This week, there will be meetings from the Federal Reserve, European Central Bank, and Reserve Bank of Australia that could impact the markets. The S&P 500, Gold, and US$ are also expected to be closely watched
EUR/USD is preparing for a week heavy in economic data, with both the ECB and Fed rate decisions in focus. Uncertain euro traders are now looking to fundamentals for directional bias, whether it be a reversal or continuation. The British pound’s recent rally against the US dollar has stalled, and it is likely that consolidation will continue before a new leg higher begins. The Australian dollar stumbled last week but remains within a two-month range, with monetary policy decisions ahead that may lead to momentum unfolding in the AUD/USD. Gold prices have been stagnant within a broad range for the past two weeks. Potentially high-impact event risk such as FOMC, PMI, or NFP may provide the necessary momentum for a breakout. In terms of market forecasts, both S&P 500 and Nasdaq are expected to climb despite market uncertainties.
Bloomberg data reveals that approximately 50% of the S&P 500 companies have provided reports, with 66% reporting sales surprise and 80% reporting earnings surprise. FactSet has indicated that in the upcoming week, reports for the first quarter are expected to be submitted by 162 S&P 500 companies.
Newly released data has indicated a slower than forecasted growth in the US economy during Q1, while the Euro area’s economy experienced only minimal expansion in the same period. Despite this, advances in reducing inflation have been limited; for example, Germany saw only a slight decrease in inflation during April and the US core PCE price index did not cool as much as expected. Nevertheless, it is widely anticipated that both the US Fed and the ECB will implement a 25 basis point rate hike at their respective May 3 and May 4 meetings. The central banks’ response to growth-inflation dynamics over the upcoming months will be of critical importance.
Newly released data has indicated a slower than forecasted growth in the US economy during Q1, while the Euro area’s economy experienced only minimal expansion in the same period. Despite this, advances in reducing inflation have been limited; for example, Germany saw only a slight decrease in inflation during April and the US core PCE price index did not cool as much as expected. Nevertheless, it is widely anticipated that both the US Fed and the ECB will implement a 25 basis point rate hike at their respective May 3 and May 4 meetings. The central banks’ response to growth-inflation dynamics over the upcoming months will be of critical importance.
Year to Date Equity Market Performance
The upcoming release of global manufacturing and services data is expected to provide insight into the state of global economic activity. Particularly notable is the lack of consensus on whether the US economy will experience a soft landing, hard landing, or no landing at all. Additionally, the rate and scope of inflation slowdowns worldwide will be crucial factors to consider. Based on these outcomes, the market’s expectations regarding central bank policies may vary.
The recent decrease in Australian inflation has led to an expectation that the Reserve Bank of Australia (RBA) will maintain its current interest rate of 3.6% during its upcoming meeting on Tuesday. While the RBA did not increase rates in April, it left room for potential future tightening measures.
Year to Date Performance of Key Currency Pairs
The upcoming week will see the release of data on global manufacturing and services activity. China NBS manufacturing PMI and non-manufacturing PMI for April have already been released, while US ISM manufacturing PMI for April is expected on Monday. On Tuesday, the market will receive the RBA interest rate decision and Euro area inflation data for April. Wednesday will see the release of the RBNZ Financial Stability Report and New Zealand jobs data for Q1, as well as US ISM services PMI data for April and the US Fed interest rate decision. The ECB interest rate decision is due on Thursday. Finally, on Friday, data on US jobs for April and Euro area retail sales for March will be released.
In addition to the impact of data and central bank policies, the debt ceiling matter continues to generate instability in the market. The US 1-year CDS has reached an unprecedented level since 2014 due to this issue. Recently, Janet Yellen, the US Treasury Secretary, cautioned that failure by Congress to increase the government’s debt ceiling would lead to a severe economic crisis.
Forecasts:
The EUR/USD is preparing for a week of important economic data, including rate decisions from the ECB and Fed. Traders are uncertain about which direction the euro will go and are looking to fundamental factors for guidance.
The Australian Dollar has been trading within a two-month range but with upcoming monetary policy decisions, a breakout could occur and bring momentum to AUD/USD.
