Key events to watch in the week ahead: 13 – 19 May 2024

This week’s overview

Wall Street took comfort with a dovish Federal Reserve (Fed) at its recent meeting and along with weaker US labour conditions, that paved the way for markets to price for rate cut in September. This triggered a recovery in risk sentiments, with major US indices bouncing off their mid-April 2024 low to eye for a retest of record highs.

Into the new week, here are five things on our radar.

US earnings season: Alibaba, Home Depot, Cisco Systems, Walmart, JD.com, Baidu

The US earnings season is heading into its final phase, but attention will come down to several US-listed Chinese companies next week, such as Alibaba, JD.com and Baidu, to gauge the recovery momentum in the world’s second largest economy. Eyes will also be on Home Depot, Cisco Systems, Walmart and Under Armour back in the US.

Thus far, corporate earnings momentum has been resilient. Out of 86% of S&P 500 companies which have reported their results, 78% has delivered an earnings beat which is higher than the 5-year and 10-year average.

14 May 2024 (Tuesday, 2pm SGT): UK employment change

This week's Bank of England (BoE) meeting went largely according to plan. The central bank kept rates unchanged at 5.25% in March. The vote split was 7-2, as two members dissented in favour of cuts. Accompanied by downward revisions to consumer price index (CPI) forecasts and language tweaks, it opened the way to a rate cut in June, pending incoming data.

While inflation is the bank's main focus, there will be interest in next week's job data to support the case for an earlier cut. For February’s data, the unemployment rate unexpectedly rose to 4.2% from 4.0%.

The market is looking for the unemployment rate to remain stable at 4.2% in March. A higher-than-expected unemployment rate would increase the chances that the BoE will cut rates by 25 basis point (bp) in June, an outcome to which the rates market currently assigns a ~50% probability.

15 May 2024 (Wednesday, 8.30pm SGT): US CPI

The dovish takeaway in the recent Fed meeting and signs of weakness in US labour conditions have led markets to price for a Fed rate cut in September this year, which helped to fuel a rally in Wall Street. That said, US policymakers mentioned that they are still on the lookout for ‘further progress’ on inflation and the upcoming US CPI data will determine if markets have actually gotten ahead of themselves in their rate pricing.

With the US CPI coming in higher-than-expected over the past four straight months, markets will want to see a downside surprise to be convinced that stagflation chatters will be off the table. Ahead, expectations are for both US headline and core consumer prices to increase 0.3% month-on-month, which will be lower than the 0.4% prior. US producer prices are expected to remain unchanged at 0.2% month-on-month.

16 May 2024 (Thursday, 7.50am SGT): Japan’s preliminary 1Q GDP growth rate

In 4Q 2023, Japan's economy managed to avoid a technical recession, expanding at an annualised growth of 0.4% from the previous quarter, which is higher than the 0.4% contraction expected. This was due to a better-than-expected increase in capital expenditure, although weakness was still very much presented in domestic demand with a larger contraction in private consumption.

For the upcoming 1Q annualised gross domestic product (GDP) growth data, Japan’s economy is expected to slip back into contraction territory, partly due to production disruptions in the automobile space affecting overall sales and rising prices potentially weighing on consumers. This may however be alleviated by strong tourism spending in the first quarter.

16 May 2024 (Thursday, 9.30am SGT): Australia’s employment change

In the previous March reading, the Australian economy lost 6.6k jobs versus consensus expectations of +7.2k and following a 117.6k rise the prior month. The unemployment rate ticked up to 3.8%, from 3.7% prior, while the participation rate ticked up to 66.6% from 66.7%.

For April, the market expects the economy to add 25,000 jobs and the unemployment rate to rise to 3.9% against an unchanged participation rate of 66.6%. The rates market is currently pricing in a 25% probability of a rate rise before year-end.

The odds of a Reserve Bank of Australia (RBA) rate hike before year-end could rise further pending next week's labour force report and the outcome of Tuesday's Federal Budget, with some estimating that the budget will add the equivalent of three rate cuts into the pockets of households.