected to paint a gloomy picture, with a series of disappointing indicators likely to be released. The country’s economy has been facing challenges in recent months, with slowing growth, rising debt levels, and trade tensions with the United States all contributing to the downbeat outlook. Analysts will be closely watching the data releases for signs of further weakness, which could prompt additional policy support from the government.
Potential Impact on Global Markets
The weak economic data from China could have ripple effects across global markets, given the country’s significant role in the world economy. As the world’s second-largest economy and a major trading partner for many countries, any slowdown in China’s growth could weigh on global demand and trade flows. This, in turn, could impact the earnings and growth prospects of companies around the world, particularly those with significant exposure to the Chinese market.
Policy Response and Long-term Implications
In response to the gloomy economic data, the Chinese government and central bank may be prompted to take further policy action to support growth. This could include additional fiscal stimulus measures, such as increased government spending and tax cuts, as well as monetary policy easing, such as interest rate cuts or reductions in bank reserve requirements. However, the effectiveness of these measures in boosting growth and addressing the underlying challenges facing the economy remains to be seen, and the long-term implications of China’s economic slowdown could be significant for the global economy.
US Retail Sales and Industrial Production Data Expected to Show Modest Gains
Retail Sales Expected to Show Resilience
Investors will be closely monitoring the release of U.S. retail sales data on Tuesday, which is expected to show modest gains despite the ongoing challenges posed by the COVID-19 pandemic. The retail sector has been a bright spot in the economy, with consumers continuing to spend on goods even as other sectors struggle. Analysts will be looking for signs of continued strength in the data, which could provide a boost to overall economic growth.
Industrial Production Poised for Gradual Recovery
In addition to retail sales, industrial production data will also be released on Tuesday, with economists expecting a modest increase. The manufacturing sector has been slower to recover from the pandemic than the retail sector, with supply chain disruptions and weak demand weighing on output. However, recent data has shown signs of improvement, and a positive reading on Tuesday could signal that the sector is starting to turn the corner.
Implications for Economic Growth and Policy
The retail sales and industrial production data will provide important insights into the state of the U.S. economy and could have implications for monetary and fiscal policy. If the data comes in stronger than expected, it could bolster the case for a more rapid economic recovery and potentially lead to a faster pace of policy normalization from the Federal Reserve. On the other hand, if the data disappoints, it could reinforce the need for continued policy support to help the economy weather the ongoing challenges posed by the pandemic.
June PMI Survey Provides Insight into Global Economic Recovery
Global Economic Recovery Gauged by PMI Survey
On Friday, the preliminary readings for the June PMI survey of Business Leaders will provide valuable insight into the pace of the economic recovery in various countries, including those in Europe. The survey, which gauges the sentiment and outlook of business leaders across different sectors, is a closely watched indicator of economic health and future growth prospects.
European Economic Rebound Boosts Earnings Estimates
The economic rebound in Europe has been a positive factor in lifting earnings estimates for the second half of the year. As businesses regain confidence and economic activity picks up, companies are expected to see improved financial performance, which bodes well for investors and the overall health of the European economy.
Solid GDP Growth Expected in Q2
Economists anticipate the composite reading of the PMI survey to come in at 52.5, a slight increase from last month’s figure. This level is consistent with solid GDP growth in the second quarter, suggesting that the global economy is continuing to recover from the impact of the COVID-19 pandemic. However, the pace of recovery may vary across different regions and sectors, depending on factors such as vaccination rates, policy support, and consumer confidence.
