Josh Gilbert, market analyst at eToro, shares his three things to watch in Australia in the coming days.
1. US Inflation
After two hotter-than-expected inflation prints to start 2024, rate-cut expectations have shifted, with markets now eyeing July for when the Fed will begin to cut interest rates.
This week’s CPI reading will hold significant weight on that decision, especially with the expectation for inflation to pick up once again. Consensus is for headline CPI to rise to 3.4% in March, from 3.2% in February, whilst core CPI is set to moderate to 3.7% from 3.8% in the prior month.
The final hurdle of bringing inflation down is proving to be tricky, which is why Jerome Powell expressed again this week that the Fed will wait for clearer signs of lower inflation before cutting rates.
That said, if March’s inflation readings show signs of softening and are followed by further signs of easing in April, the Fed may put January and February’s readings down as a hiccup – putting a June rate cut firmly on the table.
The recent jump in energy prices may dampen headline inflation, but slowing rent growth and falling used-car prices should help keep a cap on core inflation.
2. China inflation
It’s another big week in China, where inflation is due on April 11, and we’re likely to see deflationary pressures persist once again. This follows increased consumer activity over the Lunar New Year period, which saw the first positive push on prices since September, a turnaround from the sharpest drop in more than 14 years in January.
The worry for investors is that the holiday-driven demand won’t last and those deflationary pressures will continue until we see further signs of a recovery in domestic demand.
China’s property market continues to paint a bleak picture. Historically a major economic driver in the country, major property developers are still struggling and the likelihood of bank bailouts for fledgling big players becoming an increased risk to the economy.
Most recently, China Vanke suffered a credit rating downgrade and now teeters towards suffering the same fate as Evergrande (HK:3333) and Country Garden.
There have been some positive signs in Q1 that the recovery is gaining some momentum, with stronger-than-expected PMIs in March showing activity was improving. However, this needs to be sustained, and it feels like we’ve had many false starts for this recovery over the last 12-18 months.
The People's National Congress hinted last month at its intention to provide more support for the economy, which will clearly be needed to get to its ambitious 5% growth target.
3. Q1 US earnings season
JP Morgan and the biggest US banks kick off first-quarter earnings season on Friday, with earnings growth more important than ever.
It remains a pillar of the current bull market we’re seeing in the US and it becomes even more important given the second pillar of incoming rate cuts continues to be pushed back.
The good news is that expectations are low, with 5% growth from the S&P 500, with communications, technology and discretionary set to lead, growing earnings at an average of 22% in Q1.
However, this is a slowdown from the 38% these sectors saw last quarter.
At the other end of the scale, energy and materials commodity sectors are set to see over 20% profit declines, whilst financials, which kicked us off last week, are set to see slowing growth to 5%.
Citigroup is the best-performing big bank of the S&P500 this year, with shares rising by more than 18% but Bank of America (NYSE:BAC) may be the standout on the back of solid investment banking fees and trading revenues in the quarter.