Week of May 6

The key themes from the previous week were the Fed keeping interest rates steady and the BOJ's intervention to support the Japanese Yen. We will see other central bank decisions in the upcoming week, with the RBA and BOE scheduled to meet and trade data from China.

Week in Review

The strength of the US Dollar was a major story early in the week, with commodities declining as inflation still appears distant from coming under control. Gold was down some 2% at the time of writing, and crude oil was over 5%. Notably, the Dollar Index also ended in the red.

The Fed left rates unchanged as anticipated, noting that the conditions to ease policy had not been met and reaffirming its previous stance. It was confirmed that the pace of reducing the balance sheet will slow to $35 billion per month starting in June.

Japanese markets were closed for holidays at the beginning and end of the week. With low liquidity on Monday, the Yen weakened sharply, leading to intervention interpreted as support from the BOJ. Officials have not confirmed intervention but said any action would be disclosed in May. Further Yen weakness after the FOMC meeting reportedly led to additional intervention. Next support stands at 152.00.

European manufacturing PMIs were marginally revised higher but remained in contraction. Italy slipped back into contraction below all forecasts, weakening European bonds later in the week. The euro rose to reclaim 1.07 against the Dollar, marking a straight 3-week gain. 1.0775 is the next resistance in focus.

Eurozone inflation came in as expected, while German GDP contracted more than forecast. However, the Euro Area GDP advanced 0.3% against a projected 0.1% for Q1. Swiss inflation unexpectedly accelerated to a 0.3% monthly rate following the central bank's lead in cutting interest rates.

Geopolitical tensions eased as last-ditch efforts brokered a potential peace deal between Israel and Hamas, generating positive news on a possible ceasefire.

The UK held local elections on Thursday.

Biggest Market Movers

• USDJPY rose above the 160 handle early on Monday but closed the week 3% lower, driven on two separate occasions by understood Japanese intervention.
• The price of WTI declined throughout the week due to easing tensions and a buildup of inventories, falling below $80 per barrel towards the end of the week.
• Silver trended downward over the course of the week, influenced by rising bond yields.

Top Events in the Week Ahead

UK in Focus with BOE, GDP and More

The UK will be in focus in the week after taking its spring holiday on Monday. The BOE is expected to keep interest rates unchanged at its next meeting, ahead of a trove of data released on Friday. With inflation still well above target, the BOE is forecast to maintain a tight monetary stance for the foreseeable future. Investors will monitor the vote count for any signs that policymaker opinions may be shifting in favour of rate cuts later in 2024. A dovish shift could imply resistance ahead at 1.26 for Cable unless bulls aim to retest 1.2640 first.

GDP numbers for Q1 are also slated for release on Tuesday. Analyst estimates point to a return to growth of 0.2% following a contraction of -0.3% in the prior quarter. This would pull the UK out of its recent recession. However, industrial production and manufacturing slowed in March, while GDP was flat for the month.

RBA Likely to Maintain Stance

Australia's economic data has presented a mixed picture recently, creating uncertainty for RBA over its policy path. Markets anticipate further tightening later this year, while economists argue against significant rate hikes given tepid growth. Clarity on the RBA's stance may not come until inflation data is published a week later. Most analysts believe the central bank will keep rates on hold for now pending more definitive information. With 0.66 getting more crowded, the Aussie could correct toward 0.6363. Otherwise, the next resistance level lies at 0.6630.

Other Events and Earnings

China will publish its Caixin Services PMI figure on Monday. Ivey PMI data for Canada will be included on Tuesday, as will trade balance numbers for France and Germany. Germany's industrial production report is scheduled for Wednesday. China's trade balance will be released on Thursday. Japan's current account balance is expected on Friday.

The week will also mark the conclusion of the recent earnings season, with a focus on major retailers. Several notable companies will announce quarterly financial results, including Vertex Pharmaceuticals, Palantir, Walt Disney Company, BP, Ferrari, Uber Technologies, Arm Holdings, ING Group, Warner Bros Discovery, Enbridge, CRH, and DigitalOcean.