European Stocks Set for Lower Open Amid US Inflation Data Watch

European stocks are likely to open lower as investors await vital US inflation data. Despite recent US-China trade progress boosting markets, sticky inflation could hinder anticipated interest rate cuts.

Date: 13-05-2025

AI Rating: 7

Investors are closely monitoring upcoming economic indicators, notably the consumer price index (CPI) data stemming from the U.S. Labour Department. A key concern will be whether the CPI remains unchanged, which may pose a challenge for further interest rate cuts. As interest rate expectations are pivotal for stock valuations, persistent inflation could lead to a more cautious investing environment.

Significant Trade Developments
Recent reports highlight a significant agreement between the U.S. and China aimed at reducing tariffs for 90 days. This has resulted in optimism among Wall Street traders, leading to a reassessment of potential rate cuts. With major financial institutions now forecasting only two rate cuts in 2025, investors should consider how these anticipations may impact stock valuations in the near-term.

Economic Outlook and Recession Risk
Goldman Sachs has revised its recession risk estimates, lowering it to 35 percent from 45 percent. This adjustment signals increased confidence in economic stability, which, if realized, could foster more bullish sentiment in the market. The ongoing discussions for new trade deals may also contribute positively to this outlook, depending on the evolving geopolitical context.

Market Reaction to Trade Agreements
The recent reductions in tariffs have catalyzed a rally in U.S. equities, with indices such as the S&P 500 and Nasdaq Composite showcasing notable gains, indicating investor approval of the improved trade environment. Such market behaviors often correlate with heightened investor sentiment, but sustained inflation could temper this enthusiasm.

In summary, while current trade negotiations and adjustments in economic forecasts appear favorable for the equity market, the persistence of inflation will play a crucial role in shaping investor sentiment. A cautious approach may be warranted as the forthcoming CPI data could significantly influence trader strategies.

Stocks: SPY QQQ DIA