Fed, ECB, RBA, S&P 500, Gold, US Dollar

Global stock markets closed higher last week, led by the United States, after better-than-expected earnings from major technology companies. The MSCI All Country World Index was largely flat, and the US Dollar Index (DXY Index) closed mostly flat. Within stocks, the S&P 500 ended the week up 0.87%, while the Nasdaq 100 jumped nearly 2%. Germany’s DAX 40 rose 0.3% and Britain’s FTSE 100 lost 0.6% sequentially, while Japan’s Nikkei 225 rose 1.0% and the Hang Seng fell 0.9%.

Of the nearly 50% of S&P 500 companies that reported it, 66% reported a sales surprise and 80% reported an earnings surprise, according to Bloomberg data. Next week, 162 companies on the S&P 500 are scheduled to report first-quarter results, according to FactSet.

Data released during the week showed that the US economy slowed more than expected in the first quarter, while the eurozone economy barely grew over the same period. Meanwhile, progress on the inflation front remains sluggish (core PCE price index in the US did not ease as much as expected, while inflation in Germany fell only slightly in April). However, the US Federal Reserve and the European Central Bank are widely expected to raise interest rates by 25 basis points at their May 3 and May 4 meetings, respectively. How the dynamics of growth and inflation unfold in the coming months will be a key factor in determining the function and reaction of central banks. .

Year-to-date stock market performance

Data source: Bloomberg

Global manufacturing and services data, due next week, are likely to shed some light on global activity, especially in the US, with little consensus on a soft landing, a hard landing, or no landing. In addition, the pace and extent of inflation cooling globally will be crucial. Market expectations regarding the central banking pivot will vary depending on how some of these scenarios play out.

Given Australian inflation eased in the first quarter, the RBA is expected to keep interest rates on hold at 3.6% when it meets on Tuesday. The RBA kept interest rates unchanged in April, but left the door open for further tightening.

Year-to-date performance of the major currency pairs

Data source: Bloomberg

Global manufacturing and services activity data is due next week, starting with China’s NBS manufacturing PMI and April’s non-manufacturing PMI released earlier today. The US ISM Manufacturing Index for April is due on Monday. The RBA interest rate decision and eurozone inflation data for April due on Tuesday; The RBNZ Financial Stability Report and New Zealand Jobs data for the first quarter, the ISM PMI data for US services for April, and the Fed’s interest rate decision announcement due on Wednesday; Thursday’s European Central Bank interest rate decision; US jobs data for April, and eurozone retail sales data for March on Friday.

Data and central bank policy decisions aside, the debt ceiling issue continues to be a source of volatility – one-year default swaps are at their highest level since at least 2014. The debt ceiling would lead to “economic disaster”.

Forecasting:

EUR/USD is preparing for a heavy data week with the focus on the European Central Bank and the Federal Reserve

EUR/USD is looking forward to the economic data including the European Central Bank and Federal Reserve interest rate decisions. Unsure Euro traders are now eyeing the fundamentals of the directional bias – reversal or continuation?

After the British pound week: GBP/USD and EUR/GBP will dance to different music

The British pound rally against the US dollar has stalled recently, and chances are that the consolidation will last for a while longer before it embarks on a new rally.

Australian Dollar Outlook: The Reserve Bank of Australia and the Federal Reserve have moved to the scene

The Australian dollar stumbled last week but is still within a two month range and with upcoming monetary policy decisions the breakout could see momentum in AUD/USD.

Gold Price Forecast: XAU/USD Range Awaits Huge Events

Gold prices have been stuck in a wide range for the past two weeks. Potential high impact event risk (FOMC, PMI, or NFP) may provide the impetus for a breakout.

S&P 500, NASDAQ Weekly Outlook: Climbing the Worry Wall

Earnings from major technology companies may have boosted US stock indices, but the barrier to further gains is rising before the US Federal Open Market Committee meeting next week. However, the trend is still up and so far, there are no signs of a bullish trend reversal on the technical charts.

– Text of the article by Manish Gradi, Strategist for DailyFX.com

— Individual articles written by members of the DailyFX team

Connect with Jaradi and follow her on Twitter: @JaradiManish