What Should You Follow This Week?

Since inflation has been “stickier” than expected in the world’s largest economy, this data could be the deciding factor for the near-term direction of the markets. Investors will also be closely following a new wave of earnings reports from major brands. Let’s take a closer look.

American Inflation Figures

The Bureau of Labor Statistics (BLS) releases key inflation figures on Tuesday, May 14th at 12:30 PM GMT : the monthly Producer Price Index (PPI), which tracks price changes for goods sold by manufacturers and wholesalers. The PPI includes all goods produced in the US, and almost 70% of the value of US services.

The figure is different from the popular Consumer Price Index (CPI) that focuses on what consumers pay for goods and services and that will be published on Wednesday, May 15th at 12:30 PM GMT.

Economists expect the monthly Producer Price Index for April to increase by 0.3%, following a 0.6% increase in February and a 0.4% rise in January. Looking at the unadjusted data, the final demand index jumped 2.1% year-over-year in March. This is the highest annual increase since April 2023, when the index rose 2.3%.

The Consumer Price Index rose 0.4% in March on a seasonally adjusted basis. This matches February’s increase, which was the highest since September 2023. Over the past year, overall inflation has reached 3.5%. In April, market participants are expecting no changes with the CPI increasing by 0.4%.

In today’s economic climate of persistent inflation and the relatively hawkish Federal Reserve stance, the Producer Price Index and Consumer Price Index have become crucial data points for traders and investors, as these metrics can provide insights into the Fed’s potential actions and their impact on the markets.

The current situation of “stickier” inflation, where inflation remains higher than anticipated and declines slower than expected, presents a challenge for the Fed.

To control inflation and make it move sustainably towards its 2% target, the Fed might need to take more aggressive action than initially projected. This could involve keeping interest rates at current levels for a longer duration or even raising them further, potentially dampening economic growth.

As markets that have already priced in a certain number of future rate cuts, a significant deviation from these expectations could lead to potentially higher market volatility.

Chinese Figures About Industrial Production And Retail Sales

On Friday, May 17th at 02:00 AM, China will release important economic figures, as the second most important economy in the world.

China’s industrial sector, a key driver of its economy, hit a snag in March 2024. Industrial output grew by 4.5% year-on-year, significantly lower than the combined 7% growth for January and February. This also fell short of market expectations of 5.4%.

This slowdown marks the weakest expansion since September 2023, with weaker growth observed across various industrial activities. This has amplified pressure on policymakers to introduce additional stimulus measures to support the uneven economic recovery.

On a monthly basis, industrial output saw a slight decline of 0.08%. Despite the March slowdown, the first quarter of 2024 still managed a 6.1% expansion in industrial output.

In China, retail sales rose by 3.1% year-on-year in March 2024. This means that the total value of goods and services sold to consumers by retail businesses in March 2024 was 3.1% higher compared to March 2023.

However, this growth is slower than what analysts expected (4.5%) and also slower than the previous months (5.5% growth for January-February combined). While this is the 14th consecutive month of growth in China’s retail sector, the March increase represents the weakest gain since July 2023.

Important Earnings Reports

The news hasn’t been all sunshine and rainbows lately, with inflation concerns and the potential for higher interest rates. But here’s some good news for investors: most companies in the S&P 500 index have already reported their earnings for the first quarter, and things are looking positive!

On average, their earnings per share are up 5% compared to last year. That’s the biggest year-over-year increase since mid-2022, and it’s even higher than the 3.2% growth analysts were expecting. Companies are also seeing their profit margins improve. These margins basically show what percentage of their revenue is left as profit after expenses. So far this quarter, profit margins are on track to grow by 11.7%, which is higher than average over the past five years and also better than the same period last year.

There are still some important earnings announcements coming up this week from a variety of industries. On Tuesday, May 14th, investors will closely watch earnings reports from Alibaba Group, Home Depot, Sony Group, Hannover Rueck, Bayer, Veolia, Porsche, and Rheinmetall, among others. They will then turn to updates from companies like Cisco Systems, Mitsubishi UFJ, Allianz, Burberry and Ubisoft on Wednesday, May 15th and Walmart, Siemens, Baidu, and Deutsche Telekom on Thursday, May 16th.

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