Outlook for this week’s external market | Bank of Australia welcomes interest rate discussions and focuses on the sustainability of Japan’s intervention in the Japanese yen

This week, several Federal Reserve officials will deliver routine speeches, and comments on economic and monetary policy will be closely monitored by the outside world.

Last week, the international market was volatile, and the Federal Reserve’s inaction met expectations, leading to a cooling of the situation in the Middle East.

In terms of the market, the US stock market rose overall, with the Dow Jones Industrial Average up 1.14%, the Nasdaq up 1.43%, and the S&P 500 index up 0.55% for the week. The three major European stock indexes saw mixed gains and losses, with the FTSE 100 index in the UK rising 0.91% for the week, the DAX 30 index in Germany falling 0.88% for the week, and the CAC 40 index in France falling 1.62% for the week.

There are many highlights this week, with the UK and Australian central banks expected to hold interest rate meetings, and the Australian Federal Reserve likely to maintain its position of long-term high interest rates. In terms of data, the University of Michigan Consumer Confidence Index will become an important economic indicator for the United States, and signs of recovery in Europe are expected to strengthen. As the financial reporting season enters the mid to late stages, the performance of companies such as Disney and Chinese concept stocks Ideal Automobile is worth paying attention to.

With government intervention, the yen/dollar has surged by over 3% in the past week. However, bearish factors still exist, which has raised doubts about the sustainability of this recovery. The Bank of Japan will release a summary of its April meeting on Thursday (May 9th), which will provide some clues for the potential timing of the next interest rate hike, and the latest batch of Japanese wage data may also affect future policy directions.

('The latest statement from the Federal Reserve has attracted attention (source: Xinhua News Agency image)',)(‘The latest statement from the Federal Reserve has attracted attention (source: Xinhua News Agency image)’,)

Follow the latest statements from the Federal Reserve

Since the beginning of the year, due to persistent high inflation, the market has significantly lowered its expectations for the Federal Reserve’s interest rate cut. Last week, US Treasury Secretary Yellen stated that although the tight housing supply has stalled the downward trend of inflation, she still believes that basic price pressures are fading. “Although the lag time is slightly longer than I expected, I believe that the speed of housing price increases will decrease, in line with the current situation of the new rental market,” she said.

The Federal Reserve’s latest policy statement maintains its economic assessment and policy guidance unchanged, pointing out that inflation has eased over the past year. “The committee expects that lowering the target range is not appropriate until there is greater confidence in inflation continuing to move towards 2%. In recent months, there has been a lack of further progress in achieving the committee’s 2% inflation target.”

However, the next step for the Federal Reserve is expected to be a rate cut, and Federal Reserve Chairman Powell stated that the threshold for turning to a rate hike is high. This week, several Federal Reserve officials will deliver routine speeches, and comments on economic and monetary policy will be closely monitored by the outside world.

In terms of data, the information this week is relatively light. The May consumer survey by the University of Michigan may be a key indicator of whether the US economy continues to perform strongly, and whether the previously rebounding inflation expectations can fall is equally important.

As the financial reporting season enters its mid to late stages, companies worth paying attention to this week include Disney, Uber, Airbnb, Western Petroleum, Warner Bros., and other companies. Ideal Automobile, a Chinese concept stock, will also announce its performance.

Crude oil and gold

As concerns in the Middle East subsided and US inventories increased, crude oil futures fell sharply last week. The WTI crude oil near month contract fell 6.85% to $78.11 per barrel, while the Brent crude oil near month contract fell 5.95% to $82.96 per barrel.

OPEC+, composed of the Organization of the Petroleum Exporting Countries and its allies, has not yet begun formal negotiations, but sources say they are willing to consider extending production cuts if demand does not rebound. According to the agreement, the voluntary production reduction of 2.2 million barrels per day will expire at the end of this quarter.

Earlier this week, the significant increase in US crude oil inventories also put pressure on the market. “In this context, speculation that OPEC+countries may extend voluntary production cuts may help stabilize prices,” said Ricardo Evangelista, senior analyst at ActivTrades, in a report

The international gold price hit a new low in a month, and the rebound of risky assets suppressed safe haven sentiment.

Kinesis Money market analyst Carlo Alberto De Casa said, “The market is still digesting Powell’s remarks a few days ago… but many investors still see the pullback as an opportunity to increase their gold positions.”

Independent metal trader Tai Wong believes that the rise in gold after the release of the non farm report has attracted a considerable amount of profit taking, indicating that bulls have become more cautious. “Some people are concerned that if Asian buyers no longer appear, gold prices may further fall. Although there is a chance that it will fall to $2150, this will not cause any actual damage to the long-term outlook,” he added.

Has the Bank of England hinted at a rate cut

The eurozone’s GDP in the first quarter was better than expected, with a quarterly growth rate of 0.3%. This is the fastest growth rate since the third quarter of 2022, breaking free from the shadow of recession.

At the same time, the overall inflation in the Eurozone remained stable at 2.4% in April, and the core inflation rate (excluding energy and food prices) continued to decrease from 2.9% to 2.7%, which is expected to drive the European Central Bank’s policy shift. The Governor of the French Central Bank, Villeneuve, stated that recent data has boosted confidence and inflation is moving towards the European Central Bank’s target of 2%. “Therefore, we should be able to start lowering interest rates in early June,” he said

Similar to the eurozone, the UK economy seems to have emerged from last year’s shallow recession and entered a phase of recovery. The first quarter gross domestic product (GDP) data will be released on Friday, and the rebound in consumer spending has driven strong growth in the first quarter due to wage growth remaining elastic, while the momentum in the second quarter is even stronger.

However, there are still hidden concerns about inflation. In March, the UK’s core CPI remained above 4%. As companies raise prices and pass on the constantly rising costs to consumers, prices face the risk of accelerating again in the coming months.

The Bank of England is likely to maintain its key interest rate at 5.25% this week, with a focus on whether more decision-makers will vote to decide on a rate cut, and whether there are any comments suggesting when a rate cut may be possible.

Highlights of this week

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