Week of MAY 5

The markets tilted higher last week, featuring major economic events such as the PCE price index, US Q1 GDP, NFP, and Euro Area flash inflation figures for April.

The upcoming week promises a slower pace in terms of data releases, but traders will keep a close eye on the FOMC and BOE, as well as China's April trade balance figures toward the weekend.

Week in Review

The markets remained heavily reliant on news surrounding the trade war over the past week.

A notable event in the US was the release of the flash Q1 GDP, which came in below expectations and contracted at -0.3% annually from +2.4% prior and a +0.5% estimate. The slowdown was attributed to a combination of technical factors rather than a fundamental shift. Unusually high trade deficits due to importers attempting to preempt tariffs, as well as slower government spending, weighed on the figure.

The Fed's preferred inflation measure, the core PCE price index, declined as expected in March. US April consumer confidence was slightly below expectations, falling to its lowest level since late 2011. The March trade deficit rose to $162 billion, exceeding the consensus forecast of $143 billion and marking the largest deficit in history.

On monetary policy, the BOJ kept rates unchanged as widely expected, with a very brief statement. However, the decision to cut growth prospects due to the tariff situation was perceived as dovish.

The Euro Area flash GDP growth rate doubled expectations at 0.4% in the quarter, which would have shown stability compared to the previous quarter.

Chinese manufacturing PMIs fell back into contraction territory despite expectations that they would remain in expansion by the minimum. Australia's trade balance expanded faster than expected.

In geopolitics, several US officials claimed to be "close" to signing trade deals with numerous countries. However, there seemed to be no progress in reaching a deal with China, although there were some signs that certain tariffs on critical materials might be eased.

Mid-week, US President Donald Trump announced certain exceptions to the auto tariffs, which were welcomed by the markets. Canadian Prime Minister Mark Carney secured a plurality in the election, as his Liberal Party gained seats but fell short of an outright majority, while the opposition Conservatives also picked up seats. Carney would have to govern with the support of smaller parties to pass legislation.

The US confirmed signing a minerals deal with Ukraine as part of a step toward advancing peace negotiations.

Biggest Market Movers

• Crude prices trended lower at the monthly fastest pace in four years (over 10% during the week), as a shift in producer dynamics led to increased supply while the demand outlook remained constrained.
• The USDJPY bounced at 140 by some 4% on a weaker yen following the BOJ's "dovish hold" in the middle of the week.
• The S&P 500 logged eight consecutive sessions of gains, the longest streak since August of the previous year, as White House officials talked up progress in securing trade deals.

Top Events in the Week Ahead

In the upcoming week, all eyes will be on the Fed and the BOE.

Central Bank Decisions

There is a solid consensus that the FOMC will decide to keep rates unchanged on Wednesday. However, there is a growing perception that the June meeting will see a rate cut, and the Fed typically likes to provide some advance warning. Traders will closely examine what Fed Chair Powell has to say, as well as the policy statement, to see if there are any clear clues about the rate cut. Signalling a cut could offer gold support at the 21-day MA near $3200 per ounce should the level hold until the release, with lower levels seen at $3100 and the $3000 handle. On the upside, resistance lies at $3350 and the peak of $3500.

The BOE, on the other hand, is widely expected to cut rates by at least 25 basis points at the upcoming meeting. The market is even pricing in a (slight) majority chance of a follow-up cut at the June meeting. Traders will be gauging the vote count and the policy statement to assess how willing MPC members are to continue with the easing or opt for a pause and then cut at the subsequent meeting. With Cable approaching 1.32, a bounce could boost the pair past its recent peak of 1.3450, while a break lower might expose 1.30.

Trade Data Amid the Tariffs

Once the rate decisions are out of the way, attention will turn to China for its April trade balance to see the effect of the tariffs. The consensus is that its surplus will decrease to $70 billion from $102.6 billion a month earlier, but this could be affected by changes in imports as well.

Canada will also report its trade balance, with the deficit expected to grow as crude prices remain under pressure. The Loonie continues to trade below the 200-day MA of 1.40, with 1.37 next in focus.

Other Events, Earnings

Monday will see Swiss inflation data. Canada's Ivey PMI figures will be released on Tuesday. On Wednesday, New Zealand's unemployment rate is expected. Thursday includes the German trade balance and the UK Halifax house price index. Friday has UK industrial production and Canadian job numbers.

The corporate earnings season will be past its peak. Still, a substantial number of major names are scheduled to report this week, such as Palantir, AMD, Duke Energy, Uber, Walt Disney, Arm Holdings, Balfour Beatty, International Consolidated Airlines, Shopify, Anheuser-Busch, and BAE Systems.