What are the highlights of this week’s external market? The latest non farm or re ignited hope for the Federal Reserve to cut interest rates. When will the yen’s decline bottom out?

Last week, the international market was volatile, with concerns about stagflation in the US economy and the Japanese yen continuing to hit a historic low.

In terms of the market, the US stock market has stabilized and rebounded, with the Dow Jones Industrial Average up 0.67%, the Nasdaq up 4.23%, and the S&P 500 index up 2.67% for the week. The three major European stock indexes also performed well, with the FTSE 100 index in the UK rising 3.09%, the DAX 30 index in Germany rising 2.39%, and the CAC 40 index in France rising 0.82%.

There are many highlights to watch this week, with the Federal Reserve’s interest rate meeting attracting widespread attention. Due to ongoing inflationary pressures, expectations of rate cuts have been suppressed, and the latest non farm payroll report will receive widespread attention. The Japanese yen has hit a new low since 1990, and attention is being paid to whether the Bank of Japan will intervene. The Eurozone will release data such as Consumer Price Index (CPI) and Gross Domestic Product (GDP), which is expected to further consolidate the prospect of interest rate cuts in June. The Berkshire Hathaway shareholder meeting will be held over the weekend, and the “stock god” Buffett will have on-site discussions with investors.

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Can non-agricultural sectors reignite hope for interest rate cuts

This week, the Federal Reserve will hold a meeting on interest rates, and the market generally expects the federal funds rate to remain unchanged. However, the outside world will closely monitor the details of the resolution statement to seek any signals of the prospect of interest rate cuts this year.

Recent data shows that the inflation rate in the United States is still rising. At the same time. Federal Reserve officials have repeatedly stated that rate cuts will not happen soon, and even the possibility of rate hikes cannot be completely ruled out.

In terms of data, the April non-agricultural employment report has become the focus, and employment demand and wage growth have become key influencing factors for the next direction of monetary policy. The institution predicts that the unemployment rate in April will approach 210000, a significant decrease from over 300000 in March. The unemployment rate is expected to remain at 3.8%, and the average hourly wage growth may continue to be above 4%.

Prior to the announcement of non farm payroll, private employment data for ADP4 and job vacancy data for JOLT in April will also provide reference for external evaluations of the job market. In addition, noteworthy data include the first quarter employment cost index, April consumer confidence index of the consulting firm, Chicago PMI, and March trade accounts. The ISM non manufacturing index will reflect whether the service industry can stabilize, and weak performance may offset the potential strong employment data and the hawkish bias of the Federal Reserve.

The financial reporting season is in full swing. This week, two major technology giants, Apple and Amazon, will release financial reports. Other noteworthy companies include Qualcomm, Pfizer, Lilly, Starbucks, Coca Cola, etc. Berkshire will hold a shareholder meeting over the weekend and release the latest results.

Crude oil and gold

International oil prices have ended two consecutive weeks of decline. The WTI crude oil near month contract rose 1.98% to $83.85 per barrel, while the Brent crude oil near month contract rose 2.53% to $89.50 per barrel.

Seven Report Research believes that with WTI crude oil prices around $80, there must still be geopolitical fear in the market here. “With the escalation of the Middle East situation between Israel and Iran to a more stable level, geopolitical concerns have eased from the most tense level in early April. As consumer demand for gasoline has been declining in recent weeks, and OPEC+has not made any changes to production policies for a period of time, WTI’s downward space is limited.”

StoneX stated that the market is currently looking forward to the latest supply and demand dynamics, and this quarter should still be relatively tight.

Nevertheless, monitoring the situation in the Middle East remains important to determine whether tensions will further escalate and lead to larger regional conflicts.

Due to inflation indicators suppressing expectations of interest rate cuts, international gold prices have weakened. COMEX gold futures for April delivery on the New York Mercantile Exchange fell 2.65% on the week to $2334.80 per ounce.

Gold has traditionally been considered a tool to hedge against inflation, but high interest rates have reduced the attractiveness of holding gold. The German commercial bank stated in a report that the recent easing outlook from the Federal Reserve has more or less been reflected in gold prices. If the situation is no longer like this and expectations of a later recovery in US interest rates are deeply ingrained, gold may further decline.

European inflation is expected to strengthen the prospect of easing

The data released last week showed a significant rebound in the Eurozone’s Purchasing Managers Index (PMI) in April, with regional economic activity expanding at its fastest pace in nearly a year. Optimism remained strong, and corporate recruitment numbers also increased.

Based on recent statements from European Central Bank officials, unless the salary data at the end of May significantly exceeds expectations, there is no suspense of a rate cut in June, but there is uncertainty in the interest rate path thereafter. At present, the pricing of the European Central Bank’s interest rate cut at the end of the year has dropped to below 75 basis points (about 3 times), and the German central bank governor, Nagel, has also warned that there may not be a series of further interest rate cuts after the June rate cut.

This week, the Eurozone will release the initial CPI inflation data for April, as well as the first quarter GDP. The Eurozone’s April business and consumer surveys may provide clues to the economic performance at the beginning of the second quarter. The market predicts that the year-on-year growth rate of inflation this month will remain at 2.4%, as the downward pressure of core inflation may have been offset by fluctuations in energy prices.

By contrast, the Bank of England’s interest rate cut may not come soon. The Chief Economist of the Bank of England, Huw Pill, stated last week, “Although we have made satisfactory progress in restoring inflation rates to target levels, we are closer to a possible interest rate cut. However, in my baseline scenario, there is still some way to go before bank interest rates are lowered. The Monetary Policy Committee will need to maintain a certain degree of tightening to eliminate persistent factors in the system; we are now seeing downward signs of sustained strength in the inflation dynamics.”

Investors can focus on mortgage approval and consumer credit data for March in the UK this week to understand the health of the real estate market and consumers. In addition, the UK’s manufacturing PMI and service PMI for April will be announced on Wednesday and Friday, respectively.

Highlights of this week

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