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European Markets Poised for Opening losses Amid Global Economic Crosscurrents; Wall Street Braces for Tech Earnings
NEW YORK – European stock markets are expected to open lower Tuesday after a long Easter weekend, mirroring a downturn on Wall Street Monday, where trading activity resumed.Futures indicate a projected opening loss of 0.5% for the German DAX and a 0.4% decline for the French CAC 40. The British FTSE also appears set to open approximately 0.4% lower.
The anticipated losses follow a mixed performance in European markets last Thursday, concluding before the holiday closures for Good Friday and Easter Monday, after the European Central Bank (ECB) announced it’s latest interest rate decision, which largely met expectations.
ECB Stays the Course, Weighs U.S. trade Policies
Following the ECB’s rate announcement, the recently strengthened euro remained stable. ECB President Christine Lagarde addressed the press in a conference, stating that she “can’t yet predict what the consequences will be of the American import tariffs on the economic growth in the eurozone and the expected development of the policy rate. The goal remains the same but the path can deviate.” Lagarde acknowledged potential inflationary or deflationary impacts from the tariffs, adopting a wait-and-see approach.
Carsten Brzeski, an economist at ING, viewed the ECB’s decision favorably, aligning with lagarde’s cautious style. “Her predecessor Mario Draghi had perhaps lowered with 50 basis points, to radiate decisiveness,” the economist speculated. Contrastingly, Turkey’s central bank raised its policy rate from 42.5% to 46% in response to anticipated inflationary pressures stemming from recent financial market developments.
Looking ahead, Wednesday is expected to be pivotal on the macroeconomic front, with the release of composite purchasing managers’ indices (PMIs) from Japan, Europe, and the United states. Additional sentiment indicators, including consumer confidence data for the Eurozone Tuesday and the German Ifo index measuring business climate Thursday, are on the agenda, followed by the University of Michigan’s final consumer sentiment figure on Friday.
Earnings Season in Full Swing
The corporate earnings season is accelerating, with European companies such as BNP Paribas, Delivery Hero, Orange, and Sanofi slated to release their results in the coming days.
On Wall Street, the markets are watching for the numbers from Tesla, with the stock down 5.8% ahead of the aftermarket release.
Recent U.S. earnings were already impacting stocks. Dow-component unitedhealth was a important decliner Thursday (and fell again monday) “with a loss of over 22 percent, after the insurance company came with an outlook reduction,” while Nvidia was under pressure, “after last week it was announced that the chip giant must write off 5.5 billion dollars consequently of the American export restrictions for chips.” Nvidia shares ultimately closed down 4.5% on Monday.
Trade Tensions and Fed independence in Focus
Across the Atlantic,U.S. markets digested a long weekend of news. “The news during the long weekend was predominantly negative,” according to Bob Elliott, chief investment officer at Unlimited Funds. A Japanese trade delegation departed the U.S. without a deal,while China threatened retaliation against countries aligning with U.S. trade policies.
Chinese officials stated that China “strongly opposes any party that concludes an agreement at the expense of Chinese interests.” They further warned that Beijing would take “resolute” countermeasures if such actions occurred.
Former President Trump continued his criticism of federal Reserve Chairman Jerome Powell. “Many are calling for ‘preventative rate cuts’. Now that energy costs have fallen sharply, food prices (including Biden’s egg disaster!) have fallen significantly and most othre ‘things’ are on a downward trend, there is virtually no inflation,” he wrote on Truth Social. Trump warned of a potential economic slowdown “unless Powell lowers interest rates soon!” He added, “NOW!”, while also suggesting that the Fed Chair was “always too late, except in the election period.”
Powell emphasized the Fed’s independence and ability to assess the impact of trade policies on the economy during a recent address in Chicago. However, Trump’s economic advisor Kevin Hassett has said the president is “studying” whether he can remove Powell, raising concerns about the Fed’s autonomy.Gary schlossberg of Wells Fargo suggests that Trump’s pressure could “influence and even disrupt” monetary policy.
Market Reactions and Analysis
TD Securities analysts anticipate the Fed will begin cutting rates in June, driven by growth concerns outweighing inflation worries.
Did you know? Historically, pressure on the fed from the executive branch can lead to increased market volatility, impacting investor confidence.
Meanwhile, markets are increasingly apprehensive about a potential early departure of Powell, reflected in a weaker dollar and rising oil prices. The euro reached over $1.15 Monday evening, and the gold price hit a record high of over $3,400.
Marc Chandler of Bannockburn Capital Markets believes the dollar could fall further due to uncertainty surrounding the Fed’s independence and weak trade data from South Korea.
The U.S. 10-year Treasury yield rose above 4.40% Monday evening,while oil prices fell by 2.5%, potentially in response to reports of continued talks between Iran and the U.S. regarding an Iran Nuclear Deal.
Recent Developments: Since the initial reports, speculation around Powell’s future has remained a persistent undercurrent in financial news. A report by the Wall Street Journal this week indicated that the Biden Governance, while publicly supporting the Fed’s independence, has quietly begun to explore potential candidates to succeed Powell when his term expires, signalling that a change at the helm is increasingly likely, nonetheless of Trump’s potential influence. This development has further fueled uncertainty in the market, contributing to the recent dollar weakness.
Counterargument: While some analysts worry about the Fed’s independence being compromised, others argue that presidential administrations have always exerted some level of influence on monetary policy. The key is whether the Fed can maintain its credibility and focus on its dual mandate of price stability and full employment, regardless of political pressure.
What are your thoughts? Do you think political interference in monetary policy is a genuine threat to the U.S. economy?
Last week’s closing figures:
S&P 500 index 5,158.20 (-2.4%)
Dow Jones index 38,170.41 (-2.5%)
nasdaq Composite 15,870.90 (-2.6%)
Asian Markets:
Asian markets remained largely range-bound on Tuesday.
Nikkei 225 34,256.61 (-0.1%)
Shanghai Composite 3,301.59 (+0.3%)
Hang Seng 21,387.39 (-0.04%)
Currencies:
EUR/USD euro 1.1533
Economic Calendar:
10:00 AM ET – Consumer Confidence (April)
Earnings Releases:
3M (Q1)
GE Aerospace (Q1)
Halliburton (Q1)
Kimberly-Clark (Q1)
Lockheed Martin (Q1)
Sherwin-Williams (Q1)
Verizon (Q1)
SAP (Q1)
* Tesla (Q1)
FAQ:
Q: Why are European markets expected to open lower?
A: European markets are anticipated to open lower due to negative sentiment stemming from losses on Wall Street, coupled with ongoing concerns about global trade tensions and economic uncertainty.
Q: What is the ECB’s current stance on interest rates?
A: The ECB recently held steady on interest rates, adopting a wait-and-see approach due to uncertainty about the impact of U.S. trade policies on the Eurozone economy.Q: How is former President Trump trying to influence the Federal Reserve?
A: He has publicly criticized Fed Chair Jerome Powell and his economic advisors are reportedly “studying” whether he can be removed.Q: What is the market’s reaction to potential changes at the Fed?
A: Markets are reacting with increased volatility, a weaker dollar, and rising oil prices, reflecting concerns about the Fed’s independence and the potential for policy disruptions.
Q: What key economic data should investors watch this week?
A: Investors should pay close attention to the release of purchasing managers’ indices (PMIs) from Japan, Europe, and the United States, as well as consumer and business confidence indicators from the Eurozone and Germany.
