The Macro Week Ahead: RBA and BOE meetings, China Trade and U.S. Consumer Confidence

Stock markets cheered as soft U.S. jobs data revived Fed rate cut hopes. Can Wall Street sustain upward moment?

• Australian dollar, British pound at risk on dovish RBA and BOE guidance.
• Soft Chinese trade and inflation data may revive global recession fears.
• U.S. consumer confidence miss might spook stock Fed-minded markets.

For stock markets, April’s U.S. jobs report proved to be a more decisive moment than the seesaw response to a much-anticipated Federal Reserve monetary policy announcement earlier last week.

The outcome put the labor market on a somewhat softer footing than consensus forecasts reckoned, and Wall Street cheered, as expected.

By the end of the week, the bellwether S&P 500 and the tech-leaning Nasdaq 100 scored gains of 0.5% and 0.9% respectively, shaking off early losses. Treasury yields fell across the curve as markets walked back some of the earlier hawkish shift in Fed rate cut expectations.

The U.S. dollar weakened, losing the most against the Japanese yen after local authorities appeared to intervene twice to prop up the currency. Despite these would-be tailwinds, gold fell for a second week as the divergence from familiar price dynamics continued. Crude oil prices fell amid hopes for a ceasefire between Israel and Hamas.

Here are the macro waypoints that are likely to shape price action in the week ahead.

Reserve Bank of Australia (RBA) interest rate decision

Australia’s central bank is expected to keep its target interest rate unchanged at 4.35% at this week’s policy meeting. Priced-in expectations have changed dramatically since the conclave in March. The markets erased hopes for a rate cut this year after first-quarter inflation data released two weeks ago topped expectations.

The spotlight now turns to the tone of the policy statement released alongside the policy decision. If RBA Governor Michele Bullock invokes sign of ongoing economic weakness to push back on the markets hawkish repositioning, the Australian dollar may retreat from recent highs.

China imports and exports data

China’s import and export growth are expected to return to positive territory in April after dual negative readings in the prior month.

Later in the week, consumer price index (CPI) inflation is expected to remain narrowly positive at 0.1% while the wholesale producer price index (PPI) slides 2.3% year-over-year, the smallest drop since February 2023.

Analytics from Citigroup show Chinese economic data outcomes have weakened relative to forecasts in recent weeks. That might set the stage for disappointing results that revive worries about a global economic downturn, especially in the wake of soft U.S. jobs data. Stock markets might wobble if talk of recession re-emerges.

Bank of England (BOE) interest rate decision

BOE policymakers are expected to keep the target rate steady at 5.25%.

However, signs of broadening disinflation in the latest CPI data might make for a more dovish tone from Governor Andrew Bailey and company. If that moves at least one more official to favor a cut when the votes are tallied, the British pound may fall.

U.S. consumer confidence

The University of Michigan (UofM) survey of U.S. consumer confidence is expected to show sentiment held steady near three-year highs in May.

Respondents’ mood has been steadily improving since one-year inflation expectations began to fall in mid-2022.

If recently hotter-than-expected price growth measures disrupt this dynamic and bring disappointing results, the markets might reckon that a Fed concerned about sticky prices will be comparatively more reticent to cut interest rates. That might undo some recent loosening of policy expectations and weigh on Wall Street.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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