BoJ meeting, preliminary Q1 GDP from the US and Eurozone, inflation data from the US, Eurozone and Australia as well as official PMI data from China will dominate the economic news in the week ahead of us while statements from the White House and President Trump surrounding tariffs will continue to have big impacts on markets and investors.
USD
President Trump has toned down his rhetoric. Now he sees deal being struck soon although there were no official communication between him and president Xi. On the other hand, he backtracked his previous calls for firing of Fed Chairman Powell. In his previous posts he called him “Too Late” and urged him to cut interest rates adding that Powell’s “termination can’t come soon enough”. Then on Wednesday there was a report from Wall Street Journal that White House is considering lowering tariffs on China in order to de-escalate. New tariffs would consist of 35% tariff on nine strategic items, 100%+ tariffs on goods tied to national security and they would be phased in over five years. Markets were happy with the change of tone as well as attempts to de-escalate and as a result risk assets enjoyed a good week.
On Friday, Trump gave an interview to Time Magazine in which when asked “If we still have high tariffs, whether it’s 20% or 30% or 50%, on foreign imports a year from now, will you consider that a victory?” he replied with “Total victory”. These are not the words that markets would enjoy so the rally stalled and indices consolidated.
The yield on a 10y Treasury started the week at 4.34%, rose to 4.44% and finished the week at around 4.29%. The yield on 2y Treasury started the week at 3.82% which was the high and finished the week at around 3.74%. Spread between 2y and 10y Treasuries started the week at 53bp and finished the week at 55bp as curve bear steepened further. FedWatchTool sees the probability of a 25bp rate cut at May meeting at around 5%, while probability of a no cuts is around 95%. Gold has reached new highs as it touched $3500, then plunged bellow $3300 but managed to finish the week above $3300.
This week we will have preliminary Q1 GDP reading as well as Fed’s preferred inflation reading PCE. Additionally, we will get ISM Manufacturing PMI for the month of April and NFP on Friday. Headline number is expected to come at around 140k with the unemployment rate staying at 4.2%.
Important news for USD:
Wednesday:
GDP
PCE
Thursday:
ISM Manufacturing PMI
Friday:
NFP
Unemployment Rate
EUR
Preliminary PMI data for the month of April showed weakness in the Eurozone economy, but less than feared. This report shows the first glimpses of the economy after the Liberation Day (April 2). Manufacturing managed to tick up to 48.7 from 48.6 in March as they increased production and slowed the pace of job cuts. Services sector is where the real weakness is as it dropped into contraction with a 49.7 print. The sector saw a faster drop in new businesses. Inflation pressures are painting a brighter picture as they show input prices staying relatively steady while increase in output prices slowed significantly. Composite barely managed to stay in expansion as it printed 50.1, down from 50.9 the previous month.
This week we will have preliminary Q1 GDP reading as well as preliminary April inflation reading.
Important news for EUR:
Wednesday:
GDP
Friday:
CPI
GBP
BoE policymaker Greene stated in an interview that pricing is reflective of global factors and that supply side issues concern him more. She added that weak USD would be disinflationary for the UK and that services pose a bigger threat to inflation than wage growth, especially given the inflation persistence seen in services. According to her, neutral rate is now higher than it was and it is not unreasonable to see it between 3.25-3.50%.
Flash PMI readings for the month of April saw further deterioration in economic conditions as manufacturing printed 44, down from 44.9 in March with services falling into contraction with 48.9 vs 51.5 as expected and down from 52.5 the previous month. This is the first time services dropped into contraction since October of 2023. The report highlights aggressive job cuts and faster declines in business optimism across the economy. Composite was also dragged down into contraction with a 48.2 reading vs 51.5 in March. Q2 has started on a weak note and, although it is still too early. indicates a negative growth for the quarter.
AUD
Spokesperson for the Chinese Foreign Ministry stated that they are prepared to fight tariff war if needed. He added that countries are not in talks on tariffs at and that US needs to stop with threats if they wish to start talking. Chinese Commerce Ministry reiterated that there are no negotiations between US and China at the moment and added that if US really wants to start trade negotiations they should lift all unilateral tariffs levied against China.
This week we will have inflation data from Australia and official PMI data from China.
Important news for AUD:
Wednesday:
CPI
Manufacturing PMI (China)
Services PMI (China)
Composite PMI (China)
NZD
March saw bigger trade surplus than in February. This along with a risk on move in the markets helped Kiwi rebound against risk off currencies such as JPY and CHF. Currency also appreciated against EUR, AUD and GBP but lost ground against USD strength.
CAD
Survey of incoming federal elections sees Liberals winning the outright majority of 170 votes followed by Conservatives with around 120. This will officially put former BoE and BoC governor Mark Carney as Prime Minister of Canada. Retail sales for February came in as expected at -0.4% m/m but advanced March reading sees them rising by 0.7% m/m.
This week Federal Elections will be held.
Important news for CAD:
Monday:
Federal Elections
JPY
Preliminary April PMI data showed manufacturing tick up to 48.5 from 48.4 in March thus keeping the sector in contraction for the tenth straight month. New orders dropped to the levels not seen in more than a year while business confidence plunged to the levels not seen in the past five years. The report highlights uncertainties surrounding economic outlook, trade environment, staff shortages and ageing population. Services jumped to 52.3 from 50 the previous month, returning into expansion. Inflation pressures are continuing to increase in both sectors. Composite was lifted back to expansion to 51.1 from 48.9 in March. Services PPI ticked up in March to 3.1% y/y from 3% y/y back in February showing more inflationary pressures building.
Tokyo area inflation data surged in April. Companies set new prices in April and it is reflected in report. Headline CPI printed 3.5% y/y vs 3.3% y/y as expected and up from 2.9% y/y in March. Inflation pressures were broad based which poses additional concern regarding high running inflation. Ex fresh food component printed 3.4% y/y, a full percentage point higher than 2.4% y/y the previous month, as well as higher than 3.2% y/y as expected. BoJ is expected to stand pat at next week’s meeting due to high uncertainties surrounding tariffs, but this reading may prompt them to hike in June.
This week we will have BoJ meeting. No change in rate is expected as bank is still grappling with potential effects of tariffs on the economy.
Important news for JPY:
Thursday:
BoJ Interest Rate Decision
CHF
SNB total sight deposits for the week ending April 18 came in at CHF448.3bn vs CHF446.9bn the previous week. Another week of miniscule increase as deposits try to break the ceiling for the year.
