Ahead in the markets: manufacturing PMIs, UK CPI and Nvidia earnings

This week, the market focus will be on the manufacturing activities of major global economies, particularly in Europe and the United States. Other influential economic events include the UK inflation data and the Reserve Bank of New Zealand’s (RBNZ) interest rate decision, which will provide insights into their respective economic landscapes. Additionally, quarterly earnings from the tech giant Nvidia will be closely watched for clues about the semiconductor industry’s trajectory.

Europe

Both France and Germany are set to release their flash manufacturing and services PMIs for May. Manufacturing activities in major Eurozone economies are expected to remain contracted. In April, France’s manufacturing PMI was recorded at 45.3, while Germany’s was at 42.5. A PMI reading below 50.0 indicates contraction, while a reading above 50.0 indicates expansion. The composite manufacturing PMI for the Eurozone has been in contraction since June 2022, driven by hefty inflation and high interest rates.

On a positive note, the Eurozone’s services PMIs showed a strong rebound in April, expanding for three consecutive months and achieving the fastest growth in nearly a year, primarily due to increased demand. Both France and Germany saw their services PMIs expand in April for the first time in a year. Consensus suggests that services PMIs will continue to improve in May.

In comparison, the UK’s economy has shown greater resilience in both manufacturing and service activities. Data indicates that the country’s manufacturing PMI has been in expansion since the start of the year, while its services PMI has remained in growth since October 2023. However, consensus forecasts suggest that the manufacturing PMI will return to contraction, with a predicted reading of 49.5, while the services PMI is expected to be 54.7 in May.

Furthermore, the UK is set to release its monthly CPI for April this week. Inflation in the UK fell to 3.2% year-on-year in March, the lowest rate since September 2021. The Bank of England (BoE) has held the benchmark bank rate steady for six consecutive meetings. The ongoing downtrend in inflation may prompt the bank to start cutting rates as early as June. The headline CPI is expected to cool further to 2.1% year-on-year in April, which is almost at the BoE’s target level of 2%.

The US

Wall Street will closely monitor the Federal Reserve’s meeting minutes for May, seeking clues about its future interest rate path. The minutes are expected to provide more detailed insights into Fed officials’ preferences regarding the timing of potential rate cuts.

In its recent policy meeting, Fed Chair Jerome Powell indicated that the next rate decision “is unlikely to be a hike.” Last week, the US CPI for April eased, bolstering expectations that the Fed might begin lowering interest rates in September.

The flash manufacturing and service PMIs will also be closely watched. In April, the manufacturing PMI was revised up to 50.0 from 49.9 after three months of contraction. Consensus expects the data to show a slight expansion with a reading of 50.1 in May. Meanwhile, the US services PMI has remained in an expansionary trajectory since January 2023. If these data come in weaker than expected, it might be viewed positively by stock markets, as softened economic growth could prompt the Fed to lower interest rates sooner.

More importantly, AI chip maker Nvidia is set to release its first-quarter earnings. Nvidia’s market cap has surpassed Amazon and Alphabet, making it the third-largest American company this year. The revenue from its datacenter segment will be crucial in driving overall performance. Analysts from FactSet forecast Nvidia’s revenue to be $24.51 billion, a staggering increase of 340% from a year ago. Its earnings per share (EPS) are expected to be $5.57, representing a 411% increase from the same quarter last year.

Asia

The decisions of the People’s Bank of China (PBOC) regarding the 1-year and 5-year Loan Prime Rate (LPR) will be closely watched in Asia. China has recently introduced new stimulus measures to support its economy, including reducing down-payment requirements for homebuyers and providing 300 billion yuan in central bank funding to developers. In January, the PBOC lowered its reserve requirement ratio by 50 basis points, followed by a reduction in the five-year LPR from 4.2% to 3.95% in February. However, the bank has exercised caution regarding further rate cuts to prevent the risk of creating an economic bubble through overly aggressive monetary policy loosening. Therefore, it is expected that the PBOC will maintain the two key rates at their current levels.

In addition, the Reserve Bank of New Zealand’s (RBNZ) decision on the Official Cash Rate (OCR) is a pivotal event for New Zealand. The country has been grappling with a slowdown in economic growth, compounded by persistent inflationary pressures. The RBNZ has refrained from implementing rate hikes in the past six consecutive meetings. It is widely anticipated that the RBNZ will maintain the OCR unchanged at 5.5% at the upcoming meeting. Analysts from Westpac anticipate that the RBNZ will maintain a cautious stance on the rate path, given the slowdown in economic growth and the near-term persistence of elevated inflation.