Week of May 26

Over the past week, the RBA cut interest rates as widely anticipated, while inflation accelerated in the UK but missed expectations in Japan.

The upcoming week will feature a series of crucial data points leading up to the month's conclusion, including minutes from the most recent FOMC meeting, the US PCE price index, and flash inflation figures from major European economies.

Week in Review

The week was characterised by a few data points that managed to overcome an undercurrent of general apprehension in the markets around geopolitical events and a lack of new major announcements on resolving US tariff issues.

Inflation in the UK came in higher than expected at 3.5%, up from 2.6% a month ago, but was influenced by rising energy costs. The core rate rose to 3.8% from 3.4% prior, making further easing from the BOE more challenging.

The RBA cut rates by a quarter of a point as widely expected and left the door wide open for further cuts. While the bank stated that inflation risks remained more balanced, it lowered its outlook for inflation this year as well as economic growth.

Flash PMIs for April came in largely higher than a month ago, with UK and US measures beating expectations while the German reading disappointed.

Japanese inflation remained unchanged at 3.6% instead of the forecast 3.7%, with the core-core rate ticking up to 3% from 2.9% prior.

Canadian inflation fell to 1.7% from 2.3% a month ago, as was widely expected.

Chinese April industrial production slowed a little more than expected but grew at an annual rate of 6.1% compared to 7.7% reported a month earlier.

In geopolitics, the US House of Representatives passed a budget bill that would increase spending but avert hitting the debt ceiling over the next two years.

Biggest Market Movers

• Crude prices fell through the latter half of the week after press reports that OPEC+ would likely agree to another large increase in production.
• Gold prices trended over 3% higher on the back of a weaker dollar and the resumption of safe-haven flows after Moody's downgraded US debt.
• The DAX scored a new all-time record high and a 7-week streak on expectations of increased fiscal spending as Chancellor Merz underlined his priority for economic growth.
• EURUSD reversed on a weak dollar after four weeks of declines, rising around 1.5% to recover half the losses.

Top Events in the Week Ahead

The coming week will get off to a slow start with the US and UK away for holidays on Monday. If a theme could be traced for the week, it would likely be inflation.

Fed PCE on Docket

The Fed's preferred measure for consumer prices is coming out on Friday. The US core PCE is expected to stay at 2.6% year-on-year despite a slight increase in the monthly rate to 0.2% from 0% a month ago. A higher-than-expected print could weigh on gold, bringing $3200 per ounce back into focus.

Speaking of the Fed, the minutes of the last meeting will be available on Wednesday, with investors looking for clues as to what conditions members are looking for in order to support a rate cut. The release of the minutes could set the stage for Friday's PCE report, with a dovish tilt potentially opening the door to $3450 for gold.

On the inflation front, France and Germany will publish the first look at their May figures, with French inflation seen rising while German CPI is expected to fall slightly. Although not a significant market mover, it could provide traders with clues around ECB action. With EURUSD near 1.14, a break higher could extend gains to 1.15, while stalling at the round resistance will increase the odds of a pullback. Supports lie at 1.1266 and 1.1210.

RBNZ to Follow RBA Lead

The RBNZ on Wednesday is widely expected to cut by 25 basis points following a similar move from its Australian counterpart, as inflation is within the target range while unemployment has reached levels not seen since the middle of the pandemic. Analysts believe the bank will leave the door open for further easing, though the majority of economists are awaiting a pause at the subsequent meeting. Meanwhile, the kiwi will likely face strong resistance at 0.60 unless the bank is interpreted as hawkish and paves the way for 0.6050. On the downside, support sits at 0.59, which coincides with the 21-week moving average.

Canadian GDP in Focus

Canada's economy is expected to show further signs of slowing on Friday, with the Q1 growth rate expected to be 0.2% compared to 0.6% prior, giving an annualised growth rate of just 0.6% compared to 2.65% earlier. Loonie ended the week near 1.38 and far from the 1.40 handle after reversing at the 50-week moving average of 1.3970. If loonie bulls can break support at 1.3750, the next level lies at the 1.37 handle. However, failing to do so could bring 1.39 back into focus.

Other Events, Earnings

Monday has the Japanese leading indicators index. Tuesday sees German GfK consumer confidence and US durable goods orders. German unemployment figures are expected on Wednesday. Thursday includes Japanese consumer confidence and a second look at US Q1 GDP figures. German retail sales figures are scheduled for Friday.

A relatively quiet corporate earnings calendar is set up for the week, with major names expected to report, including AutoZone, Kingfisher, Nvidia, Salesforce, Costco, Dell, and Marvell.