In the week ahead, we provide you with the necessary information to build your strategy with up-to-date expectations for the upcoming week.
Market participants will have their hands occupied with another volatile week full of data accompanying the crucial FOMC meeting. Fed will announce their rate, which will be a 50 basis points increase as per the expectations. Similarly, the Bank of England (BoE) and Reserve Bank of Australia (RBA) will also release their monetary policy statement and interest rate decisions.
In the U.S.
The U.S. dollar scales to a multi-year high against its peers. The ISM manufacturing PMI will kick things off on Monday but is unlikely to be a threat to greenback bulls as its forecast to edge up from 57.1 to 58.0 in April. Additionally, March factory orders will follow on Tuesday and Wednesday, while the ADP employment reports are due with the ISM non-manufacturing PMI. Moreover in the services sector, the services part of the US economy is not expected to display any signs of a slowdown just yet as the non-manufacturing PMI is projected to improve to 59.0.
Later on, Friday, the payroll data are not expected to render any concerns either. Nonfarm payrolls are expected to grow by 390K in April, though the unemployment rate is set to hold steady at 3.6%. Average hourly earnings are forecast to rise by 0.4% month-on-month.
But the main spotlight will be on the Federal Reserve (Fed), which is almost certain to announce a 50-basis-point rate hike on Wednesday. The move looks set to be the first of many in this cycle, while Chair Powell has not been pushing back on the markets’ hawkish expectations.
Powell will probably cement the view that the Fed needs to get to neutral rates “expeditiously,” but market participants are also awaiting the decision on cut the balance sheet. The minutes of the last meeting flagged a $95 billion a month reduction plan, which will likely be confirmed on Wednesday.
U.S. Major events in The Week Ahead
|2-May||ISM Manufacturing PMI||57.5||57.1|
|3-May||JOLTS Job Openings||11.19M||11.27M|
|4-May||ADP Non-Farm Employment Change||400K||455K|
|4-May||ISM Services PMI||58.5||58.3|
|4-May||Federal Funds Rate||<1.00%||<0.50%|
|4-May||FOMC Press Conference|
|6-May||Average Hourly Earnings m/m||0.40%||0.40%|
|6-May||Non-Farm Employment Change||390K||431K|
The BoE decided to stop reinvesting in maturing bonds, but it is unclear if policymakers are ready to speed things up. The recent decline in both the U.K. and global growth outlook has cast suspicion on the need to tighten policy so aggressively.
Thus, it is possible the BoE will put off a decision to begin selling gilts for later in the year. However, the sterling pound might find some support from potential upward revisions to the Bank’s inflation forecasts in its May Monetary Policy Report.
U.K.’s Major events in The Week Ahead
|5-May||BOE Monetary Policy Report|
|5-May||MPC Official Bank Rate Votes||8-0-1||8-0-1|
|5-May||Monetary Policy Summary|
|5-May||Official Bank Rate||0-Jan||0.0075|
Inflation in Australia jumped to a higher-than-expected 5.1% in the first quarter this year, flaring expectations that the RBA will not delay a hike any further and will raise the cash rate by 15 bps on Tuesday to contain price pressures.
In New Zealand, the first quarter might have gotten off to a challenging start due to Omicron but the subsequent easing in virus restrictions means that the labor market overall likely remained tight during the period. With the central bank flagging further hefty rate increases ahead on the back of soaring inflation, the jobs figures are unlikely to alter the policy outlook. Unless there are any major fundamental updates, such as stronger wage growth.
The Bank of Canada raised rates by 50 bps at its last meetings, but this was unable to support the Loonie. Canada releases its employment report for April on Friday, and another strong reading is probable as it is too soon for any effect from either higher rates or the heightened geopolitical tensions to filter through.
Global Major events in The Week Ahead
|3-May||AUD||RBA Rate Statement|
|4-May||NZD||RBNZ Financial Stability Report|
|4-May||NZD||Employment Change q/q||0.10%||0.10%|
|4-May||EUR||Spanish Unemployment Change||-2.9K|
|6-May||AUD||RBA Monetary Policy Statement|
High oil prices can hurt economic growth but not, necessarily, a job market like the one in the U.S. now. But a slowdown in employment growth, or worse, a sharp spike in unemployment, will almost certainly drive crude prices lower. Meanwhile, Fed Chairman Jerome Powell argues that a steady series of rate hikes this year can bring down soaring inflation.
The Fed meeting is just a day before that of OPEC+. However, the main goal of the oil cartel is to ensure that a barrel stays above $100, more than ensuring the stability of crude supply to the world. Just like the Fed is determined to break the back of the U.S. inflation, OPEC+ is determined that oil prices never again see the lows of 2020.