Eurozone inflation and growth data casts doubt on ECB rate cut hopes

The FTSE 100 once again finds itself at the top of the pile in early trade, with the index managing to push higher despite declines for mainland European indices. A deluge of Eurozone data saw better-than-expected growth figures from France, Germany, Spain, and Italy, helping to boost the outlook for the year ahead. However, all eyes were on the eurozone inflation report as a key determinant of expectations from the ECB. With inflation coming in at 0.6% for the month, there are clear concerns when set against the similarly lofty 0.8% figure for March. The annual figure may rest close to target at 2.4%, but it looks likely that this final hurdle will be a difficult one to overcome in the coming months. Instead, the ECB are faced with the predicament of whether to hold off or proactively cut rates ahead of any return to 2% inflation. With inflation likely to remain above target and growth picking up, we are arguably seeing the case for a swift rate cut from the ECB fade.

The UK looks set for a period of increased price uncertainty, as Brexit border checks raise concerns over a potential resurgence in food inflation. The EU remains the UK’s largest trading partner, but that relationship could shift as European producers deem in economically unviable to supply the UK market given the implementation of new red tape at the border. For markets this heightens the prospect of a fresh surge in food inflation, coming just as the Bank of England prepare to implement their first rate cut in the coming months. Fortunately, overnight data from the BRC highlighted easing price pressures elsewhere, with non-food goods prices falling by 0.6% over the year to April, bringing the first annual decline in this metric since October 2021.

Earnings season looks to kick back in as a major determinant of market sentiment today, with Amazon reporting after the close. While we have commonly known Amazon as a consumer cyclical stock that should benefit from higher consumer spending, recent trends have instead shifted the focus towards their cloud and AI revenues given the prospective revenue growth they bring. However, advertising also represents a key area of growth, which traders should be keenly following. Coming hot off the heels of strong digital advertising demand from Snap, Microsoft, and Alphabet there is a hope that Amazon can continue to build on their impressive 26% year-on-year ad growth seen last time around.