Week of May 8

After a stressful week for the markets over US banks once again being in danger of collapsing on top of Fed and ECB rate hikes, a somewhat quieter week beckons with the BOE's turn to tighten policy.

Top Events in Review

The week started ominously with the FDIC seizing another US regional bank, First Republic. JPMorgan was given an exception to the rule banning a single bank from having more than 10% of deposits to buy up First Republic's assets. While officials and even the CEO of JPMorgan said this would end the banking crisis, at least two other banks saw their stock prices drop by over 50% by mid-week.

Midweek was also when the Fed hiked rates by another 25bps, with the statement heavily implying that there would be a pause at the next meeting. Market participants moved forward expectations for a rate cut to July. The ECB also raised rates by a quarter of a point but refused to commit to either a pause or hike at the next meeting, instead saying that the next rate decision would depend on the evolution of expectations for inflation.

China reported PMIs that disappointed the market, with manufacturing returning to contraction for the first time since lifting pandemic restrictions.

Biggest Market Movers 

Worries over economic conditions saw WTI crater by 17% but managed to contain its descent to around 10%, despite drawdowns in US inventories. The same economic worries also helped propel gold to a new record high at $2,080/oz, closing the week nearly 2.5% higher. Silver gained over 3%, but it's far from record highs.

Regional banks were under pressure again following the takeover of First Republic, with the sector dropping over 14%, with PacWest, First Horizon and Western Alliance all suffering intraday losses of at least 50% at one point during the week. The renewed fears pressured all key US indices. S&P 500 and DJIA lost more than 2%, whereas Nasdaq managed to stay closer to the 13k handle and lost around 1.50%.

Aussie and Kiwi rose more than 1.50% following a surprise hike by the former and the latter seeing no end to the hiking cycling despite falling inflation. AUD/USD reclaimed control of 67 cents, while NZD/USD struggled to surpass 63 cents. 

Top Events in the Week Ahead

BOE and Macros in Focus for UK

After taking Monday off for King Charles' coronation, the UK will have a stellar role this week. On Thursday, the BOE will meet, with the expectation being that it will hike by another 25 bps in line with its peers. Despite higher inflation than in Europe and the US, most analysts don't believe a bigger hike is likely as the UK faces the looming threat of falling into a recession. FSTE had a bad week last week, falling more than 2% at some point, but 7700 seems to hold firm for now. Moreover, on Friday, the UK will offer a first look at Q1 GDP figures, expected to eke out a meagre 0.1% growth, the same as the prior quarter. That may support or contradict post-BOE price action, on top of the Manufacturing Production figures, which are also released simultaneously and are expected to slip into negative 0.1%.

US Inflation Expected to Justify the Fed's Actions

Just a week after the Fed hiked rates, the US will release inflation figures for April, with the expectations of the headline rate ticking down to 4.9% from 5.0% while core inflation is expected to remain steady at a 5.6% annualised rate. Given that May inflation figures will be released before the next FOMC meeting, the market reaction to the data could be relatively muted, keeping EUR/USD somewhat mixed similar to last week. $1.095 and $1.11  are range boundaries. 

Other Events and Earnings

Monday has NAB Business Confidence. Tuesday sees China's trade balance. US PPI is released on Thursday. Friday includes the University of Michigan Consumer Sentiment Index. 

Earning season starts to wind down this week but still includes major names such as PayPal, McKesson, Duke Energy, Airbnb, Walt Disney, Lloyds Banking, Brookfield and Spectrum Brands.