The first full week of earnings looks like passing without any major alarm, so this has kept the focus firmly on US rates and whether or not the Fed will actually cut rates in the second half of this year or not. Inflation worries are once again in focus with the UK showing stubbornly high inflation that creates a headache for the Bank of England when they meet in May. China’s GDP showed a healthy gain, beating economists’ projections, and this keeps China on track to have a growing economy this year as it wakes from its Covid-induced sleep. Big US bank earnings failed to raise any significant alarm bells and there hadn’t been a worrying customer outflow of deposits into money market funds.

Other key events from the past week

  • UK CPI: Inflation focus, April 19: Inflation remains in double digits in the UK. The headline is now at 10.1% above economists’ expectations of 9.8%. This, on top of an unexpected bump in UK wages on Tuesday, has most analysts seeing a 25bps rate hike from the BoE coming in May and possibly more in the summer.
  • China GDP: The waking economy, April 18: China’s economy is moving again and China’s GDP came in at 4.5% beating economists’ expectations of a 4% y/y gain. The unemployment rate also fell to 5.3% from 5.5% and retail sales rose to 10.6%y/y vs 7.4% expected. China is waking.
  • Earnings: Big banks stable, April 18: Many analysts were concerned about the level of deposits withdrawn from US banks at the start of 2023. However, earnings from the Bank of America, Goldman Sachs, and BNY Mellon failed to raise any significant alarm bells.

Key events for the coming week

  • USD: Core PCE, April 28: Inflation data is crucial now in terms of where the Fed goes next with rates. If we see a big drop in inflation next week on Friday then that would be expected to boost stock prices in hopes of a US ‘soft’ landing.
  • Seasonal Insights: Big banks are in focus for the first full week of earnings. 
  • JPY: BoJ decision, April 28: Speculation is circulating that the BoJ is going to have to abandon its yield curve control policy at some point this year. Will it give hints on Friday’s rate meeting on when/if it will go ahead with this? If it abandons the YCC policy, watch out for sudden JPY gains.

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