The upcoming week is full of important data, though it seems likely that this won’t change the dial for the imminent rate decision. A 25bps may Fed rate hike is baked in by money markets. First quarter US GDP will grab the headlines with growth expected to moderate from the 2.6% in the previous quarter. Persistent price pressures will be evident in Friday’s core PCE data which should highlight the ongoing concern of policymakers at the FOMC. It is the blackout period now ahead of its meeting next week so there won’t be any official “Fedspeak” to listen out for.

The dollar did stop the streak of six consecutive weekly losses, but it remains in a downtrend from the mid-March top. Markets are still continuing to price in aggressive rate cuts by the Fed into 2024 so unless these bets get reined in, the greenback may struggle to move much higher. One risk event looming is the debt ceiling issue which probably has to get much worse before getting resolved. That means tensions could linger into the summer and weigh on USD sentiment.

The recovery of the eurozone economy from last year’s energy price shock is expected to be confirmed on Thursday with the release of gross domestic product data showing a return to positive growth in the first quarter. The euro remains resilient against the USD with recent PMI figures suggesting growth may be picking up a bit momentum, in turn supporting more ECB rate hikes ahead.

There is much speculation about Governor Ueda’s inaugural Bank of Japan meeting on Friday as multi-decade high inflation is making it tough for the BoJ to keep its ultra-loose monetary stance. It seems it is too early for any policy tweaks as officials have been saying it needs wage inflation to end yield curve control. But there could be some groundwork put in place to move policy towards the outlook for inflation. This could sow the seeds for tighter policy which would give a strong bid to the yen and see USD/JPY moving back towards 130 and below.

Finally, a slew of megacap tech earnings is released over the coming days with Alphabet, Microsoft, Meta, and Amazon all announcing their latest results. These companies account for close to 14% of the S&P 500’s weight so will be important for near-term direction. They have also driven the strong index gains seen this year as one of the most crowded trades in 2023. Solid guidance or hints the sector will continue to remain resilient even when economic growth slows would help keep Wall Street’s decent start to the year afloat.

Major risk events of the week

24 April 2023, Monday:

-IFO German Business Climate: Consensus expects a rise for a six straight month in the headline reading to 94.3 in April from 93.3. Falling inflation, lower energy prices and fading supply chain issues should see the recovery continue. Business expectations are also forecast to pick up to the highest level since February 2022.

26 April 2023, Wednesday:

-US Durable Goods: The market median is for a rise to 0.7% from February’s -1.0%. Weak core orders point to subdued demand. Analysts doubt that the string of weakness we saw towards the end of last year is the full extent of the contraction for manufacturing.

27 April 2023, Thursday:

–US GDP: First quarter growth is forecast to rise 2%. Analysts say consumer spending will be strong given the blowout January retail sales which were boosted by unseasonal weather. But weaker net trade and inventory performance could offset that positive. 

28 April 2023, Friday:

–Bank of Japan Meeting: Governor Ueda’s first BoJ meeting is likely to continue with the current ultra- accommodative policy stance. Reports of a below target CPI forecast for fiscal 2025 would support the case for a delayed exit to the existing regime. But analyst say persistent inflation could mean a tweak to the YCC band at the June meeting.

–Eurozone GDP: Economists forecast a very modest positive print with risks to the upside. The widely watched PMIs have signalled expansion in the first quarter. Falling headline inflation should lead to a brighter outlook for consumption as the labour market stays tight.

–US Core PCE Deflator: Consensus expects the Fed’s favoured inflation gauge to rise 0.3% m/m and 4.5% y/y. This measure has moderated from its high in 2022 at 5.4%. But inflationary pressures persist so money markets have priced in a 25bp rate hike at the Fed’s May meeting.