Week of MAY 12

Trade developments overshadowed key events like the FOMC and BOE's rate cut, while China's trade balance report showed significant export growth.

The week ahead features important releases such as US CPI, UK jobs and GDP figures, and Japan's Q1 GDP report.

Week in Review

The FOMC meeting concluded without a change in interest rates as anticipated. However, the accompanying statement put special emphasis on uncertainty, leading markets to slightly reduce the odds of a rate cut over the next couple of meetings. The majority of analysts still expect a 25 basis point reduction in July.

The BOE cut rates by 25 basis points as expected, with Governor Andrew Bailey stating that the aim remained a gradual reduction of rates, although he suggested inflation was declining. The bank lowered its inflation outlook but raised its GDP growth forecast, with an unusual three-way split: two members voted to keep rates steady, two to cut by 50 basis points, and the majority voted for the 25 basis point cut.

China's trade surplus beat expectations, with exports growing by 8.1% instead of the forecasted -2%, as Chinese firms reported shifting sales away from the US due to tariffs. Chinese exports to the US reportedly fell by 21%. Meanwhile, its central bank cut rates by 10 basis points in what was deemed a "cautious" move, but further easing is expected.

Canada's trade deficit came in lower than expected at $0.5 billion instead of the forecasted -$6.9 billion.

In geopolitics, the US and UK announced an agreement on tariffs, but further negotiations for a final deal would be needed. On the trade front, US President Donald Trump said that tariffs on China could be reduced if weekend talks go well.

Frederich Merz was elected Chancellor of Germany in a second vote after an unprecedented first vote failed to gain enough support. This is seen as weakening his position amid discontent among rank-and-file SPD members, the junior coalition partner.

India responded to a terrorist attack in its disputed Kashmir province with airstrikes on Pakistan, with the latter vowing retaliation.

In a quick conclave, the Vatican elected Cardinal Robert Prevost from the US as the new Pope Leo XIV.

Biggest Market Movers

• The Japanese benchmark rose through the week on perceived optimism about trade, while the yen weakened during the same period to test the 146 handle.
• Strong earnings from major components through the week helped the DAX rise to reach a new record high by early Friday.
• Crude prices trended higher through the week despite OPEC+ raising production as expected, as geopolitical tensions and progress on trade talks buoyed Brent.

Top Events in the Week Ahead

Barring further announcements on the trade front, the main event for the markets is likely to be US inflation.

US Inflation in Focus

CPI figures are expected on Tuesday, in light of the Fed's reluctance to move towards easing given price pressures. US April CPI is expected to advance to 2.6% from 2.4% a month ago, while the core rate is forecast to stay at 2.8%. With gold holding the line at $3300 per ounce, the next resistance levels lie at $3430 and $3500, with support below $3200 at $3170.

UK Rebound Still Expected

The UK is expected to post its Q1 GDP figures on Friday, with growth anticipated to accelerate to 0.6% from the 0.1% in the final quarter of last year. This is despite a slowing of the monthly growth rate for March to 0.1% from 0.5% in February. Before that, on Tuesday, it's expected the UK will show that the unemployment rate remained unchanged at 4.4%, although the projection is for -20.0K jobs added versus the extraordinary 206K reported previously. Despite trading above the 1.32 handle, poor data would expose the pair to 1.31, while positive data would open the door to above 1.3333, towards 1.34.

Japan Expected to Slow Down

Japan's Q1 GDP figures will be in focus as a nation highly dependent on exports, with the growth rate expected to decline to 0.1% from 0.6% prior, which could make it more difficult for the BOJ to control inflation that is well above target. After testing 146.00, USDJPY bulls could target 148.65 if the resistance breaks, with a reversal driving prices towards 144.00 and the swing low formed at 142.40.

Other Events, Earnings

Monday sees the Eurogroup meeting. Tuesday includes Australia's Westpac consumer confidence and NAB business confidence figures. Australia's quarterly wage price index comes out on Wednesday. US retail sales are expected on Thursday. Friday has US housing starts as well as the University of Michigan consumer confidence index.

Earnings season enters its wind-down phase this week, with major names expected to report, such as JD.com, Vodafone, Walmart, Alibaba, Deere, Target, Imperial Brands, Applied Materials, and National Grid.