Top Things to Watch

This week the FED (Federal Reserve) will publish the minutes of its latest meeting. Until last week, markets were fearing the "high-for-longer" monetary policy on interest rates, but the release of the U.S. CPI (Consumer Price Index) revealed that inflation increased less than expected in April, indicating a possible downward trend.

By the end of the week markets were already pricing-in two rate cuts, starting in September. Such expectation pushed stocks higher.

May 22nd

UK: Inflation Rate YoY

Economists are expecting a significant slow down in Consumer Price Index.

With such scenario BoE (Bank of England) might consider a rate cut in June, although policymakers are insisting in the message that monetary policy is to remain restrictive. This means that a first cut won't necessarily be the kick-off of a cycle of monetary easing, unwinding the 14 interest rate increases that we saw from 2021 to 2023.

Analysts and traders have mixed perspectives over BoE next move, but the most optimistic foresee a higher probability of a June cut, and such option could possibly lead to three cuts this year.

US: FOMC Minutes

The FOMC (Federal Open Market Committee) minutes is a statement published after each meeting that summarises FED's assessment of the economy and its policy decisions. In May meeting we came to know interest rates would be kept higher for longer.

However, last week, after the CPI data release, the USD (US Dollar) as measured by the DXY index, dropped nearly 0.8%. Such weakness was primarily driven by a pullback in U.S. Treasury yields.

Looking ahead, analysts comment that U.S. bond yields will have a hard time extending higher. This removes an important tailwind that previously supported the dollar's strength in Q1, indicating potential for further downside in the short term.

May 23rd

Germany: HCOB Germany Manufacturing PMI

The HOCB (Hamburg Commercial Bank) Manufacturing PMI is a leading indicator of business activity in Germany’s manufacturing sector.

Last week, the German Council of Economic Experts cut its forecasts for economic growth this year, postponing the expected recovery of the euro zone's largest economy.

Only if inflation falls will the German economy be able to gain some momentum. The index of Manufacturing prices is the first indicator for a potencial price drop.

May 24th

US: Durable Goods Orders MoM

Durable Goods Orders measures the change in the total value of new orders for long lasting manufactured goods, including transportation items.

Investors are confident about a soft landing for the U.S. economy. The likelihood of an interest rate cut in September and the projections for strong earnings (next Wednesday markets will be holding their breath as NVIDIA delivers its quarterly results) are fuelling the stock market..

Durable goods and consumer sentiment data will be crucial to support the signs that U.S. economy is cooling enough to support the case for interest rate cuts.

US: Michigan Consumer Sentiment Final

The University of Michigan Survey of Consumers sentiment index for May posted an initial reading of 67.4 for the month, down from 77.2 in April and well off the Dow Jones consensus call for 76. The move represented a one-month decline of 12.7%.

Along with the downbeat sentiment measure, the outlook for inflation across the one and five-year horizons increased. This number revealed consumers were starting to perceive negative developments on a number of dimensions, such as inflation, unemployment and interest rates moving in an unfavourable direction in the year ahead.

Last week, CPI numbers came in as a surprise so, even if May's final number expresses a pessimistic view, it is likely that consumer sentiment can improve significantly in June.