Ahead in the Markets: The BoE’s rate decision, UBS, and ARM earnings

Last week, global markets ended mixed amid various company earnings results and macro developments. As we move into this week, market focus is keenly directed towards the upcoming interest rate decision from the Bank of England. Additionally, anticipation mounts for insights into the European Central Bank (ECB)’s deliberations during its April policy meeting, as it prepares to unveil crucial details. Meanwhile, earnings season continues on both sides of the Atlantic, adding further depth to market dynamics.

Europe

This week, all eyes are on the Bank of England’s monetary policy meeting, which is expected to maintain the interest rate at 5.25% for the sixth consecutive time. March saw a notable dovish shift from the BoE, hinting at a potential future cut. It was the first time in the current cycle no members of the Monetary Policy Committee voted for a hike. Notably, one member advocated for a decrease in interest rates. This decision was influenced by the promising downward trajectory of the country’s inflation, with the headline Consumer Price Index (CPI) dropping to 3.2% year-on-year, its lowest since September 2021. If the BoE continues its dovish stance, the British pound may face further depreciation against the US dollar, while stock markets could experience additional gains buoyed by the dovish sentiment. Notably, the FTSE 100 recently outperformed its global counterparts, reaching a new high last week.

In the Eurozone, attention turns to the ECB Monetary Policy Meeting Accounts, offering insights into the central bank’s recent policy discussions. This report provides a comprehensive view of financial markets, economic conditions, and deliberations regarding the interest rate trajectory. In April, the ECB put the policy rates on hold and signalled a potential rate cut in June.

Other economic data to watch for this week includes the UK’s monthly GDP data and Geman factory orders for March. The UK’s economy has rebounded in the first quarter from a shallow recession in the second half of 2023. Economists predict that the country will maintain a steady pace of 0.1% monthly growth in March, following a 0.1% increase in February and 0.3% in January.

In Germany, factory orders rose by 0.2% month-on-month in February, reversing an 11.4% plunge in January. The growth was attributed to an increase in electrical equipment, pharmaceuticals, and chemical industries. Consensus calls for a further 0.4% monthly increase in April, indicating that Germany’s economy is continuing along its recovery trajectory.

Turning to earnings, UBS Group AG and BP plc are poised to unveil their March-quarter results, providing valuable updates on the performance of the European banking and energy industries. Analysts project earnings per share (EPS) of $0.23 for UBS and $1.03 for BP. These releases will be closely watched by investors for indications of sectoral trends and potential market impacts.

The US

Wall Street saw a rebound last week, buoyed by Amazon and Apple’s positive company earnings results, along with the Fed’s dovish hint on its monetary policy. There will be no significant economic data scheduled for release in the US this week, investor attention will remain on the earnings front. Key earnings reports from major companies including Walt Disney, Occidental Petroleum, and ARM Holdings will be closely watched.

In particular, ARM Holdings is slated to announce its third quarterly earnings following its IPO launch in September 2023. ARM’s stock performance has been volatile, with shares retracing much of their gains from the first quarter due to analyst downgrades. Its earnings report is a crucial indicator for semiconductor stocks, given ARM’s dominant 99% market share in smartphones and its provision of advanced AI chip designs for industry giants like Nvidia, Microsoft, and Amazon.

Asia

In the Asia-Pacific region, the Reserve Bank of Australia’s (RBA) upcoming rate decision is the key event to be watched. It’s widely anticipated that the bank will maintain the Official Cash Rate (OCR) at 4.35%, yet it may express concerns about the potential resurgence of inflation risks following hotter-than-expected CPI data for the March quarter. Such commentary may signal a hawkish outlook for the rate path, potentially pressure on Australian stock markets while bolstering the Australian dollar.

Furthermore, investors will closely monitor China’s new yuan loan data and CPI figures for April. The recent outperformance of the Chinese stock market can be attributed to favourable economic data and Beijing’s supportive pro-growth policies. These upcoming data releases will provide further insights into the trajectory of China’s economy, shaping market sentiment and investment strategies in the region.