A stormy month in equity markets fades away with a long-expected relief rally. Market sentiment roared higher this past week. All three major indexes snapped weekly losing streaks.
May has seen a remarkable swing in interest rate expectations for the major economies. As a result, world equities shed $4 trillion in market capitalisation before recouping their losses.
However, recent encouraging economic data and signs of slowing U.S. growth fan hopes that the Federal Reserve may not need to tighten policy as much as previously feared.
Stocks could carry the momentum of this latest rally into next week. But for that to happen, several factors need to go right for the market this week.
Most notably is the slew of economic data starting on Wednesday, with the ISM manufacturing PMI, followed by the employment report on Friday. Could the markets be getting ahead of themselves?
Jobs creation will probably slow from April’s strong growth. But the unemployment rate and wages are seen to remain solid. Economists expect the addition of 320,000 jobs in May, slowing from 428,000 in April.
Apart from a relief rally what else is in store for markets ahead?
It’s likely another action-packed week despite numerous countries seeing it shortened by bank holidays.
Markets will await worldwide PMI releases for May with the month’s turn in the coming week.
Eurozone inflation data due out on Tuesday may reach a fresh record high. This turn would cement expectations for the European Central Bank to kick off its rate hiking cycle. Experts expect the consumer price index to hit another record high of 7.7% in May, up from 7.4% in April.
Traders will also closely watch China for its May manufacturing PMI data. Beijing will release forward-looking manufacturing and non-manufacturing PMIs on Tuesday and Wednesday. Economists expect to remain below 50, pointing to a monthly contraction in May.
One of the week’s main events will be the Bank of Canada monetary policy decision on Wednesday. The markets expect a 50-basis point hike that will come down to the rate statement.
Also, on Wednesday, Australia releases its first-quarter GDP figures.
The May US nonfarm payrolls report and US unemployment rate are due at 12:30 GMT on Friday.
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