Trading Week Ahead

Week of May 13

The RBA and BOE delivered policy decisions as anticipated last week. However, guidance surprised markets to some degree. Another notable event was stronger than expected Chinese trade data. The upcoming week features a lighter economic calendar as the earnings season draws to a close, with investors likely to pay close attention to the US CPI data.

Week in Review

Overall, global markets trended higher during the week, with gold prices increasing over 3%, and the Nordic exchanges closed mid-week for a holiday.

On the policy front, the BOE kept interest rates unchanged, as expected. However, two members of the MPC dissented, signalling a more dovish tone. As a result, GBPUSD ended the week mixed above the 1.25 handle. The BOE also lowered its inflation forecasts in its policy statement.

The RBA also left rates on hold. However, its economic projections pointed to stagflation risks. Analysts viewed the commentary as more hawkish than prior meetings. Still, AUDUSD closed the week unchanged after failing to cross 0.6650.

China's trade balance report showed imports rose more than exports, shrinking the trade surplus. This implied growing domestic demand in China.

During parliamentary testimony, Japanese officials reiterated their stance on monetary policy and foreign exchange intervention. USDJPY concluded the week nearly 2% higher, reclaiming 155 in its attempt to revisit the 160s.

Sweden's central bank joined those moving towards easier policy as pressure builds on the ECB. Commentary suggested June as the likely start for ECB rate cuts. Despite marginal, the Euro witnessed gains against the dollar, though it remained under 1.08.

In geopolitics, Israel initiated attacks on Hamas targets after a ceasefire collapsed early in the week. The US warned of weapons supply delays in response. Shipping disruptions in the Red Sea from Mideast tensions were also noted, with WTI up over 2% shy off $80 a barrel.

Chinese President Xi Jinping toured major EU capitals seeking to reduce trade tensions between China and Europe.

Biggest Market Movers

The USDJPY currency pair trended upwards over the course of the week as the market observed diminishing effects from the BOJ's involvement.

Oil futures experienced significant fluctuation, initially declining based on anticipation of easing tensions in the Middle East but subsequently rebounding following higher-than-anticipated demand out of China.

The Stoxx600 European equity index rose for six straight sessions, achieving its best run since January. Softening regional yield levels combined with positive quarterly earnings results for some large stocks contributed to the gains.

Top Events in the Week Ahead

The most important event next week will likely be the release of highly anticipated US inflation figures. This comes after Nonfarm payrolls came in below expectations, rekindling speculation that the Fed may ease monetary policy in September.

CPI in Focus After Weak NFP

Investors will focus on whether headline inflation moderates from the recent upward trend and reassures FOMC members that price pressures are moving in the desired direction. The headline CPI figure for April is expected to remain at 3.5% year-over-year (YOY), with the core rate forecast to tick down to 3.7% from 3.8%. The S&P 500 may continue its upward trajectory to new record highs after rising past its 21-SMA on the weekly chart.

In line with inflation, the Australian wage price index for the first quarter is scheduled for release on Wednesday and is expected to be unchanged at 0.9%.

UK Jobs and Easing Chances

After signalling prices may ease as consumer demand wanes due to higher interest rates, the UK will report the latest jobs data on Tuesday. Footsie scored fresh record highs, exposing 8500 next. With unemployment projected to hold at 4.2% and benefits claims estimated to decline to 6000 from 10900, the labour market tightness may support the index further.

Other Events and Earnings

Additional events include Australian business confidence figures on Monday, German economic sentiment data on Tuesday, a second reading of eurozone first quarter GDP on Wednesday, Japanese preliminary first quarter GDP and Australian employment figures on Thursday, and Chinese housing prices on Friday.

First quarter earnings season winds down through the week, with many large multinational corporations, including Tencent, Home Depot, Alibaba, Sony, Cisco Systems, Walmart, Applied Materials, Deere, and JD.com, still to announce results.