Inflation data from the US and China, Q1 GDP data from the Eurozone and UK and retail sales from the US will highlight the economic calendar of the week ahead of us. XI – Trump meeting May 14 – May 15 in Beijing.
USD
Project Operation Freedom was launched on Monday and its goal is to safely escort neutral ships through the Straight of Hormuz. Pentagon stated that it will full back the project with US military as there will be over 100 unmanned aircraft and 15 000 military personnel. The on Wednesday Trump posted that he will be pausing Operation Freedom which brought another round of risk on mood into markets, only to follow it with another threat of bombing Iran. NBC reported that the main reason for pause was refusal of Saudi Arabia to allow US access to key bases and airspace. They have then lifted those restrictions couple days later. There were some skirmishes in the Straight as Iran fired missiles towards US navy ships. President Trump has given EU until July 4 to fully implement trade deal negotiated last year, Turnberry deal, or they will face much higher tariffs. According to the deal, tariffs on most EU goods will be 15%.
April ISM services PMI came in at 53.6, just shy of 53.7 as expected and down from 54 in March. The report shows improvements in business activity and employment with latter moving closer to expansion with a 48 print. New export orders also improved and moved further into expansion. New orders declined from a very high reading in March, 60.6, but are still well in expansion. Prices paid component showed no changes and remains very elevated at over 70. Overall, it is a positive report and in line with expectations with a big drop in new orders being potential cause for concern.
NFP April report saw economy add 115k jobs smashing expectations of a 62k print. January and March readings were revised up while February was revised down for a total of 18k jobs more than reported. The unemployment rate was unchanged at 4.3% while participation rate ticked down to 61.8%. Wages rose 0.2% m/m same as in March and 3.8% y/y as expected vs 3.5% y/y the previous month. Hours worked came in at 34.3, slightly better than 34.2 as expected. All of the jobs added were in private sector as government shed 8k jobs. The report shows that healthcare added the most jobs, 37k, which is in line with its average of 32k jobs per month in the past twelve months. Transportation added 30k jobs and retail trade added 22k jobs. Employment in information continued to trend down as April showed 13k job losses.
The yield on a 10y Treasury started the week at 4.38%, rose to 4.45% and finished the week at around 4.38%. The yield on 2y Treasury started the week at 3.89%, rose to 3.97% and finished the week at around 3.90%. Spread between 2y and 10y Treasuries started the week at 49bp and finished the week at 48bp. FedWatchTool sees the probability of a 25bp rate hike at June meeting at around 5% while probability of no change is at around 95%. S&P and NASDAQ reached new ATHs for the fourth consecutive week.
This week we will have inflation and consumption data.
Important news for USD:
Tuesday:
CPI
Thursday:
Retail Sales
EUR
Final April manufacturing PMI for the Eurozone was unchanged at 52.2 although there was an upward revision to German reading and Spain surprised to the upside and returned to expansion with a 51.7 print, up from 48.7 in March and much stronger than 49.5 as expected. The report shows that this improvement is all about stockpiling due to supply chain disruptions as new orders and output indices both surged. On the inflation side situation is getting worrisome as input costs surged to almost four-year high and they spilled through to output prices which reached levels not seen in more than three years.
Final services reading for the month of April was revised up to 47.6 from 47.4 as preliminary reported on the back of Italy beating expectations while German and French readings were unchanged. Spain had its reading plunge down hard into contraction. Uncertainties caused by US – Iran war are hurting the sector performance while on the other hand input prices reach new multi-year highs lifting inflationary pressures higher and posting additional set of challenges. Composite was unchanged at 47.6.
This week we will have second estimate of Q1 GDP.
Important news for EUR:
Wednesday:
GDP
GBP
Final services PMI for the month of April was revised higher to 52.7 from 52 thus making even bigger increase from 50.5 in March. The report warns that this recovery could be short-lived as companies reported fastest increase in average business costs in almost four years. Composite was lifted to 52.6.
Labour Party, ruling party in the UK, suffered great losses at local elections and its members are calling for Prime Minister and party leader Starmer to resign. Yield on 10y UK gilts crossed 5.1% during the week while yield on a 30y gilt rose to 5.8%, a level not seen since 1998. They both backed down as the week came to a close.
This week we will have preliminary Q1 GDP reading.
Important news for GBP:
Thursday:
GDP
AUD
RBA has delivered a 25bp rate hike as was widely expected lifting its cash rate to 4.35%. The vote was 8 – 1 with one member voting for no change. The statement shows that there are signs that companies intend to increase their prices and that short-term measures of inflation rose. US – Iran war is disrupting supply chains, increasing energy prices which raises uncertainties around economic outlook. Baseline scenario still remains that war will resolve soon but inflation will be higher than expected in February. The statement says: “…there are plausible scenarios where inflation is higher and activity lower than envisaged under the baseline forecast.” The board sees inflation staying above the target for a while and sees inflation risks tilted to the upside. The statement concludes with “Having raised the cash rate three times, monetary policy is well placed to respond to developments” indicating that they will need higher conviction to continue with rate hikes and that they consider pausing which gives this decision a dovish leaning vibe.
New projections see GDP falling to 1.3% in June of 2026 and then ticking up to 1.4% in December of 2027. The unemployment rate is expected to hit low of 4.2% if June of this year and then tick up in December and finish at 4.7% in December of 2027. Inflation is expected to peak at 4.8% in June and then slowly decline to 2.5% by December of 2027. Cash rate is expected to reach 4.7% in December of this year and stay at that level for the projected period till December of 2027.
RBA Governor Bullock emphasized at the press conference importance of getting on top of inflation and not letting it run away higher. She clarified that if second round effects materialize the economy will need higher rates but added that these rate hikes are now giving them more space to see how US – Iran war will play out. Bullock stated at one point that they are not in “wait and watch” mode but then reiterated that this rate hike gives them more room to assess the situation again hinting that they are preparing to pause.
China private survey of April services PMI improved to 52.6 from 52.1 in March. The report shows new orders continuing to rise. Demand for services is primary coming from domestic markets as indicated in second consecutive monthly drop in new export orders. Business sentiment is also improving. Negatives are seen in rise in energy costs due to supply chain disruptions caused by US – Iran war. Employment index also weakened. Overall, composite was pushed deeper into expansion with a 53.1 print.
This week we will have inflation data from China.
Important news for AUD:
Monday:
CPI (China)
NZD
Q1 employment report saw employment change of 0.2% q/q vs 0.3% q/q as expected and down from 0.5% q/q in Q4 of last year. The unemployment rate ticked down to 5.3% but participation rate also ticked down to 70.4%. Labor cost index rose 2%, same as in previous quarter. RBNZ Governor Brenan warned that she expects higher near-term inflation and weaker growth but added that growth for the year will be positive.
CAD
BoC Governor Macklem spoke in front of the Senate Standing Committee on Banking, Commerce stating that if oil prices remain high and they feed into broad inflation measures thus lifting them higher then bank is prepared to deliver consecutive rate hikes. This willingness to act forcefully represents a hawkish tilt in bank’s communication. He has stressed that so far there have been no signs of high energy prices spilling into and affecting broader prices of goods and services. CPI rose to 2.4% in March and is expected to peak at around 3% in April and then gradually come down to targeted 2%. GDP projections see economy growing by 1.2% in 2026, 1.6% in 2027 and 1.7% in 2028.
April employment report was abysmal. The economy lost 17.7k jobs instead of adding 15k jobs as expected. The unemployment rate jumped to 6.9% from 6.7% in March while participation rate ticked up to 65%. All of the jobs lost were full-time (-46.7k) while part-time jobs added 29k. Wages rose 4.5% y/y, slowing down from 4.7% y/y the previous month, lowering chances of wage induced inflation.
JPY
March labor cash earnings rose 2.7% y/y vs 3.2% y/y as expected and slower than 3.4% y/y growth seen in February. Real wages, adjusted for inflation, rose 1% y/y vs 1.8% y/y as expected and 2% y/y the previous month. Although the pace slowed this marks third consecutive monthly increase in real wages. Rising real wages in combination with spring (Shunto) negotiations resulting in wages rising by more than 5% or the third year in a row will improve chances of a June rate hike. Reuters reported that MoF intervened in the markets to the tune of $67bn. The first $35bn were on April 30 while the remaining $32 were spread out from May 1 to May 6. MoF remains committed to intervene further if necessary.
Final services PMI for the month of April was revised down to 51 from 51.2 as preliminary reported and down from 53.4 in February for the lowest reading in eleven months. Input costs rose at a quickest pace in last year due to the energy price shock caused by US – Iran war. Input cost inflation reached a 42-month high. Composite was also revised down to 52.2 from 52.4 as preliminary reported and down from 53 the previous month.
CHF
SNB total sight deposits for the week ending May 1 came in at CHF459.7bn vs CHF455.9bn the previous week. April inflation data saw headline number rise to 0.6% y/y, as expected, from 0.3% y/y in March while core inflation ticked down to 0.3% y/y from 0.4% y/y the previous month. Energy prices are lifting inflation but it is still at a very low levels compared to the rest of the world and strong Swissy is keeping inflation from moving higher.
