Early Bid Tight Market Awaits Action-Packed Week

Ankur Banerjee's outlook for the day ahead in European and global markets

European markets are gearing up for a smooth start to the week, with the ECB widely expected to leave interest rates unchanged but may hint at when it will start cutting them, while investors will analyze the latest reading of the U.S. inflation report.

Markets will also have a chance to assess US PPI data and the minutes of the March Fed meeting, while UK GDP data will be released at the end of the week. Fed speakers such as John Williams, Mary Daly and Raphael Bostic will also be speaking this week.

Investors see almost zero chance of a rate cut by the ECB at its April 11 meeting, but have fully priced in a rate cut in June, with two or three more cuts later in the year.

This makes the officials' comments and the tone of the statement the focus of traders' attention.

Futures point to a steady start for European stocks, with a focus on the STOXX 600 index across the continent. The index hit a two-week low on Friday.

However, ahead of the ECB meeting, investors will have to face the latest U.S. Consumer Price Index (CPI) report scheduled for April 10, which is expected to show that core inflation slowed to 3.7% in March, down from 3.8% in the previous month.

These data will hopefully provide some answers to a question that has been troubling traders this year: when will the Fed start the rate-cutting cycle?

The data originally scheduled to be released in March has now been postponed to June, and after the U.S. jobs report made another splash, the inflation report has been slowly pushed back to July or even September, making the inflation report the next important data for the market.

Investors may also be getting used to the idea that a strong U.S. economy is not a bad thing after all.

High U.S. Treasury yields boosted the U.S. dollar, but the stock market grew along with it, although it remains to be seen whether this investor enthusiasm for risky assets will continue in the face of new talk that U.S. interest rates are "going higher and higher."

Risk appetite was also helped by media reports that the Gaza truce talks are progressing in Cairo, with the parties having agreed on basic points.

Key developments likely to affect Monday's market:

Economic events: Germany's trade balance, industrial output, industrial production, imports and exports in February

(Written by Ankur Banerjee; edited by Shri Navaratnam)