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Market update: Inflation, GDP, and central bank developments

Inflation dominates market thinking again this week, along with the first estimate of US March quarter economic growth. There are also events in the Middle East for investors to continue to worry about, while earnings interest turns to four of the Magnificent Seven – well, three, if you exclude a tanking Tesla.

America’s most important inflation data will be out on Friday – that’s the personal consumption expenditure price, spending, and income figures, with the so-called core PCE inflation figures being the ones everyone will be watching, led by the Fed.

Moody’s economists expect the PCE figures to deliver slightly more positive news on inflation than the most recent data from the consumer price index.

“The key difference is that the PCE deflator puts much less weight on shelter costs, estimates of which have proved stubbornly high in the CPI,” Moody’s team wrote in their end-of-week note.

And AMP chief economist Shane Oliver says he expects core PCE inflation to come in around 0.26% month-on-month with a fall to an annual rate of 2.7% from 2.8%. “While lower than the CPI, this is likely to still be too high for the Fed’s comfort,” Dr. Oliver said in his weekend note.

Dr. Oliver also sees US GDP’s first estimate around 2.3%, down from 3.4% in the final quarter of 2023.

Moody’s economists also see a lower rate of growth in the first of three estimates. “We expect that GDP growth materially cooled from its heady pace in the second half of 2023 with growth to come in below 2%. This should not be cause for concern given that recent growth was clearly unsustainable.”

There’s also data this week on durable goods orders.

And the first of two big weeks for US March quarter reporting lies ahead of us – look for figures from the likes of Microsoft, Alphabet, Meta (Facebook), and Tesla, which is not looking good.

This week also sees the early reports on business activity in some of the major economies like Japan, Australia, Europe, and the US.

European Central Bank head Christine Lagarde is due to speak in the US Monday night at Yale University. Hers will be one of 8 public speeches by ECB members this week – the others will be across the Eurozone.

Do you think the ECB has a message to send to markets this week?

And the Bank of Japan meets on Friday and is likely to leave monetary policy on hold after its rate hike at its March meeting.

But AMP’s Dr. Oliver says the bank may move its forward guidance to sound more neutral and data-dependent, as part of the transition to more normal monetary policy and given the surprising further fall in the Yen.

South Korea produces its March quarter GDP figures on Thursday with a quarter-on-quarter estimate of 0.6% growth from Moody’s.