The Week Ahead
Key data points this week include the US CPI and retail sales figures, UK employment, and eurozone GDP prints. We will also have Walmart earnings, a bellwether for the retail sector (Thu). Later today we will hear from the BoE’s Lombardelli (and again on Friday). On Tuesday, the Germany ZEW survey, UK employment report and US CPI will grab market attention. Trump begins his Middle East trip, visiting Saudi Arabia, Qatar and the UAE to discuss planned investment in the US. On Wednesday we will hear from the Fed’s Jefferson on the economic outlook, Waller on central bank research, and Daly at a separate event. Guidance from the ECB’s Holzmann and BoE’s Breeden will also be of interest. Eurozone and UK GDP and industrial production prints are due on Thursday and later we have US retail sales, PPI, empire manufacturing, industrial production, and jobless claims. Fed chair Powell, the ECB’s Guindos, Elderson, Cipollone and Galhau, and the BoE’s Dhingra all speak on Thursday. Japan GDP and US housing starts, Uni. of Michigan consumer sentiment and import prices will be key on Friday. Central bank chatter includes the ECB’s Lane and the Fed’s Laubach.
US-China tariff de-escalation expectations supported market sentiment last week, as did an easing in geopolitical tensions. The yield on the 10-year UST rose 7bps to 4.38%, while the S&P Index fell 0.47%. The dollar gained 0.31%, and Brent crude rose 4.27%, closing the week at $62.91pb.
As was widely expected and priced in, the FOMC voted unanimously to maintain the benchmark federal funds rate at the target range of 4.25% to 4.50% at the May meeting. Having held pat on rates since December 2024 the central bank noted "the risks of higher unemployment and higher inflation have risen." During his presser, Fed Chair Powell reiterated that he would not be rushed into lowering rates until there is greater clarity regarding the direction of trade policy. "There's so much that we don't know. We're in a good position to wait and see, we don't have to be in a hurry," Powell stated. Powell emphasised that the central bank finds itself in a precarious position, navigating an economy that exhibits both signs of resilience, such as April's payrolls, and weakness, evidenced by the latest Q1’25 GDP estimate showing a 0.3% contraction.
Elsewhere, the People's Bank of China (PBOC) announced a substantial monetary policy easing package, including a 10bp cut to the 7-day reverse repo rate (to 1.4%) and a 50bp reduction in the required reserve ratio (to 9.0%). These measures will inject up to RMB 1 trillion of liquidity and reinforce China's counter-cyclical policy approach, designed to strengthen expectations and improve sentiment. While not as dramatic as earlier interventions, the coordinated breadth of these announcements should help stabilise both economic activity and financial markets. Further easing of approximately 20bp in rate cuts and 50bp in RRR cuts may be implemented later.
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