Trading Week Ahead

Week of May 27

The FOMC meeting minutes did not alter the Fed's narrative as Fed officials continued to emphasize the need for additional economic data while UK inflation came in higher than expected.

The upcoming week will be relatively quiet in terms of economic announcements. Of note will be reports on inflation in the European Union, the PCE data in the US and PMIs in China.

​Week in Review

The minutes from the last FOMC meeting were overshadowed by numerous Fed speakers, who generally maintained that more evidence is needed to confirm sustainable lower inflation.

UK inflation declined significantly due to base effects but failed to meet expectations, especially with core inflation well above target. This led markets to adjust views on additional BOE rate cuts this year, discounting a second decrease but still expecting easing to begin in August. Footsie slid after record highs, with a breakout below 8300 opening the door to 8200.

Flash PMIs were generally higher than forecasted, with unexpected US, UK and Japan manufacturing expansion.

Canada's inflation came in under projections, marking the fourth straight month within the target range.

China announced around $40 billion in housing industry support, the largest revitalization program for the sector to date.

The RBNZ kept rates steady as anticipated, but hawkish language supported the New Zealand dollar. The RBA minutes confirmed the rate cut discussion but also indicated that recent data suggested a greater risk of inflation remaining above the target.

Geopolitically, China initiated extensive military drills around Taiwan as "punishment" for pro-independence moves following the new leader's inauguration.

The Iranian president died in a helicopter accident, with a successor to be elected in 50 days.

Biggest Market Movers

• The S&P 500 and Nasdaq set new all-time highs mid-week, continuing their upward movement following an improving inflation outlook.
• Gold reached a new record peak on Monday but then lost over 5% throughout the week as the dollar trended higher over the same period.
• Copper also hit a record high on Monday but held firm until Wednesday, dropping in what analysts called profit-taking.
• USDJPY continued trending higher, rising to 157 as Japanese authorities remained relatively quiet ahead of inflation data.
• Crude oil trended lower through the week on easing Middle East tensions and a stronger dollar as bulls failed to move past the $80 per barrel hurdle.

Top Events in the Week Ahead

The markets will have a slow start to the week due to public holidays in both the US and UK, with data releases from Europe gaining momentum in the middle part of the week.

Attention to EU CPI and US PCE

Germany will provide an initial view of its n CPI figures for May on Tuesday, ahead of the Eurozone's wider CPI release on Friday. Inflation across the bloc is expected to show a slight rise in the headline rate, but the core measure is projected to remain on track with forecasts of a decline prior to an anticipated interest rate cut by the ECB in June. The core CPI is forecast to edge down to 2.5% from 2.7% previously, while the headline rate is anticipated to edge up to 2.5% from 2.4% in the previous month. Traders will want to add 1.086 and 1.079 to their technical watchlist.

Remaining on the inflation theme, the US will publish the core PCE price index several hours later, the key gauge for Fed policymaking. This is expected to continue trending lower and confirm that the three major inflation indicators are all pointing downward, potentially clearing the way for a Fed interest rate cut in the near future should the trend be sustained. With gold under the 21-day SMA, bears may target $2750 per ounce next should PCE reveals persistent inflation pressure.

Economic Growth Also in Focus

Chinese official PMI figures will be released on Friday. Investors will assess whether unexpectedly strong economic growth in China during the first quarter will continue into the summer months. The consensus is that the National Bureau of Statistics figures will show manufacturing PMI marginally lower at 50.2, barely remaining in expansion above the 50 level.

Canada is expected to demonstrate a substantial rise in the pace of its economic growth to 0.5% in the first quarter, compared to 0.2% in the prior quarter, helped partly by improved crude oil exports. After four consecutive gains, USDCAD's pullback on Friday may continue toward 1.3600 should 1.3650 give way to a potentially upbeat print.

The US will also provide a second estimate of its GDP figures for the first quarter, which are expected to confirm annual growth at 1.6%. However, markets may focus more on future growth given the Fed's Nowcast forecast of 3.6% annual growth in the second quarter. It will be interesting to see whether the Dow Jones confirms its descent below the 39000 handle.

​Other Events and Earnings

The German Ifo Business Climate survey will be published on Monday. The US CB consumer confidence figures will be released on Tuesday. Japanese and German consumer confidence surveys are scheduled for Wednesday. The Eurozone unemployment rate report is due on Thursday. UK Nationwide house prices and Japanese industrial production figures will be released on Friday.

The corporate earnings calendar is relatively light, with reports expected from Salesforce, Costco, Dell and Marvell.