where we are headed
May begins with the Federal Open Market Committee (FOMC) meeting, a high-profile meeting scheduled to be broadcast on Wednesday. This week's meeting is all but certain to leave policy unchanged, leaving the federal funds target range unchanged at 5.25% to 5.50% for the sixth consecutive meeting. Inflation remains low and below the Fed's inflation target of 2.0%. March CPI and PPI inflation data are still rising, and PCE inflation (the Fed's preferred inflation measure) remains high (Friday's headline was +2.7% higher, up from 2.5% expected and 2.6% previously). exceeded).
Combined with strong job growth, the Fed has no reason to ease policy just yet. In the latest minutes, Fed officials said that interest rates have peaked and that cutting rates would be appropriate if the economy develops as expected, meaning inflation declines toward the 2.0% goal. You may remember that I told you that. At the time of the announcement, investors had extended bets on interest rate cuts back to the November policy meeting, pricing in a total of 36 basis points of easing for the year. After all, anything that hasn't already been heard at this meeting is unlikely to be heard in a post-rate statement or press conference.
All eyes are therefore on the European Central Bank (ECB) and the Bank of England (BoE), both of which have recently experienced another round of hawkish pricing. The ECB is pricing in a total of 71 basis points of easing this year, while the BoE is pricing in 44 basis points. Interestingly, according to market prices, the ECB is expected to cut rates and lower interest rates ahead of both the Fed and the BOE, with June's policy meeting on the agenda (-21bps), while the BOE's August There is still the possibility of holding another policy meeting.
With this in mind, all eyes will be on the Eurozone's preliminary April inflation numbers and first quarter GDP figures this week. Economists estimate that the headline year-on-year inflation rate will remain unchanged at 2.4%, with inflation pressures expected to subside in 2024 after rising +2.9% in December (2023), with the core inflation rate expected to subside in 2024. is expected to fall slightly to 2.8% in the 12 months to April. , down from 2.9% in March.
Ultimately, GDP is expected to remain roughly flat on both a year-over-year and quarter-on-quarter basis. This week could present an opportunity for euro bears if inflation data falls below consensus. The EUR/USD currency pair weakened a key resistance level in the daily time frame on Friday, swallowing Thursday's top and eliminating the possibility of a new year-to-date low.
It's also a busy week for the US employment report. ADP payrolls increased on Wednesday. Although not the best indicator, it can move the market if there is a noticeable divergence in the data. Wednesday also welcomes the JOLT figures along with the employment sub-index from the ISM manufacturing data.