Market Pulse - The week in review - May 8

THIS WEEK’S RECAP:

 

Momentum in the Canadian economy continued to slow with monthly GDP data for February soft at 0.15% MoM growth. Statistics Canada’s advance estimate for March suggests growth was flat. While growth for 1Q GDP is tracking 2.5% annualized, monthly momentum has slowed pointing to a weak handoff for 2Q.

 

The FOMC left the fed funds target range unchanged at 5.25% to 5.5% this week. The statement’s description of inflation was updated to reflect the recent firming in inflation data, indicating that there has been a “lack of further progress toward the Committee’s 2% inflation objective”. Despite this hawkish shift in the statement, Chair Powell’s communications in the press conference were construed by markets as dovish. He emphasized that current policy would prove sufficiently restrictive over time and stressed that it was "unlikely that the next policy rate move will be a hike”.

 

Headline US employment data for April eased fears about a reacceleration in activity and pick-up in inflation. Details were more so in line with a labour market that is coming into a better balance. Employment growth slowed, the unemployment rate ticked up, and wage growth moderated.

 

Several secondary US labour market data were also released throughout the week and provided mixed signals as it relates to labour market conditions and the outlook for wage growth.

 

Eurozone 1Q GDP increased +0.3% QoQ following two consecutive quarters of negative growth. Core inflation data for April showed a moderation and is likely to provide support for an European Central Bank (ECB) rate cut in June.

 

Earnings season continued with 166 of the S&P 500 firms reporting in the week. The overall index was up slightly from the prior week’s close. The US 10-year yield moved lower over the week. There were signs of two currency interventions from Japan’s Ministry of Finance this week. USDJPY ended the week at ~153 after nearing 160 early in the week.

 

ON DECK FOR NEXT WEEK:

 

It will be a light week for economic data in the US. Focus will be on the Fed’s 1Q Senior Loan Officer Opinion Survey on Monday, which will provide insight into business and household demand for credit and bank lending standards. Several FOMC participants will also be speaking throughout the week.

 

Canada employment data for April lands on Friday and could receive heightened attention ahead of the June Bank of Canada (BoC) meeting. The BoC will also release their Financial System Review on Thursday.

 

UK 1Q GDP data is due out on Friday and the Bank of England’s Monetary Policy Committee is also meeting next week.

 

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