Stock Market - The Week Ahead

Quarter Two

The assumption that the Fed will start reducing interest rates this year and confidence around stocks tied to artificial intelligence has helped the U.S. stock market have a great start to the year.

The S&P 500 saw its largest first-quarter increase since 2019 with a rise of more than 10%, while all three major U.S. indices saw strong quarterly gains.

It is mostly up to the Fed to decide if that rise lasts into the second quarter. Markets have priced in just three rate cuts from the Fed since the beginning of the year, and policymakers have not yet indicated that inflation has decreased sufficiently to warrant a rate drop.

The continuation of this positive trend will also be contingent upon corporate results, which officially begin the second week of April.

Nonfarm Payrolls

Investor optimism that the economy is poised for a "soft landing," in which inflation moderates but a major slump is avoided, will put Friday's jobs data front and centre.

It is anticipated that the U.S. economy added 205,000 jobs in March, a decrease from the 275,000 jobs gained in February.

As the Fed maintained its position of three rate reduction this year at its March meeting and improved its forecast for economic growth, hopes for a "soft landing" for the economy were heightened.

Eurozone inflation

Wednesday's flash inflation statistics for March from the Eurozone will be eagerly monitored since there are rumours that the European Central Bank is preparing to lower interest rates in June.

The next three inflation reports will be crucial for markets (and the ECB) as the euro area's inflation has been high from the year's beginning and has to decline further in order for the ECB to announce a summer rate decrease.

It will be difficult to hedge against rate cuts if inflation rises to the upside.

Watch for intervention

Due in large part to the strong dollar, the monetary authorities of China and Japan are on high alert as their currencies drop below levels they have been defending for months.

Authorities have increased measures to support their currencies as the yen is teetering on the verge of 152 per dollar, while the yuan is finding it difficult to overcome the stronger side of 7.2 per dollar.

That translates to verbal warnings in Japan and state banks purchasing yuan and selling dollars in China.

(Sources: investing.com, reuters.com)