Major European Indices Open Cautious ahead of Tomorrow’s US Inflation data and EU GDP

european stocks cautious ahead of inflation data

Stock markets in Europe started the day with little volatility and an unclear direction. Most traders are on the sidelines leading up to Fed Chais Powell’s speech later today.

The DAX is down 0.13%, the CAC is down 0.06%, and the FTSE is up 0.18% on the day. The market will be scrutinizing Powell’s speech today for clues about just how quickly we may expect the long-expected pivot point to happen.

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Any hint, or perception of one, that rate cuts are on course for a first cut by September could fuel a continuation in the rally experienced by the major Eurozone indices this year. The market still considers the ECB is on course to reduce rates at the June meeting.

A move away from rate cuts this year from the Fed may dampen those hopes, at least temporarily. The Eurozone also has some important data tomorrow with release of the GDP Growth Rate expected to be confirmed at 0.3% after 2 quarters of negative growth.

The UK saw unemployment fall to 8.9k claims from 13.9k claims last month. The FTSE seems to have benefited, if only slightly, from the news. The index is still on a honeymoon of sorts after last week’s additional vote to cut rates spurred the market higher.

FTSE

We are also expecting the ZEW Economic sentiment index from Germany, where a sharp increase is expected from 43.9 last month to 46.3 for this reading. Later today we also have PPI data from the US.

A warm-up for tomorrow’s inflation data. The PPI MoM is expected to rise slightly from 0.2% to 0.3%. While inflation data tomorrow is expected to decline from 3.8% to 3.6% YoY. I expect a bumpy ride for traders over the next 2 days as one set of data may contradict another set released at different times.

Tomorrow’s Eurozone GDP should confirm an expansion in the economy, and we should expect a boost in the DAX or CAC. Whereas inflation data from the US, although expected to fall, could give us some surprises with a higher-than-expected number.

As often seen with US data, forecasts are often off target, so we may get some volatility to the downside in the event of a higher reading. An interesting note to consider, the DAX posted its all-time high just two sessions ago, creating a possible take-profit area over the next days.

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Gino Bruno D'Alessio
Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.
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