Week Ahead: US inflation outlook to remain as key driver
US stocks have shown remarkable resilience, with the S&P 500 using its 50-day simple moving average as a key support level to bounce back after stinging losses of late. However, the 4185 level is providing stubborn resistance for the time being.
With the futures contracts for all three main US benchmark indices in the green at the time of writing, US stocks are set to head into the weekend on a positive note.
Risk-on sentiment has been buoyed by a better-than-expected US weekly jobless claims of 444,000 as announced on Thursday.
Looking further down the line, here are the scheduled events that could influence market sentiment in the week ahead:
Monday, May 24
- Fed speak: Cleveland Fed President Loretta Mester, Kansas City Fed President Esther George, Atlanta Fed President Raphael Bostic, Fed Governor Lael Brainard
Tuesday, May 25
- Germany Q1 GDP (final print)
- US new home sales, consumer confidence
Wednesday, May 26
- RBNZ decision
- Wall Street bank CEOs testify in Senate
- Fed Vice Chair Randal Quarles speech
Thursday, May 27
- Wall Street bank CEOs testify before House committee
- China industrial profits
- Germany consumer confidence, retail sales
- US initial jobless claims, Q1 GDP (second print)
Friday, May 28
- Eurozone economic confidence, consumer confidence
- US personal income/spending, consumer sentiment
The slew of Fed speak scheduled in the final full week of May would be parsed for more clues on the Fed’s thinking for its eventual policy adjustments, in light of what we’ve learned from the latest FOMC minutes: policymakers are raising the possibility of discussing the eventual tapering of its asset-purchases programme.
Such is the forward-looking nature of the markets that investors and traders are trying to pre-empt the Fed’s next steps well before they’ve even officially done anything to alter their policy settings.
In the meantime, market participants will have to make do with the US economic data, besides the speeches by Fed officials. Should the data point to a faster-than-expected recovery in the US economy, especially as it pertains to inflation and the labour market, that could hasten the Fed’s policy response.
Yet markets remain cognizant that there’s still substantial runway between now and the Fed’s actual tapering, hence they’ve decided to send the dollar index (DXY) back below the psychologically-important 90 level for now.
Should the DXY climb another leg lower to test its year-to-date low of sub-89.2, that could translate into EURUSD climbing closer towards its year-to-date high around the 1.235 mark. Note the high correlation between EURUSD and the DXY, considering that the euro accounts for 57.6% of the DXY.