Market Outlook for the Week
Monday is shaping up to be a relatively quiet day for the Forex market, with not many economic events on the calendar. However, Tuesday will see the Bank of Japan’s monetary policy announcement, which is quite significant. In the US, attention will be on the retail sales data month-over-month.
As for Wednesday, it brings important inflation figures from the UK, along with unemployment claims from the US. The most anticipated occurrence of the day will be the FOMC Monetary Policy Announcement.
On Thursday, New Zealand is expected to release its GDP figures for the quarter, while Australia plans to unveil changes in employment and unemployment rates. Switzerland will make an announcement regarding the SNB monetary policy, and the UK will host a BOE conference.
Wrapping up the week, Friday will introduce retail sales data for both the UK and Canada.
This week, many expect that the BOJ will maintain its monetary policy at 0.5%, though there may be discussions about potential adjustments to bond purchasing programs. They’ve been talking about the 200 billion yen purchase of Japanese government bonds, but such moves are quite uncommon at this stage.
Analysts at Wells Fargo have some doubts about export and machinery orders, attributing it to ongoing trade tensions and a cooling global demand.
On the inflation front, pressures are likely to continue rising, with the core CPI expected to hit around 3.7% in May. The BOJ seems to be juggling between weak economic performance and persistent inflation, which is no easy task.
In the US, projections for core retail sales month-over-month are around 0.2%, an uptick from the previous 0.1%. However, headline retail sales might dip by 0.6%, in contrast to an earlier increase of 0.1%.
Retail sales saw a meager rise of just 0.1% in April, which appears to show some resilience following strong results in March. Yet, the decline in core control groups suggests that consumer confidence is waning, with uncertainties related to tariffs weighing heavily on sentiment.
Expectations for this week’s data indicate a considerable drop in headline retail sales, primarily attributable to slumping car sales. Some analysts believe that modest gains in other categories imply that consumer spending is slowing, but not entirely stopping.
At the FOMC meeting this week, it’s anticipated that federal funding rates will remain unchanged, keeping monetary policy steady for now.
Recent economic data from the US generally paints a supportive picture. There’s been a slight cooling in the labor market since January, but the unemployment rate has held steady at 4.2% since March.
It’s somewhat surprising that inflation data seems to offer encouragement for the Fed. However, inflation is still a significant concern, and that’s probably why the Fed is unlikely to make any changes to its policy at this time.
Traders are likely to pay close attention to the updated economic forecasts. The median rate forecasts may suggest that any adjustments won’t come too soon, considering ongoing inflation risks and trade policy uncertainty.
Regarding the SNB’s meeting this week, a rate cut of 25 basis points is expected, bringing the policy rate down to 0.00%. With Swiss inflation dipping into negative territory in May, core pressures are also easing, as headline inflation fell to 0.1% year-over-year and core inflation slowed to 0.5%.
Still, overall economic activity appears resilient. GDP grew by 0.5% quarter-over-quarter, even as production shows signs of slowing. The service sector sentiment remains strong. Given this mix of weak inflation and steady growth, while one-off rate cuts might be possible, it seems unlikely they will reduce rates further after June.
The BOE is mostly expected to keep its monetary policy steady at 4.25%, as policymakers try to balance persistent inflation with signs of a soft labor market.
April’s inflation data in the UK took a few by surprise, with headline CPI climbing to 3.5%, alongside increases in core and services inflation. While this could be temporary, underlying pricing pressures are still a point of concern. Some analysts at Wells Fargo point out that it might indicate a slight rise in wage growth and unemployment.
Given the current situation, it’s expected that the BOE will maintain its stance at this meeting, with a potential rate cut of 25 basis points later in August. As growth and labor market trends continue to weaken, a more extensive easing cycle might begin later in the year.
In Canada, expectations for core retail sales month-over-month are around -0.2%, a slight improvement from -0.7% in the previous -0.8% overall retail sales figures.
Retail sales in April are set to reinforce the resilience of consumer spending, despite ongoing weaknesses in confidence indicators. Preliminary figures hint at a 0.5% increase, bolstered by a solid 0.8% rise in March, indicating a possible continuation of this momentum into May.
While car sales saw a decline in April and May, it only partially offset the increase noted in March, largely due to tariff concerns. Core retail activities seem to remain solid, suggesting stable fundamental demand.
However, consumer sentiment lingers near historic lows, and ongoing tariff uncertainties could cool spending later in the year, particularly in higher-priced areas like vehicles and housing.
