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Markets to seek validation from economic data

With the first-quarter earnings season largely over, markets are likely to shift their attention to economic data this week for further validation that the optimism which has sent global stock markets sharply higher this year has firm foundations.

This week, Japan will be unveiling data including department store sales, trade figures for April and inflation. Photo: Reuters

This week, Japan will be unveiling data including department store sales, trade figures for April and inflation. Photo: Reuters

With the first-quarter earnings season largely over, markets are likely to shift their attention to economic data this week for further validation that the optimism which has sent global stock markets sharply higher this year has firm foundations.

The first-quarter earnings turned out to be better than expected and offered support to stock markets, although valuations are no longer cheap. In the United States, for example, more than 70 per cent of companies in the S&P 500 index announced earnings per share that exceeded market estimates.

Earnings growth in the quarter also turned out to be stronger than anticipated.

In the US, economic data scheduled for release this week include figures for home sales, purchasing manager indices and durable goods orders.

Markets will also scrutinise the minutes of the Federal Open Market Committee’s May 3 meeting for clues about the Federal Reserve’s policy in the months ahead.

Several Fed officials are also scheduled to speak this week, and markets will be waiting to hear what they have to say about the US economy and monetary policy.

In the United Kingdom, the government is set to announce economic estimates for the first quarter, including gross domestic product, private consumption, exports and imports as well as business investment. These data could provide the backdrop for the UK general election on June 8.

Elsewhere in Europe, Germany is also scheduled to release key data including figures on how its economy performed in the first quarter.

Other German data on tap include the IFO Business Climate index, which is a closely-followed leading indicator of economic activity in Germany. For the eurozone as a whole, preliminary purchasing manager indices for manufacturing and services for May, and the composite index, are scheduled for mid-week release. These data will provide more insights into the nascent economic recovery in the region.

In Asia, Japan will be unveiling data including department store sales, trade figures for April and inflation. Inflation data will get greater attention because of the bearing it may have on the Bank of Japan’s monetary policy.

All in, the slate of economic data this week will offer useful information about the global economic outlook, especially at a time when markets seem to have priced in quite a bit of optimism.

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