Stock markets pending the European elections and the US Federal Reserve

Some important economic events and data are about to dominate market movements this week. First of all, it is expected that the result of the European elections influence the trends of the euro zone equity markets and the single currency.

Furthermore, it is planned that the US Federal Reserve decides on interest ratesa key event for global markets, following last week’s European Central Bank rate cut.

Europe

After the European stock market hit an all-time high last week, the result of the EU parliamentary elections can be considered a fundamental factor that will affect companies in the euro zone.

This, in turn, will condition several sectors, particularly the electric vehicle manufacturersfossil fuel producers, renewable energy companiesdefense and industrial companies and large banks.

He rise of far-right parties in the European Parliament could negatively affect energy stocks such as TotalEnergies, Iberdrola, Électricité de France SA (EDF), Engie, Fortum Corp, Ørsted, Vestas, Acciona SA and Enel Green Power SpA In particular, the renewable energy index is down 11% this yearwhile the ‘Euro Stoxx 600’ has risen 9%.

Additionally, automakers such as Renault, Porsche, Volkswagen, Audi, Mercedes, Citroën and BMW may experience volatility in the face of any policy changes around fuel-based emissions limits. Green Deal . In general, these automakers could benefit of growing support for the radical right due to the costly objectives related to the ecological transition.

The industrial and defense companies They could also be negatively affected, as populist parties tend to be anti-war, pro-Russia, and skeptical regarding the EU. The focus will be on stocks such as Rheinmetall, Saab AB and Rolls-Royce Holdings Plc.

He banking sector complicated, since most EU banks registered positive benefits in the first quarter, and the ‘Euro Stoxx Banks’ index is up 21% this year. The debate around a joint deposit insurance policy could bring uncertainty and pressure on the actions of these large lenders.

Finally, the euro could come under downward pressure due to uncertainties and the possible influence of right-wing parties in the single market.

USA

The decision of the Federal Reserve on interest rates will be a pivotal event for the global market as central bank policy is seen as a leading indicator for its Western counterparts. Additionally, the country will release inflation data for May ahead of the Federal Reserve’s monetary policy meeting next Thursday.

The general Consumer Price Index (CPI) of USA rose 3.4% year-on-year in April, compared to 3.5% in March. The consensus expects inflation to remain at 3.4% in May. However, the level is still well above the 2% target set by the Federal Reserve.

Therefore, the bank is expected to keep interest rates between 5.25% and 5.5% this week. On a positive note, the core CPI, which excludes food and energy, cooled to 3.6% year-on-year, the lowest since April 2021, indicating a favorable trend in the country’s inflation trajectory.

Although the Federal Reserve is unlikely to lower interest rates this week, markets believe a rate cut could be on the table in September.

Investors will closely monitor the projection of the Federal Open Market Committee (FOMC) for its policy path, known as the ‘Dot Plot’ diagram, which reflects the future path of rates.

It should be noted that the president’s speech Jerome Powell at the press conference he usually has more impact on market movements than the Federal Reserve’s own decision. An aggressive stance tends to put pressure on equity markets and lift the US dollar, while a weak stance tends to have the opposite effect.

Pacific Asia

The Bank of Japan monetary policy meeting (BOJ) is the most influential event for Asian markets, and usually affects the Japanese yen. The Bank of Japan is expected to make a decision on the interest rates this Friday, and they are expected to remain no change at 0.1%.

However, a sharp devaluation of the yen puts pressure on the bank to tighten its monetary policy even further. The consensus suggests that the bank could decide to cut back on government bond purchases and, Potentially raising interest rates in Julywhich could cause an appreciation of the yen against other major currencies, since the measure contrasts with those adopted by other central banks.

Besides, China will publish the CPI and PPI for May, which is considered an important indicator of the country’s economic trajectory. In contrast to the Western world, the country has been experiencing deflationary pressures since 2023 due to its Covid-19 restrictions.

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Recent data show that in China prices have continued to increase for three consecutive months in April. Higher inflation growth will offer a positive signal to the world economytaking into account China’s role as a large supplier of goods and consumer market.