Week of May 15

US inflation in April came in just below expectations, and the BOE raised rates as expected, but a lack of aggression sent the pound back to $1.25 following a 1-year high at $1.2680. 

A somewhat quieter macro week lies ahead, focusing on US retail sales, Japanese inflation, and the latest jobs report from the UK.

Top Events in Review

US headline inflation in April was broadly aligned with expectations, and the core rate was one decimal below the consensus. Nevertheless, it supported a softening of expectations for the Fed, firming up the impression that there would be no rate hike at the next meeting. After that, the markets moved to price in three rate cuts by the end of the year. Nasdaq crawled to an August high after rising more than 1%.

The Bank of England hiked rates by a quarter of a point, with a 7-2 vote as expected, and affirmed that more rates would likely be needed. In its quarterly monetary policy report, the BOE raised its GDP outlook, no longer expecting the UK to fall into a recession this year. FTSE lost more than 1.50% for a third week in a row through the week but managed to recuperate most of the depletion.

The Fed's SLOOS survey showed that banks were tightening credit and expected tighter standards across all loan categories for the rest of the year. The US regional banking crisis continued, with PacWest disclosing that it had experienced a substantial loss of deposits in the prior week, dragging on investor sentiment after tumbling 23%.

China's imports fell the most in a year. 

US President Joe Biden met with congressional leaders on the federal budget, but no progress was made in resolving the debt ceiling impasse.

Biggest Market Movers

Gold prices gained through the early part of the week following reports that China's gold reserves had increased for the 6th consecutive month, but the gains were lost later in the week on dollar strength in the wake of new banking concerns. $2k is back on the radar now, with a close underneath opening the door to $1960/oz. Silver also plunged almost 9%.

The EUR/USD broke below the 1.1000 handle after several ECB officials said the terminal rate was near. If $1.09 is lost, it will expose $1.08.

The Week Ahead

Several Macros in Focus Tuesday

Tuesday could see quite a bit of volatility across the market as several key data points will be released throughout the day. 

The US will release its latest retail sales data, expected to increase by 0.7% faster than the revised 0.6% in the prior month. This comes on the back of BoA's monthly report showing the fastest increase in credit card spending since the pandemic. USD/JPY might see a breakout to 137.60 or a breakdown to 133.00.

Canada will report its CPI figures and is expected to show a continued deceleration in prices, with core inflation dropping to 3.8% compared to 4.3% prior, likely firming up bets that the BOC will hold a pat on the interest rate. After failing to reclaim $1.35, bears might steer the USD/CAD rate down to $1.3384 unless a breakout sees an upward leg toward $1.37.

The UK is expected to report an unchanged unemployment rate of 3.8%, but the claimant count improved to -15K compared to 28.2K reported in the prior month.

Japan Data in the Spotlight

Japan will offer a first look at its Q1 GDP figures, expecting an acceleration in growth to 0.8% annually compared to 0.1% reported for the fourth quarter. The next day the country reports its trade balance, with the deficit seen falling as both imports and exports are expected to grow at a slower pace than in March. Finally, Japan's inflation rate is expected to remain unchanged at 3.2%, with core inflation ticking up to 3.2% from 3.1% prior. Nikkei eyes the 30k handle after taking out last November's high.  

Other events and earnings

The heads of EU countries will meet on Monday for the bi-annual Eurogroup meeting. The RBA will release the minutes of the last meeting on Tuesday. Aussie's failed attempt at $0.68 might continue toward $0.66, provided last week's drop below $0.67 accelerates. Wednesday has the US building permits and housing starts figures. Friday sees UK GfK consumer confidence. 

Earnings season is expected to close over the week, with major companies reporting, including Home Depot, Target, National Grid, Cisco, TJC, Vodafone, Walmart, Alibaba, Curry's, Deere, and Experian.