US data takes a back seat next week after a busy period of economic releases. The greenback clawed back some of its losses at the end of this week. The Dollar Index bounced off its 200-day simple moving average after it had broken to the downside 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 on relatively small upside surprises in previous months.
A big reason for this price action could be the ongoing high degree of uncertainty over central bank policy and interest rates. We continue to yo-yo with Fed pricing; markets now see 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 set of data the day before the next Bank of England meeting. The headline print may grab the headlines as it collapses close to or even below the bank’s 2% target. This is due to base effects after the changes to the UK energy price cap last year. But policymakers will focus on services inflation, which could come in a touch higher than the MPC is forecasting. Cable broke higher last week but resistance around 1.27 looks tough to break for more upside.
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.
