US core PCE inflation metric the main event this week

European markets are in recovery mode, with widespread gains taking shape in early trade. Despite ongoing concerns around this weekend’s French parliamentary election, French stocks are on the rise as investors buy the dip that saw the CAC lose almost 10% in a month. Nonetheless, this weekend saw the RN party’s head of economic policy, Jean-Philippe Tanguy strike a more cautious tone, promising to stick to the European Union's fiscal rules and reduce the deficit. While pledges such as their plan to cut value-added tax on energy from 20% to 5.5% had provided cause for concern, the fact that they are currently looking likely to fall short of a majority victory would indicate that their more radical policies could be curtailed. Nonetheless, the positive tone being taken by European markets could yet come into question as we get closer to this potential seismic shift in French politics.

The German Ifo business climate survey provided yet another reminder of the difficulties being faced by Europe’s largest economy. The German economy continues to face up with the reality of stagnation in the region, with the economic data out of the region continuing to fall short of expectations. Coming off the back of last week’s German manufacturing and services PMI declines, we are seeing signs of distress in the German economy that may yet push the ECB towards another rate cut in July.

Looking ahead, this week will crescendo with Fridays US core PCE price index inflation report. Coming off the back of last week’s bumper services PMI reading, there is a concern that the vibrancy of the US economy could ultimately produce a longer wait for those desperate for that first Federal Reserve rate cut. With crude oil prices on the rise once again today, keeping a lid on fuel costs will remain a key factor in avoiding a fresh resurgence in price pressures.