Week of APRIL 14

Last week was dominated by trade concerns, overshadowing otherwise market-moving events such as the US CPI, FOMC minutes, and UK GDP figures.

The upcoming week could follow a similar pattern, with events like UK inflation, Chinese GDP, and even the ECB's rate decision potentially taking a backseat.

Week in Review

Near-panic gripped markets at the start of the week. Global indices showed widespread declines as traders adjusted to the 2 April massive tariff announcements from the White House. Then on Wednesday, US President Donald Trump announced a 90-day moratorium on the "reciprocal" part of the tariffs, which were seen as causing the majority of the consternation. However, he raised tariffs targeting China while maintaining levies on steel and aluminium and adding a 10% across-the-board tariff.

Additionally, Canada and Mexico were not part of the 90-day pause. Mexico specifically was put under threat of further tariffs on Friday after Trump raised the issue that Mexico hadn't been fulfilling its water deliveries to Texas. Markets cheered the initial reprieve, with stock markets scoring the best single-day performance in decades. However, the enthusiasm quickly reversed as it became apparent that the trade war with China was intensifying and other tariffs remained in place.

Turning to economic data, the US CPI dropped to 2.4% in March from 2.8%, and below the 2.5% expected, while the core rate fell to 2.8% from 3.1%, also below expectations. However, the positive news about inflation was contextualised in the FOMC minutes that came out a day earlier. They showed that most officials were worried that inflation would remain high for longer, and the Fed was comfortable waiting for more clarity on the outlook to act, implying that rate cuts might not come as soon as hoped. Despite the gyrations in the markets and yields, the Fed's first rate cut of the year is still expected to be in June.

UK February GDP surprised to the upside at +0.5% over the 0.1% expected, with the prior month revised up to 0.0% from -0.1%. This allowed the rolling three-month GDP reading to double to 0.6% from 0.3%. British industrial production also surprised to the upside, supporting the GDP figures despite an increase in the trade deficit.

Germany's trade surplus was stronger than expected, thanks to strong projected exports.

In geopolitics, Spanish Prime Minister Pedro Sanchez met with Chinese President Xi Jinping. It was also reported that European Commission President Ursula von der Leyen would meet the Chinese leader soon, following a phone conversation looking to coordinate action in the face of US tariffs.

Biggest Market Movers

• Crude prices had the largest 5-day drop of over 20% since 2022, in the wake of increasing tariffs on China.
• Stocks rebounded on the tariff pause announcement, the largest move recorded in decades, but turned negative again as the trade war with China intensified.
• Gold rose to strike a new all-time high, pushing near $3,250/oz on the back of falling treasury yields for a nearly 9% spike for the week.
• The Swiss franc was the best-performing currency among the majors as safe-haven flows shunned the dollar, with the pair down around 6%.

Top Events in the Week Ahead

The upcoming week begins relatively slowly, though it is shortened by the Easter holiday, allowing trade concerns to take centre stage.

ECB, BOC Might Take Different Paths

The key event will likely be the ECB rate decision, with a broad consensus expecting the seventh cut in a row. Markets also expect two more rate cuts this year, but they anticipate ECB President Christine Lagarde will maintain her rhetoric of uncertainty, leaving the outlook for the next meeting ambiguous. Fibre was flirting with 1.15 late in the week, with supports at 1.12 and 1.11 forming a potential floor.

On the other hand, the BOC will hold its rate decision on Wednesday. However, there is uncertainty over whether it will deliver a rate cut. Although recent jobs data suggested a cut, the recent market volatility affecting yields might prompt the bank to pause. With USD/CAD below 1.40, which coincides with the 200-day moving average, bulls might have opened the door to 1.3650.

China's GDP Also in Focus

A day before the ECB, China's Q1 GDP figures are expected to show a slight growth slowdown to 1.2% from 1.6% in the fourth quarter. This would bring the annual rate to 5%, down from 5.4% three months ago.

UK Data Supports Economy

After Friday's surprisingly positive UK GDP number, investors anticipate more good news for the UK Treasury. On Tuesday, the unemployment rate is forecast to stay unchanged at 4.4%. Moreover, on Wednesday, the ONS is expected to report a rise in the headline inflation rate to 3.2% from 2.8%. However, the core rate, which is more closely watched for policy matters, is expected to decrease to 3.3% from 3.5% previously. Cable could break past 1.32 and head towards 1.34 should momentum continue, with strong support at the 200-day moving average of 1.2815.

Other Events, Earnings

The Fed's Thomas Barkin will speak on Monday. Tuesday sees the release of the RBA minutes. Wednesday has US retail sales. Thursday includes Japan’s trade balance and US housing starts.

The first quarter earnings season is getting underway with a growing number of major names expected to report, such as Goldman Sachs, Johnson & Johnson, Bank of America, Citigroup, ASML, Abbott Laboratories, Man Group, United Health, Netflix, American Express and Infosys.