The Consequences Of FOMC (USD Index), US CPI Release And European Sentiment | Oanda: "Week Ahead – Volatile Markets"
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Every asset class has been on a rollercoaster ride as investors are watching central bankers all around globe tighten monetary policy to fight inflation. Financial conditions are starting to tighten and the risks of slower growth are accelerating.
The focus for the upcoming week will naturally be a wrath of Fed speak and the latest US CPI data which is expected to show inflation decelerated sharply last month. A sharper decline with prices could vindicate Fed Chair Powell’s decision to remove a 75 basis-point rate increase at the next couple policy meetings.
A close eye will also stay on energy markets which has shown traders remain convinced that the market will remain tight given OPEC+ will stick to their gradual output increase strategy and as US production struggles to ramp up despite rising rig counts. Energy traders will continue to watch for developments with the EU nearing a Russian energy ban.
US
Market volatility following the FOMC decision won’t ease up anytime soon as traders will look to the next inflation report to see if policymakers made a mistake in removing even more aggressive rate hikes off the table over the next couple of meetings. The April CPI report is expected to show further signs that peak inflation is in place. The month-over-month reading is expected to decline from 1.2% to 0.2%, while the year-over-year data is forecasted to decrease from 8.5% to 8.1%.
The producer prices report comes out the next day and is also expected to show pricing pressure are moderating. On Friday, the University of Michigan Consumer Sentiment report for the month of May should show continued weakness.
The upcoming week is filled with Fed speak that could show a divide from where Fed Chair Powell stands with tightening at the June and July meetings. On Tuesday, Fed’s Williams, Barkin, Waller, Kashkari, Mester, and Bostic speak. Wednesday will have another appearance by Bostic. Thursday contains a speech from the Fed’s Daly. On Friday, Fed’s Kashkari and Mester speak.
EU
The Russia/Ukraine war and the sanctions against Russia have dampened economic activity in the eurozone. Germany, the largest economy in the bloc has been posting weak numbers as the war goes on. With the EU announcing it will end Russian energy imports by the end of the year, there are concerns that the German economy could tip into a recession.
On Tuesday Germany releases ZEW Survey Expectations, which surveys financial professionals.
Economic Sentiment is expected to decline to -42.5 in May, down from -41.0 in April.
On Friday, the Eurozone releases Industrial Production for March. The Ukraine conflict has exacerbated supply line disruptions, which is weighing on industrial production. The sharp drop in German Industrial Production (-3.9%), suggests that the Eurozone release will also show a contraction. The March estimate is -1.8%, following a gain of 0.7% in February.
