Week of May 1

Markets were on a roller-coaster last week, buffeted by earnings and Q1 GDP coming well below expectations. Now attention turns to the Fed and ECB meetings, where both are expected to raise rates yet again despite resurgent concerns over the banking sector. The week will close out with US April NFP.

Top Events in Review

The dominant theme last week was the earnings report from First Republic Bank, which had already been under extreme pressure from the SVB fall-out in the middle of March. The report showed that the bank lost over 40% of its deposits and was initiating a cost-cutting program after a drop in profitability. The CEO tried to reassure investors by saying deposit outflows had stabilized, but rumours circulated that it was only a matter of days before it would be taken over by the FDIC, setting off a round of risk aversion as investors worried that another banking crisis was brewing.

Risk appetite recovered later in the week on positive earnings reports from large tech companies.

US advance Q1 GDP disappointed at 1.1% compared to 1.9% expected. US durable goods orders increased 3.6%, above the 0.7% expected.

Press reports suggested that ECB members were converging on a 25bps rate hike at the next meeting.

On the political front, US House Speaker Kevin McCarthy presented his budget proposal to raise the debt ceiling, but the White House refused to negotiate without first removing the possibility of default. Moreover, US President Biden formally announced his reelection bid.

Biggest Market Movers

WTI gave back all the gains from the start of the month when OPEC+ announced voluntary production cuts to start in May. Generalised concern over economic growth weighed on the price of crude, as it closed more than 3% down. $72.50/bbl is the next support.

The S&P 500 experienced wide swings as the loss of risk appetite at the start of the week was later offset by a surge later in the week thanks to earnings from Meta and Microsoft.

FRC shares dropped 50% following the release of its Q1 earnings.

Top Events in the Week Ahead

Central Banks n Focus

Markets are expected to be on tenterhooks ahead of the Fed and ECB meetings on Wednesday and Thursday, respectively. The consensus is still pretty solid that the Fed will hike by 25bps and pause at the next meeting. Generally, the Fed likes to prepare the market ahead of time, and Fed Chair Jerome Powell's post-rate decision press conference might be the opportunity to suggest that it was time to pause. USD/JPY might head to 138.00 following BOJ, where price action will determine what’s to come next. Above there lies 139.26, with support at 134.46.

The ECB is also expected to hike by a quarter of a point, though 50bps is not out of the realm of possibility. The shared central bank has been facing stubborn core inflation, with some members arguing that the focus should shift to the falling headline inflation reading. Ahead of the rate decision, the Eurozone is expected to report that annual inflation has continued a slow descent to 6.6% from 6.9% prior. EUR/USD traded nearly unchanged, with a focus on whether bulls can reclaim $1.10 for good or not. $1.11 will open up in one case and $1.09 in another.

The RBA is also expected to end its pause and hike rates by another 25bps after Q1 CPI was below expectations but still tripling the bank's target. AUD/USD closed the week more than 1% down, losing the 66-cent handle and opening the door to $0.65. On the flip side, $0.6642 is resistance above the round level.

US NFP Expected Below 200K

It's expected that the US added 190K jobs in April, down from the 236K in March. The unemployment rate is expected to remain stable at 3.5%, with average hourly earnings growing at 0.3% once again.

Canada is expected to see the unemployment rate tick up to 5.2% from 5.0%. USD/CAD closed up for the second week in a row, targeting $1.3730 next unless $1.3586 weakens.

The Eurozone is also expected to report a two-decimal increase in its unemployment rate to 6.8% from 6.6% prior.

Other Events and Earnings

Europe will be out on Monday for a holiday, but Japan will announce consumer confidence data, and ISM will publish its Manufacturing PMI. Tuesday sees US JOLTS job openings. Thursday has China Caixin Manufacturing PMI, as well as the US trade balance.

Earnings season is expected to peak this week, with earnings from Pfizer, AMD, Starbucks, BP, Qualcomm, CBD, Apple, Shell, Anheuser-Bush, Berkshire Hathaway and Enbridge expected to report.