This week is set to be driven by a dense calendar of geopolitical and macro catalysts, with the Trump–Xi meeting on Thursday, changes in Fed leadership dynamics, and US inflation data (Tuesday). Later today, US existing home sales will provide a read on housing resilience. Attention then turns to Tuesday, where German CPI and the ZEW survey, and later US CPI, will help guide global inflation expectations. Fed commentary from Goolsbee and ECB’s Dolenc will be closely watched for any shifts in policy tone amid sticky price pressures.
Wednesday brings Eurozone GDP and industrial production, and US PPI and mortgage applications, offering a broader read on cyclical momentum. The Fed’s Kashkari and Collins are also scheduled to speak at separate events, while the BoE’s Mann will address “international exposure and vulnerabilities,” potentially reinforcing the UK’s external sensitivity narrative. On Thursday, focus shifts to UK GDP and industrial production, followed by US business inventories, initial jobless claims, and retail sales. Commentary from the Fed’s Hammack and Barr, and the BoE’s Pill, will add to the policy backdrop. The week concludes with US industrial production and the Empire Manufacturing survey, and the symbolic end of Chair Powell’s term, which may prompt positioning adjustments across rates markets.
Last week’s price action was dominated by shifting expectations around a potential US–Iran de-escalation, particularly centred on developments in the Strait of Hormuz. Markets oscillated between optimism over a possible 14-point framework for conflict resolution and renewed concerns over persistent disruptions in key maritime shipping routes. Equities staged a mid-week rally before geopolitical frictions re-emerged into the weekend, reintroducing volatility.
The S&P 500 rose 2.33%, led by the mega-cap technology cohort, with strong earnings from key names helping to stabilise sentiment. However, investor scrutiny around the sustainability of AI-related capital expenditure is intensifying, particularly given concerns around “unchecked” infrastructure spending. Meanwhile, US Treasuries were range-bound, with the 10-year ending the week slightly firmer at 4.36%. The dollar softened modestly as geopolitical risk premia eased, while oil prices experienced mid-week de-risking, though Brent crude remained elevated above $101pb amid structurally tight supply conditions.
US data offered a counterweight to geopolitical developments. The ISM survey indicated fragile but positive expansion, though the Prices Paid component surged to its highest level since 2022, underscoring the transmission of energy shocks into manufacturing input costs. Labour market data reinforced growing stagflation concerns: while headline payrolls remained resilient, hiring momentum continued to slow to levels typically associated with late-cycle or recessionary environments. Unemployment edged up to 4.4%.
Market reaction was driven less by strength in headline data and more by the policy constraint it implies, namely, the Fed’s limited ability to ease into a cooling labour market while inflationary pressures remain energy driven. This tension was reflected in a sharp deterioration in sentiment, with the University of Michigan Consumer Sentiment Index falling to an all-time low of 48.2 in May, as households continue to absorb higher fuel costs and tariff-related price pressures. Interestingly, the preliminary inflation expectations for May eased for both the 1-year (4.5%) and 5-10 year (3.4%).
In China, this morning’s data suggests the economy is emerging from its deflationary phase, albeit for largely cost-push rather than demand-led reasons. CPI rose 1.2%yoy in April, exceeding expectations, while PPI accelerated to 2.8%yoy, the strongest reading in 45 months. The increase was primarily driven by energy and commodity inputs linked to geopolitical tensions.
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