After a busy period for central bank meetings, Q1 earnings and the French election, this week is quieter as markets head into the latter half of May in a fairly sedate mood.


Inflation

After the Bank of England kept interest rates on hold last week, Tuesday’s UK CPI inflation figures will be closely watched to see whether the Monetary Policy Committee is on the money or if it risks falling behind the curve by remaining overly dovish. Inflation has jumped to 2.3% but with growth lacklustre there seems little impetus to raise rates soon unless price growth really starts to accelerate.

On Wednesday there is the final reading for CPI inflation in the Eurozone. With estimates indicating that inflation rebounded last month to 1.9% from a lacklustre rise in March, the data could be important for the European Central Bank as it eyes a potential reduction in its quantitative easing programme.

GDP Numbers

Also on Tuesday is the Eurozone flash Q1 GDP reading. Surveys suggest growth in the bloc is picking up alongside a recovery in corporate earnings. Like the inflation data the reading will be an important piece in the ECB’s assessment of monetary policy as it mulls a potential shift in language. Market watchers will be paying close attention to whether the GDP and inflation data seem enough to make Mario Draghi think risks are no longer “tilted to the downside”.

Meanwhile on Thursday it’s the first quarter GDP reading for Japan. Again, this will provide an important signal about whether the Bank of Japan’s ultra-loose monetary policy is paying off and therefore could be a big driver in yen pairs such as USDJPY and EURJPY.

Fed Speakers

Towards the end of the week Federal Reserve officials are in action. Cleveland Fed boss Loretta Mester speaks in Minneapolis on Thursday, while St Louis Fed president James Bullard talks on ‘US Economy and Monetary Policy’ on Friday. With the FOMC widely expected to raise rates at its June meeting markets will be sensitive to what they have to say about how they think policy is going in the short term.

Earnings Season

The end is in sight for the first quarter earnings season but we still have a number of large cap stocks on both sides of the Atlantic to report. Retailers Target, Home Depot and Gap provide the interest from Wall Street this week.

In the UK, EasyJet, Vodafone and Premier Foods all report on Tuesday in what should be a busy session for the FTSE 100. Burberry, National Grid, Thomas Cook, 3i and Royal Mail all report on Thursday.

Source: ETX Capital

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