Ella 
After last week’s trading, the prospect of the Federal Reserve cutting interest rates during the year became increasingly slim.
Important data last week included: U.S. preliminary first-quarter gross domestic product slowed to 1.6%, far exceeding economists’ estimates of 2.5%, and Atlanta’s GDPNow model estimated first-quarter real GDP growth of 2.7%. This is also the weakest growth since the second quarter of 2022. However, in the same GDP data, the US PCE price index accelerated in the first quarter, boosted by Friday’s overall personal consumption expenditure data, which was in line with expectations and emphasized that inflation remained sticky, which did not mean that The Fed likes it.
Economic events to watch this week
May will be a month to watch as it kicks off with the Federal Reserve’s interest rate decision, set to be released on Wednesday. At this week’s meeting, it is almost certain that the Federal Reserve will remain on hold. This will be the sixth consecutive meeting by the Federal Reserve to maintain the target range of the federal funds rate at 5.25%-5.50%. Inflation remains high, exceeding the Federal Reserve’s 2.0% inflation target; March inflation and producer price index inflation data are still at high levels, and the U.S. PCE price index (the inflation indicator valued by the Federal Reserve) is still hot (the overall U.S. PCE last Friday The price index recorded 2.7%, beating expectations of 2.5% and the previous 2.6%). Coupled with strong job growth, the Fed has no reason to ease monetary policy yet. You may remember that in the minutes of the latest meeting, Fed officials said that interest rates are at their peak and that if the economy develops as expected and inflation falls to the 2.0% target, then a rate cut would be appropriate. As of press time, investors have scaled back interest rate cut bets to a policy meeting as early as November, with a total of 36 basis points expected to be cut this year. Ultimately, we are unlikely to hear unannounced wording on the rate decision in the post-meeting rate statement and press conference.
As a result, the focus is on the European Central Bank (ECB) and Bank of England (BoE), whose hawkish policy leanings are also being repriced. The market currently expects the European Central Bank to cut interest rates by 71 basis points this year and the Bank of England to cut interest rates by 44 basis points. Of note, the ECB is expected to act and cut rates ahead of the Fed and Bank of England, with the June policy meeting (-21 basis points) now under discussion, while the Bank of England is still likely to hold its August policy meeting, according to market pricing Meeting. With this in mind, Eurozone April inflation data and Q1 GDP will be in focus this week. Economists’ estimates show that the overall inflation rate will remain unchanged at 2.4%. Since rising by 2.9% in December last year (2023), inflation pressure in the euro area has weakened in 2024, and the annual core inflation rate in April is expected to fall slightly. to 2.8%, down from 2.9% in March. Ultimately, gross domestic product (GDP) is expected to be roughly flat on an annual and quarterly basis; if the inflation data comes in below consensus expectations, this could provide an opportunity for investors who are bearish on the euro this week. EUR/USD encountered key resistance on its daily line last Friday, swallowing up Thursday’s upside and potentially setting a new year-to-date low.
This week is also busy with U.S. employment data. Wednesday’s ADP employment change; although this is not the best indicator, if there is a significant deviation in the data, it may affect market trends. JOLTs data released on Wednesday and the employment sub-index in ISM manufacturing data also came into focus. The U.S. employment status report for April released on Friday will also receive widespread attention. According to the latest survey by Bloomberg, new non-farm payroll employment is expected to reach 250,000 in April, down from an unexpected rise of 303,000 NZD/JPY in March. Current estimates range from 280,000 to 190,000, with the average estimate just under 235,000. The unemployment rate is expected to remain unchanged at 3.8%, and average hourly earnings (month-on-month and year-on-year) are also expected to remain unchanged at 0.3% and 4.1% respectively. Since the market has already expected employment growth to slow significantly, dollar shorts will appear after the release of this data, and they may hope that non-farm payrolls will be closer to 200,000; as long as the non-farm payrolls data is close to or close to lower than expected, it may boost dollar shorts and The market will reimplement dovish pricing. If wage growth is lower than expected, job losses increase and the unemployment rate rises, the market volatility mentioned above will increase.
