A significant week ahead for Europe, with potential decoupling from the US both politically and economically. The markets will be watching out for the prospect of rate cuts on Thursday as European parliamentary elections kick off the same day. Will the European Central Bank (ECB) move out in front of the Fed? Equally, could we see a significant shift of leadership to accommodate a growing far-right presence in the EU?
Elsewhere, US nonfarm payroll data will be scrutinized for signs of a weakening labour market. Australian GDP figures might provide further indications of the rate cut timeline for the RBA. Lastly, key corporate earnings, including meme-stock GameStop, Chinese EV manufacturer NIO, and CrowdStrike, will also be in focus for traders.
Here are the week’s key events:
The week kicks off with some manufacturing data.
The final manufacturing PMI figures from the US are anticipated following a strong performance in May. The S&P Global Composite PMI improved significantly to 54.4 from 51.3 in April, reflecting robust growth in the private sector, particularly in services.
Manufacturing also showed resilience, with the Manufacturing PMI rising to 50.9 from 50.0, indicating a return to expansion. This suggests a modest but notable improvement in manufacturing activity, likely driven by stronger production and an increasing number of new orders.
The Services PMI surged to 54.8 from 51.3, marking the largest output rise in a year, with the service sector driving much of the economic upturn. The market will be looking for the final manufacturing PMI figures to confirm this positive trend, reinforcing the narrative of steady growth in the sector.
Earnings are the primary focus for Tuesday.
Most notably, expectations for CrowdStrike are high after an 18% stock rise since March. The company reached a record high of $351.47 in late May, up 37.6% year-to-date. CrowdStrike's Falcon Platform includes over 20 cloud-based modules, offering integrated security solutions.
In Q4, revenue rose 33% to $845.3 million, and annual recurring revenue grew 34% to $3.435 billion. Analysts have raised their price targets, anticipating continued strong performance and robust platform adoption. For Q1, revenue is projected to be between $902.2 million and $905.8 million.
Elsewhere, Hewlett Packard Enterprise is set to release its quarterly earnings report after the market closes. Analysts predict earnings of $0.38 per share for the quarter. In its last earnings release on February 29th, HPE reported earnings of $0.48 per share, surpassing the consensus estimate of $0.45 by $0.03.
Despite this earnings beat, the company's revenue of $6.76 billion fell short of the anticipated $7.09 billion and represented a 13.5% decline year-over-year. Analysts' consensus rating for the stock is "Hold," with a target price of $17.91 - but depending on performance it could go either way.
Traders will be setting their sights on GameStop earnings after huge price spikes in mid-May driven by social media influencer "Roaring Kitty." Investors lost $13.1 billion in just three days from the May 14 peak of $64.83, with the stock dropping below $20. GameStop plans to sell up to 45 million shares to raise approximately $900 million.
Analysts expect first-quarter revenues to be significantly below estimates, with Wedbush's Michael Pachter setting a 12-month price target of $7 per share. Will this be a final fall from grace for the meme-stock or does ‘dumb money’ still have some gas in the tank?
Australian GDP figures may be of interest to those sizing up inflation and the likelihood of cuts down under. Economic activity in Australia has been weakening, with GDP growth slowing to 0.2 per cent in Q4 2023, down from 0.3 per cent in the previous quarter. If growth remains sluggish, sticky inflation could rule out the possibility of rate cuts in 2024 altogether.
The biggest economic event of this week, the ECB could be ready to start cutting interest rates as Chief Economist Philip Lane downplayed the risks of acting before the Federal Reserve.
With Eurozone inflation nearing the 2% target, investors expect a quarter-point reduction in the benchmark deposit rate from the 4% high. Recently, several robust economic and labour data releases prompted Goldman Sachs to revise its forecast, moving the expected Fed rate cut from July to September.
It’s unusual to see the ECB move ahead of the Fed – historically on only three occasions. Will June make a fourth?
Europe will also be kicking off parliamentary elections. Far-right parties are gaining momentum across Europe, with Italian Prime Minister Giorgia Meloni poised to replicate her national success at the European level.
Addressing a packed hall in Madrid via video link, Meloni emphasized the significance of the upcoming European elections. Notable far-right leaders, including Marine Le Pen and Santiago Abascal, were present.
The far-right could secure a significant share of votes, potentially influencing the European Parliament. However, internal divisions and scandals, particularly within Germany's AfD, pose challenges to their unified front.
Earnings: Docusign
Finally, to close out the week we have nonfarm payroll data on Friday. The US added 175,000 jobs in April, significantly below the forecasted 241,000, marking the smallest increase in six months. Revisions to the data for February and March also revealed that 22,000 fewer jobs were created than initially reported.
The slowdown in job creation was most evident in leisure and hospitality, construction, and the government sector, while healthcare and retail maintained strong employment levels. New data could confirm that the US labour market is now hitting a wall following robust economic performance earlier in 2024.
Analysts and government officials still seem optimistic though. "This is still a very strong jobs report — there’s not a lot of indication that there are cracks forming in the labour market,” said Ryan Sweet, chief US economist at Oxford Economics. “Overall, this is what the Fed has been wanting to see: softening in job growth, and the job market cooling a little bit or just rebalancing.”
With just months before the US election, President Joe Biden described the data as another sign of the resilient economy under his watch, stating; “The great American comeback continues.”
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