Week Ahead
Markets will be driven by ongoing geopolitical rhetoric and earnings from the likes of NVIDIA (Wed) and consumer bellwether Walmart (Thu). Later today, the BoE’s Greene and Mann attend separate events. UK employment data will be in focus on Tuesday, followed by US pending home sales. The Fed’s Paulson will speak on the economy, while US congressional primary elections take place across several states. Eurozone and UK CPI, along with US MBA mortgage data, will garner market attention, as will the April FOMC minutes release. Preliminary PMI prints and Eurozone consumer confidence will attract focus on Thursday. In the US, housing starts, initial jobless claims, and the Philly Fed business outlook are due. On Friday, UK consumer confidence and retail sales, as well as the University of Michigan consumer sentiment print, will be closely watched. Central bank commentary comes from the ECB’s Vujcic, Kazimir, and Muller.
The primary drivers for markets last week were hotter than expected inflation data (year-on-year headline CPI at 3.8%, core at 2.8%, and PPI final demand at 6.0%) and intensifying geopolitical risks. Oil spiked due to the ongoing closure of the Strait of Hormuz and a lack of progress in Iran peace talks following a US–China state visit. The macro picture was further complicated by a hawkish pivot in expectations, as Kevin Warsh was confirmed to succeed Jerome Powell as Fed Chair, prompting markets to price in a greater than 50% chance of a rate hike by December rather than a cut. US data added further complexity: April retail sales rose 0.5%, signalling a resilient but moderating consumer, giving the Fed leeway to keep rates higher for longer.
The S&P index hit new all-time highs midweek before retreating on Friday to eke out a modest 0.13% weekly gain. The 7,500 level was briefly breached, supported by robust Q1 corporate earnings and the AI-driven tech sector, which temporarily masked broader weakness in small caps and value stocks. US Treasuries sold off as hot inflation data and firm retail sales crushed rate cut expectations. The 10-year Treasury yield surged to a 12-month high of 4.59%, while the 30-year yield touched 5.12% as fixed income markets braced for a higher for longer, or potentially tighter, monetary regime.
The US dollar posted its largest weekly gain in two months, logging five consecutive days of growth. It strengthened to a two-week high against a basket of currencies, supported by safe haven inflows amid geopolitical tensions and widening yield differentials as US rates moved higher. Continued gridlock over Strait of Hormuz supply routes has reintroduced a structural premium into energy prices, with Brent rising ~8% to $109.26pb, fuelling global wholesale inflation expectations.
China’s economy lost momentum in April, with retail sales rising just 0.2% and industrial output growing 4.1%, both well below expectations, as weak domestic demand and higher energy costs linked to the Iran conflict weighed on activity. The slowdown was broad-based, with fixed-asset investment contracting, car sales plunging for a seventh straight month, and ongoing property weakness. Policymakers acknowledged the weakening external backdrop and supply/demand imbalances but stopped short of signalling fresh stimulus.
If you would like to receive The Daily Update to your inbox, please email markets@epicip.com or click the link below.