Trading Week Ahead

Week of April 15

Last week's catalyst for the financial markets was the hotter-than-expected US inflation figures, which pushed expectations towards no interest rate cut in July by the Fed. Meanwhile, the European Central Bank (ECB) maintained the status quo with its policy settings as anticipated. 

This coming week, key quarterly economic data releases will commence, including GDP figures from China, CPI from Japan, and a range of economic indicators from the UK.

Week in Review

The market's standout event was the surprise upward revision to US inflation, which surpassed forecasts across all metrics, with the annual core rate remaining unchanged from the month prior. Federal funds futures shifted from pricing in three interest rate cuts, with the first in June, to now just two cuts anticipated to commence in September.

Headline yearly inflation reached its highest level since September last year. Minutes from the Federal Open Market Committee's (FOMC) latest meeting corroborated the narrative of wanting further progress in reducing price pressures before considering monetary easing. However, most members did affirm a preference to scale back the balance sheet runoff to $30 billion per month. 

As expected, after reiterating the stance, the ECB left its policy settings unchanged and declined to specify the potential timing of any interest rate adjustment. However, it signalled it may cut rates at its next meeting in June. Better-than-forecast German industrial production and Eurozone Sentix investor confidence helped boost European stocks early in the week. 

In other central bank decisions, the Bank of Canada (BOC) maintained interest rates as anticipated. However, they noted that a June cut remains possible, and the Reserve Bank of New Zealand (RBNZ) also kept rates on hold as forecasted, underscoring the importance of a restrictive policy stance. 

2-Year Japanese government bond (JGB) yields rose to their highest since 2009 as domestic officials verbally intervened to moderate the yen's depreciation. 

Most of the Middle East and parts of Asia were closed mid-week for the end of Ramadan. Geopolitical tensions in the Middle East persisted, albeit investors may be looking past them. Iran is viewed as less likely to take action as time elapses.

Bank of England (BOE) policymaker Megan Greene insisted interest rate cuts remain a distant prospect, commenting that markets must cease analogising the UK and US monetary policy outlooks. 

Fitch downgraded its sovereign credit rating outlook for China from negative to stable but affirmed its A+ rating. 

Biggest Market Movers

• The US dollar appreciated over 1.50% on the back of a hotter CPI report, which pushed forward expectations for Fed policy easing.
• USDJPY spiked above 153, its strongest since mid-1990, in reaction to the US economic releases, reaching a level where prior official intervention had occurred. 
• Gold prices reached yet another record high despite the dollar soaring, appreciating 3% at an instant before retreating slightly.

Top Events in the Week Ahead

The coming days are anticipated to be quieter on the macroeconomic front, with no major central bank activity scheduled. This could allow equity markets to focus more on the ramping up of earnings season. 

There will likely be attention on Chinese Q1 GDP figures released on Tuesday, with the nation's annual growth rate projected to slow to 5% from 5.2% moderately. 

Likely Movers in UK and US

The UK is anticipated to be the main protagonist of the week, with several key data releases before the market opens on multiple days. The Claimant Count number will be released on Tuesday, which is expected to demonstrate a resilient labour market despite an anticipated rise in the unemployment rate to 4% from 3.9%. 

A projected increase in UK retail sales is expected to bolster the narrative that the economy is recovering after last year's shallow recession. 

The US will also provide retail sales figures earlier in the week, which are anticipated to show a slight slowing on the monthly level but remain firm on the annual comparison.​

Cable might see increased volatility throughout the week, with a persistently stronger dollar pursuing the pair towards 1.2347. Should the greenback retreat, GBPUSD could recover some of its losses to 1.26.  

Inflation Figures Take Centre Stage

Several countries will report their inflation figures as the market recalibrates regarding when major central banks will adjust their rate policy. 

Canada will report inflation figures on Tuesday, with both headline and core inflation expected to decline. The BOC's preferred measure, the trimmed-mean CPI, is expected to remain unchanged. 1.38 will remain a crucial resistance moving ahead for the USDCAD rate unless the pair retreats to 1.3650 or below.

On Wednesday, the UK will report, with headline inflation anticipated to continue its rapid downward trajectory, reaching 3.1% from 3.4%, with core inflation following at 4.3% compared to 4.5% previously. Footsie might move on the news, as lower inflation could finally bolster the index to fresh record highs. Otherwise, the 800 handle will be in focus.

The euro area is expected to confirm its March CPI at 2.4%. With EURUSD under 1.07, the risk of additional drops towards 1.055 will remain elevated unless bulls reclaim 1.07.

Finally, Japan is expected to report that its inflation has stubbornly remained above target at 2.8%, matching the previous month, potentially leading to calls for the BOJ to intensify tightening efforts.​

Other Events and Earnings

The upcoming week will feature several key economic reports and earnings announcements. Japanese machinery orders and EuroArea industrial production figures for the previous month will be released on Monday. Housing starts and building permit data for the US is scheduled for Tuesday. Japan's trade balance metrics for the prior month will be posted on Wednesday. Thursday, will see the publication of Australian job numbers. 

The corporate earnings season is anticipated to gain momentum with many major companies announcing quarterly financial results, including Goldman Sachs, Charles Schwab, United Health, Morgan Stanley, ASML, Abbott Labs, IBM, TSMC, Netflix, Blackstone, Procter & Gamble, American Express and Schlumberger.​