Week Ahead: NVDA, CPIs and PMIs in focus, RBNZ on hold

US data takes a back seat this week after a busy period of economic releases. The greenback has seen selling recently, after finding resistance for most of last month above 106 on the Dollar Index. But the buck bounced off its 200-day simple moving average last week, testing this widely watched technical indicator on softer than expected CPI data. Crucial core inflation came in as forecast, but core services prices printed lower. It seems we now get strong market reactions more to downside surprises, similar to those relatively small upside surprises that we saw in previous months.

A big reason for this price action is the ongoing high degree of uncertainty over central bank policy and interest rates. We continue to yo-yo with Fed pricing, with markets now seeing two rate cuts this year, after more than six at the start of the year, and less than one a few weeks ago. But the ECB is near enough nailed on for a June start to policy easing, while the UK is playing catch up with Europe, having started the year much closer to the US with later cuts.

UK inflation will be a major risk event this week, though there are still a couple more wage reports, as well as another CPI data release the day before the next Bank of England meeting in June. The headline print may grab the headlines as it falls close to or even below the bank’s 2% target. This is due to base effects after the sharp drop in household energy bills. But policymakers will focus on services inflation, which could come in a touch higher than the MPC forecast. Cable broke higher last week but more upside will move into a resistance zone between 1.27 and 1.28. The major struggled here at the end of 2023 and start of 2024.

US stocks made fresh all-time record highs last week as cooler inflation data and even disappointing retail sales were taken in the market’s stride. Nvidia, the last of the Mag 7 megacap tech companies will report after the US close on Wednesday. Its last earnings release was like an NFP or US CPI risk event. However, this time there’s a little bit less exuberance as the chipmaker may be lacking a specific near-term catalyst amid some concern over an over-supplied market. That said, options markets see a near 9% move on the day, post-results. That equates to around $200bn of market capitalisation, and a jump higher of that size would take the stocks to record highs.

In Brief: major data releases of the week

Tuesday, 21 May 2024

– Canada CPI: Headline inflation ticked up modestly to 2.8% in March. But the underlying measures – trimmed, median and common – all cooled for a third straight month. There is currently around a 40% chance of a June rate cut. USD/CAD again found it tough going above 1.38 a few weeks ago. Support now sits at 1.36 with the 200-day SMA below at 1.3568.

Wednesday, 22 May 2024

–  RBNZ Meeting: The OCR will be left unchanged at 5.50%. The bank is expected to keep its guidance that rates need to stay at this level for an extended period to bring inflation back to target. Sticky inflation lingers but softer GDP point to a “watch and wait” stance. The kiwi is the best performing major this month as risk sentiment and a moderately more hawkish central bank support the currency. Four consecutive weeks of gains have hit resistance at 0.6141.

–  UK CPI: Consensus expects a 2.1% annual rise in headline inflation. This is down from 3.2% in the prior month and 11.1% in October 2022. However, the core is likely to be stuck above 3.5% with services inflation still elevated, after remaining stuck at 6% in March. Markets price in just over a 50% chance of a 25bps June rate cut.

–  FOMC Minutes: The Fed held rates steady but described a more uncertain path to rate cuts this year. That said, Chair Powell emphasised it’s unlikely the next policy move will be a hike. Note these minutes could be viewed as slightly stale, as the focus was on three sticky CPI reports but inflation showed sings of cooling in the most recent data.

Thursday, 23 May 2024,

– Global PMIs: The May readings will provide a gauge on sentiment after the most recent US ISM data slid into contraction territory below 50. The services sectors remain relatively strong, while disinflation could help lift sentiment. The prior data saw US growth slip below the eurozone for the first time in a year. EUR/USD has posted gains in the last five weeks but has now hit some resistance around 1.09.

–Eurozone wage data: Q1 data is expected to fall further, after it rose 4.5% in in Q4, down two-tenths from the prior quarter. This is a crucial number for the ECB who are banking on softer wages to kick off policy easing in June. An inline print may bolster hopes of more rate cuts into the summer, while a sticky reading could mean policymakers are more cautious.

Friday, 24 May 2024,

– Japan CPI: Analysts expect a headline April print of 2.4%, down from the prior 2.7%. This is running above the BoJ’s 2% target, but recent Tokyo inflation did come in softer than expected, sliding below the bank’s goal. USD/JPY finished near-unchanged last week as markets ponder what the MoF’s next move is regarding “yentervention” and the BoJ’s regarding bond purchases. The latter trimmed its buying last week, which could have been done to support the JPY.