S&P 500, Gold, US Dollar, Oil, BOE, US CPI, China Inflation

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The US dollar declined in the past week after the US Federal Reserve hinted at a pause in the historic rate hiking campaign. Global equity markets ended largely flat, with US markets ending mixed in a volatile week driven by better-than-expected earnings, regional banking woes, debt-ceiling jitters, and optimism that the Fed is near the end of the tightening cycle.

The US dollar index (DXY index) ended the week lower by 0.4%, while the MSCI All Country World Index was largely flat. Within equities, the S&P 500 fell 0.8%, while the Nasdaq 100 index rose 0.1%. The German DAX 40 advanced 0.2% and the UK FTSE 100 declined 1.2% respectively, and the Hang Seng index rose 0.8%, while Japan markets were shut for the Golden Week holiday.

At this late stage of the Q1-2023 earnings season, S&P 500 companies are recording their best performance relative to analyst expectations since Q4-2021. Of the 85% of the companies in the S&P 500 that have reported so far, 79% have reported actual EPS above estimates. Both the number of companies reporting positive EPS surprises and the magnitude of these earnings surprises are above their 10-year averages, according to FactSet.

Data released during the week showed China’s manufacturing activity unexpectedly contracted last month, highlighting the uneven nature of the post-Covid recovery. US manufacturing activity (ISM) improved slightly last month but remains in contraction territory. The Reserve Bank of Australia surprisingly raised interest rates by 25 basis points at its meeting on Tuesday and said it is ready to tighten further to tame inflation. US Federal Reserve raised its benchmark rate by 25 bps, in line with expectations, and indicated a pause in the tightening cycle. The European Central Bank raised rates by 25 bps and retained its hawkish message.

In the coming week, minutes of the recent Bank of Japan meeting is due on Monday; Australia Westpac consumer confidence data on Tuesday; US CPI and Germany inflation data for April are due Wednesday; the Bank of England rate decision, US producer price index for April and China April inflation numbers are due on Thursday; UK Q1 GDP and China new yuan loans data are due on Friday.

US inflation data will shed light on the extent of cooling of price pressures – core CPI is expected to have eased to 5.5% on-year in April from 5.6% in March. Friday’s strong US jobs report triggered a scaling back in Fed rate cut expectations for July – down to 36% from a 60% chance before the data. If price pressures fail to ease as expected, it could lead to a reassessment of the 75 bps of rate cuts priced in by the end of the year.

The Bank of England is widely expected to raise interest rates by another 25 bps at its meeting on Thursday after the most recent wages and inflation data. With inflation still in double digits (10.1%), the UK central bank is likely to remain hawkish. With its US counterpart indicating a pause, the relative monetary outlook could point to further gains in GBP.

Forecasts:

US Dollar Forecast: After Another NFP Blowout, Will Markets Abandon Fed Cut Bets?

The US Dollar fell cautiously this past week as the Federal Reserve raised interest rates and Chair Jerome Powell was unable to suppress summer rate cut bets. Eyes turn to CPI and Fedspeak.

Euro Fatiguing Heading Into an Inflation Filled Week?

EUR/USD looks to be prepping for a key technical breakout that could be catalyzed by upcoming US and German inflation data.

British Pound Week Ahead: GBP/USD Stumbles, EUR/GBP Tests Support, BoE on Tap

The Bank of England will announce its latest monetary policy decision next Thursday with a 25bp Bank rate hike already fully priced-in. What Governor Bailey says post-decision will be key.

Australian Dollar Outlook: RBA and Fed Hike but Sentiment Sways

The Australian Dollar finished stronger last week but mostly on the back of a struggling US Dollar with solid domestic data mostly ignored amid growing anxiety of where the US is headed.

Gold Weekly Forecast: XAU/USD Whipsaws but Safe-Haven Appeal Remains

Gold has produced a phenomenal week of volatility with markets shifting from major risk aversion to surrendering most of its gains as US jobs data runs hot.

S&P 500, Nasdaq Weekly Outlook: Banking Sector Stress Takes Center Stage

US equities have struggled to clear past their recent highs even as the US Federal Reserve hinted at a pause in the hiking cycle. As the earnings season draws to a close, banking sector concerns appear to be taking center stage, posing a risk to the multi-week uptrend. On technical charts however, there are no signs of reversal of the bullish structure.

Crude Oil Weekly Forecast: Oil Eyeing Further Recovery as Recession and Demand Fears Persist

Oil prices recovered aggressively from multi-month lows as WTI closed the week above the $70 a barrel mark. Technicals hint at a deeper recovery but market sentiment remains fragile.