Business in the Week Ahead :Market Volatility Expected as Geopolitical Issues take centre stage

Ira Singh
Khabar Khabaron Ki,20 April’24

This week was very much characterised by “risk-off” sentiment in markets, as rising geopolitical tensions boosted safe haven assets. On the back of strong inflation and consumer spending data, the dollar’s strength has also been underpinned by escalating tensions in the Middle East, as both Iran and Israel launched retaliatory attacks on each other over the past week

As we step into another week(April 22-26), the business world braces for a flurry of activity across various sectors. Here’s what’s on the agenda: Earnings season will gather pace. Flash PMIs, US GDP and Japan monetary policy are the other data points, events to track

1.Earnings Season in Full Swing :Earnings season is set to gather pace as more companies unveil their quarterly performance reports. Investors will closely scrutinize these reports for insights into the health of corporate America and potential market trends.

2.Flash PMIs:Flash Purchasing Managers’ Index (Flash Manufacturing PMI is an estimate of manufacturing for a country, based on about 85% to 90% of total Purchasing Manager’s Index[PMI]survey responses each month) data for April will be released, providing an early indication of manufacturing and services sector activity in key economies around the globe. Indeed, recent European PMI surveys point to lengthening delivery times for private sector firms and rising input prices directly related to the diversion of trade from the key Red Sea channel earlier in the year. In its updated World Economic Outlook report, the IMF noted that the risks to the outlook are broadly balanced, but highlighted that an escalation of the conflict in the Middle East would make the current economic situation worse, leading to “a surge in oil prices and in shipping costs”.These figures often serve as leading indicators of economic health and can impact investor sentiment.

3.US GDP Data:Turning to the week ahead, a busy US data schedule will include important updates on inflation and growth. The first reading of Q1 GDP is set to show the US economy continued to expand at a rapid pace in the early part of 2024. Bar a modest fall in retail sales at the start of the year (which was likely due to some inclement weather) most metrics have pointed towards continued good momentum in activity. Indeed, retail sales recovered and expanded strongly in February and March. The consensus is for GDP growth of 2.3% annualised in Q1. Strong US data and sticky CPI inflation have caused market rate cut expectations to be slashed in recent weeks, and appear to have led to a re-think from Fed officials also, with a number sounding more hawkish in remarks over the past week. However, it should be noted that a substantial gap has opened between the CPI and PCE measures of inflation, with the latter at 2.5% (headline) and 2.8% (core), respectively in February, compared to 3.5% and 3.8% for the former in March. Despite this though, the recent down trend in PCE inflation is expected to stall. A modest increase in headline PCE to 2.6% and a slight easing in the core-PCE rate to 2.7% is forecast for March.The release of first-quarter Gross Domestic Product (GDP) figures for the United States will be a focal point for investors and economists alike.

Analysts will be watching closely to assess the pace of economic growth and any underlying trends that may influence monetary policy decisions.

4.Japan Monetary Policy Decision:On the monetary policy front, the Bank of Japan (BoJ) meeting will garner close attention. No changes to policy are anticipated as per experts opinion, but remarks from Governor Ueda on the outlook for interest rates and his comments on the recent bout of yen weakness will be in focus.With inflationary pressures and global economic uncertainties in play, any shifts in policy stance could have implications not only for Japan but also for international markets.

As these events unfold throughout the week, market participants will be closely monitoring developments and adjusting their strategies accordingly. Stay tuned for insights and analysis as the week progresses.