Markets lookahead: EU economy and US inflation figures in focus

Following a volatile week, market participants will shift their attention back to major economic indicators from key economies, particularly US inflation data and Chinese economic figures, this week.

The US election dominated market trends last week, investors will redirect their focus to economic fundamentals this week. The US Consumer Price Index (CPI) is poised to be a crucial data point influencing market sentiment.

In Europe, the second estimate of third-quarter GDP will offer further insights into the region’s economic trajectory.

Additionally, market participants will monitor a series of Chinese economic data releases to assess the effectiveness of the government’s stimulus measures in bolstering the world’s second-largest economy.

Europe

According to preliminary flash data from Eurostat, seasonally adjusted third-quarter GDP rose by 0.4% in the euro area from the previous quarter, an increase from 0.2% in the second quarter.

This marks the strongest growth rate in two years, with the German economy expanding by 0.2%, thus avoiding a recession. Growth was also recorded in France and Spain, indicating that lower interest rates and the forthcoming Paris Olympics may have contributed to economic growth.

The second GDP estimate is expected to align with the initial figure.

Meanwhile, Germany is set to release the ZEW Economic Sentiment Index for November, providing further insight into Europe’s largest economy.

Recent data has shown an improvement in the German economy in October, with business activity and factory orders both surpassing expectations.

The ZEW index rose to 13.1 in October from 3.6 in September due to anticipated lower interest rates. Consensus suggests that German economic sentiment will continue to recover, reaching 13.2.

However, the recent US election may potentially dampen business confidence. Germany will also publish the final Consumer Price Index (CPI) for October, which is likely to align with the flash data, showing a 2% year-on-year increase. Inflation in the eurozone rose to 2.4% in October from 1.8% in September, driven by rising service prices.

In the UK, September employment data will be closely observed as the labour market remains tight.

The unemployment rate fell to 4% in the three months ending in August, the lowest level since the three months ending in January.

The rate is expected to inch up to 4.1% in the three months ending in October.

Meanwhile, wage growth decreased to 3.8% during the same period, the lowest level since November 2020. Inflation-adjusted earnings growth stood at only 0.9%, which could help further alleviate inflationary pressures.

United States

In the wake of the US presidential election, attention now turns to whether Republicans will control both the House and Senate, enabling the Trump administration to implement its pledged policies, including global tariffs and tax cuts. This could contribute to further volatility in global markets.

On the economic front, October’s US inflation data will be critical in shaping market trends and may offer clues about the Fed’s future rate path.

Headline CPI was reported at 2.4% year-on-year in September, the lowest since February 2021, while core inflation increased to 3.3% from 3.2% in the previous month.

Consensus forecasts suggest headline inflation may remain steady at 2.4% in October. Last week, the Fed delivered its second rate cut of the year, albeit at a reduced pace of 0.25%.

Trump’s policy agenda may heighten inflationary risks, potentially prompting the Fed to pause its easing cycle.

However, Fed Chair Jerome Powell emphasised that the bank will focus solely on the economic trajectory without factoring in potential political influences.

The Producer Price Index (PPI) is another important inflation indicator for investors to gauge economic conditions. PPI increased by 1.8% year-on-year in September, marking its lowest level in seven months.

Asia-Pacific

In the Asia-Pacific region, China is set to release key economic data for October, including figures for new home prices, industrial production, retail sales, and fixed asset investment.

Data from September indicated that China’s economy had improved beyond expectations. With additional stimulus measures announced, the Chinese economy could experience further recovery from a prolonged period of sluggish growth.

Consensus suggests these key indicators may show continued improvement in October, with retail sales anticipated to increase by 3.8% year-on-year, up from 3.2% in September.

However, US-China trade tensions could escalate further if Trump follows through on his tariff pledges.