Inflation and retail sales data from the US, employment from the UK and Australia and preliminary Q1 GDP from the UK and Japan will highlight the economic news this week while tariff and trade deals talk continue to hold grip on markets.
USD
ISM services for the month of April came in at 51.6, up from 50.8 in March and much better than 50.2 as expected. The details of report show increases in new orders and employment index with latter getting closer to returning to expansion. On the other hand, there was a jump in prices paid index indicating growing inflation pressures. There was also a huge drop in imports as tariff front loading is behind us.
US – China trade talks have started over the weekend in Geneva, Switzerland. US Treasury Secretary Scott Bessent was leading the US delegation. President Trump stated that he is “not open to pulling back on the 145% tariffs”. Later on, as the meeting approached he stated that “80% Tariff on China seems right! Up to Scott B” indicating his desired level but putting the decision in Bessent’s hands. On the other side, US and UK managed to agree on terms for trade deal. This deal is a preliminary deal but as such it represents a “substantial” move towards the final deal. CNN White House reporter stated that 10% tariffs, a part of universal 10% tariffs imposed by US, will remain in place. Tariffs on aluminium and steel were lowered to zero as a part of the deal and UK car exports will be tariffed 10% instead of 25%. New Pope has been elected and he is a first American-born Pope. He took name Leo XIV.
Fed has left rate unchanged at 4.25-4.5.% at their May meeting as was widely expected. The statement shows Fed clarifying that apart from drop in net exports “recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.” This is a hawkish sounding message and it will lower chances of a June cut. Adding to the hawkish message is this part “Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.” The Committee will now take international developments as well as an input into their decision making process.
Powell presser said that labor market is not source of inflation as wage growth is moderating. He warned that surveys of households and businesses show sharp declines and added that current policy stance is well calibrated for the current climate. Trade, immigration, fiscal policy and regulation are places where new administration is implementing policy changes. Powell repeated several times that upward risks for inflation and unemployment have risen. “Wait and see” is the expression Powell repeated more than ten times. President Trump was not happy with Fed’s decision and he took it to his social media account to call Chairman Powell “FOOL”.
The yield on a 10y Treasury started the week at 4.31%, rose to 4.39% and finished the week at around 4.37%. The yield on 2y Treasury started the week at 3.83%, rose to 3.89% and finished the week at around 3.88%. Spread between 2y and 10y Treasuries started the week at 48bp and finished the week at 49bp. FedWatchTool sees the probability of a 25bp rate cut at June meeting at around 17%, while probability of a no cuts is around 83%. Bitcoin has crossed $100k mark reaching highs of $104k.
This week we will have inflation and retail sales data. Headline inflation is expected to tick up while core should remain unchanged.
Important news for USD:
Tuesday:
CPI
Thursday:
Retail Sales
EUR
Friedrich Merz, leader of CDU/CSU, failed to secure 316 necessary votes needed to be elected Chancellor of Germany. The governing coalition has a majority of 12 seats in the Parliament but Merz did not get all of the votes. The voting was done in secret so it was not sure whether voters from CDU/CSU voted against him or it was voters from SPD. This is the first time in German history that a designated chancellor did not get the required votes. However, due to the fact that CDU/CSU and SPD hold a two-thirds majority in the Parliament they managed to organize a second vote on the same day. The second vote was successfully and Merz was voted as the new Chancellor with 325 votes.
GBP
BoE has delivered a 25bp rate cut at their May meeting, as was widely expected, thus bringing the rate down to 4.25%. The vote was 7-2 in favour of a rate cut while markets were expecting it to be a unanimous vote. Two members, Dhingra and Taylor, voted for a 50bp rate cut, while two dissenting members, Mann and Pill, voted for no change, they wanted rate to stay at 4.50%. The statement shows that members feel that rate is still restrictive and will help in continuing fight to bring inflation to 2% target. On the future moves the statement shows that “Gradual and careful approach to further withdrawal of monetary policy restraint remains appropriate.” The minutes show that inflation is still expected to average around 3.5% in Q3.
BoE governor Bailey stated at the press conference that disinflation in domestic prices continues and is expected to continue. He added that overall impact of tariffs on inflation remains uncertain and that bank is watching closely developments on the US-UK trade deal. The two dissenting votes make this a hawkish cut and GBP strengthened on the back of that.
This week we will have employment and preliminary Q1 GDP data.
Important news for GBP:
Tuesday:
Payroll Change
Unemployment Rate
Thursday:
GDP
AUD
Governing Labor party won elections that were held on May 3 and increased its number of seats to 85 from 77 as held previously. The number of seats needed for majority is 76. Labor has also increased its presence in Senate as they now occupy 28 seats compared to 26 previously.
PBoC has announced rate cuts in order to stimulate the economy. 7-day reverse repo rate has been cut by 10bp to 1.40% from 1.50% while RRR (Reserve Requirement Ratio) was cut by 50bp thus bringing the rate to 9% from 9.50% previously. Interest rate cut will go in effect on May 8. The RRR cut, expected to add almost 1tn RMB in liquidity, will take effect on May 15. Additionally, there were moves to ease loans for autos and to support consumption and tech sector. President Xi has visited Moscow where he met with president Putin. They have issued joint statement which shows that countries intent to ramp up cooperation in order to decisively counter US efforts to contain them. Additionally, they will continue to strengthen their military cooperation.
April trade balance data showed surprisingly good numbers. In dollar terms exports have increased by 8.1% y/y, much better than 2% y/y as expected. Exports to the US have dropped by 21% y/y. Imports declined by 0.2% y/y making trade surplus $96.18bn. Tariff impact was much smaller than feared as numbers suggest, although some analysts point out jumps to exports into ASEAN region as a sign of re-routing exports to the US.
This week we will have employment data.
Important news for AUD:
Thursday:
Employment Change
Unemployment Rate
NZD
Q1 employment report saw employment change up by 0.1% q/q after dropping by the same amount in Q4 of 2024. On a y/y basis it printed -0.7%. The unemployment rate was unchanged at 5.1%, markets were expecting an increase to 5.3%, but participation rate declined to 70.8% from 71% in the previous quarter.
CAD
April employment report provided us with some positives and some negatives. On the positive side we have economy adding 7.5k jobs vs losing 25k as was expected. All of the jobs added were full-time (31.5k) while part-time jobs showed losses (-24.2k). On the negative side we have the unemployment rate rising to 6.9%, highest since September of 2021, from 6.7% in March while markets were expecting 6.8% print. To ease the blow we have a tick up in participation rate to 65.3%. Wage growth was unchanged from the previous month at 3.5% y/y.
JPY
Final services reading for the month of April ticked up to 52.4 from 52.3 as preliminary reported and rebounded nicely from 50 in March. From the report we can see that services recovered due to notable improvement in demand. Business confidence has plunged to the levels last seen in January 2021 due to rising uncertainties surrounding global trade. Additionally, input costs have continued to increase, now reaching a new two-year high, which prompted companies to increase their prices and thus pass the burden onto the consumer.
March wages data showed nominal wages grew by 2.1% y/y, slowdown from 3.1% y/y in February. When adjusted for inflation, real wages declined by 2.1% y/y making it third straight months of falling real wages. Household spending for the same period increased by 2.1% y/y with report stating that some signs of consumption recovery are starting to appear.
This week we will have preliminary Q1 GDP data.
Important news for JPY:
Friday:
GDP
CHF
SNB total sight deposits for the week ending May 2 came in at CHF454.1bn vs CHF451.1bn the previous week. Another move higher as deposits are trying to breakout of the range and shoot higher.
April inflation report saw headline number came in flat for the year, down from 0.3% y/y in March while markets were expecting a 0.2% y/y print. This is the first time since March of 2021 that inflation printed 0. Core number also dropped printing 0.6% y/y, down from 0.9% y/y the previous month. Deflationary forces mount and if Swissy continues to strengthen due to risk off sentiment in the market, lower growth, lower global trade, it cannot be ruled out that May reading will be a negative one. This would in turn increase the probability of SNB returning to negative interest rates in order to fight off Swissy strength and lift inflation.
SNB Chairman Schlagel stated that Swissy has recently strengthened significantly. He added that no one likes negative interest rates but if the situation calls for it the bank is prepared to go in that direction. Additionally, he added that the bank has been expecting inflation to go down.
