European indices head lower as inflation-led rally fades

• European markets head lower as US CPI rally fades
• Chinese data deluge brings mixed picture
• Walmart earnings bring optimism for US consumer despite weak retail sales

European markets are heading into the weekend on a somewhat downbeat tone, despite having seen the Dow break 40,000 for the first time. US inflation data has dominated sentiment for markets this week, with the lower-than-expected report helping to keep the bears at bay for now. Nonetheless, the optimism seen in US markets belies the reality on the ground, with the first four monthly CPI readings of 2024 bringing a sum total of 1.4%. That recent rebound in price pressures should ensure support for the dollar in the months ahead, with the greenback gaining momentum after reaching a one-month low yesterday.

Chinese data dominated overnight, with a deluge of key economic indicators providing a mix bag for traders to sift through. The strengthening industrial production reading provided hope for Chinese exporters, with particular strength seen within the computer and communications sector (15.6% YoY) and textiles (6.6%). Interestingly, there were some glimmers of light within an otherwise concerning fixed asset investment release, with investment in mining (26.2%), and manufacturing (9.7%) serving to highlight recent strength in the secondary sectors. Unfortunately, the weakness evident in Chinese retail sales served to highlight the floundering domestic demand picture, with struggles over housing, credit, and equity valuations dampening the willingness to spend for the time being. The government’s pledge to buy unsold properties in a bid to alleviate the housing crisis does provide some hope for a sector that has long underpinned the Chinese growth story.

Yesterday’s Walmart earnings served to provide a bullish backdrop for the US consumer, with the company managing to beat on both earnings and revenues yet again. Looking ahead to a week that brings figures from the likes of Target, Dollar Tree, and Ross Stores, the strength of domestic consumption will be key following a disappointing 0% retail sales reading on Wednesday. With 93% of the S&P 500 having reported their first quarter earnings, traders are likely to become more sensitive to economic data as we move forward.