Take Five: Shaken and stirred
(Reuters) -The Federal Reserve will lead a pack of central banks meeting to set interest rates after weak U.S. GDP data and President Donald Trump’s outspoken criticism of Fed leadership rattled markets.
China trade data and Asian inflation numbers are expected to show the first evidence of the impact of Trump-led tariffs, while voters in Australia, Romania and Singapore head to the polls.
Here’s a look at the week ahead from Lewis Krauskopf in New York, Rae Wee in Singapore, and Naomi Rovnick, Marc Jones and Karin Strohecker in London.
1/ CROSSROADS
The Fed’s policy meeting follows data showing a contraction in first-quarter U.S. GDP and pressure from Trump on the central bank to cut interest rates.
While the world’s foremost central bank is widely expected to hold rates steady on Wednesday, the focus will be on when it might resume its easing cycle, and whether June is a "live" meeting for policy action.
Central bank officials will have to balance concerns about a potential economic downturn with worries about a tariff-induced revival in inflation.
And the political pressure is intense. Trump has repeatedly criticised Fed policy and chief, Jerome Powell, fuelling concerns about the central bank’s independence, though he has lately appeared to rescind threats to try and fire the Fed chairman.
2/ HIGH STAKES
With progress on Sino-U.S. trade talks elusive, investors will monitor trade data from China on May 9.
As the first reading since Trump’s 145% levies on most Chinese goods took effect, it will provide insight on the impact in the world’s second-largest economy.
Inflation figures are due on May 10, as a prolonged battle with deflation is probably the last thing Beijing wants as it braces for a protracted trade war.
Elsewhere in Asia, consumer price and growth data across Indonesia, Thailand and the Philippines are due. Downside risks, given the threat of hefty U.S. tariffs, have dimmed growth prospects in the region and increased the bets on more rate cuts.
3/ WHAT TARIFF ANGST?
Some unusually positive trends in the UK stand out against the tariff terror gripping most of the world, with sterling scaling three-month highs against the dollar, the FTSE All-share index jumping 10% in four weeks and rate cut expectations high.
The global trade war threat to Britain’s small and open economy, alongside cheaper imports and anticipated slower wage growth, has handed the Bank of England deflationary indicators to feed into forecasting models.
Nearly all traders expect the BoE to cut borrowing costs by a quarter-point on Thursday. A similar move by Sweden’s Riksbank on the same day could add to bets for an eighth straight European Central Bank cut in June.
UK bonds are also rallying, with the 10-year gilt yield about 56 basis points below its January high, giving the debt-laden Labour government some headroom to resist further tax hikes and deepen spending cuts.
4/ THE OTHER WAY
It’s a complex picture for emerging market central bankers, navigating the trade war and ensuing inflation effects as well as a weaker dollar.
While most rate setters ponder when they can cut again, Brazil’s central bank is on the way up, at least for now.
Central bank chief Gabriel Galipolo has confirmed a hike is likely at the Tuesday and Wednesday meeting as Latin America’s largest economy faces a still-uncertain economic outlook and above target inflation.
Meanwhile, the mood has become more dovish in Poland, where the central bank meets on the same days.
Poland’s main interest rate has been at 5.75% since October 2023, and a cut was pencilled in for the months to come. But lower-than-expected inflation pressures have led a growing number of policymakers to signal that the cost of credit may fall sooner rather than later.
5/ HEY BIG SPENDERS
Three weekend elections hold market-moving potential.
Australia’s tight race pits Prime Minister Anthony Albanese’s ruling centre-left Labor party against the Liberal-National coalition led by Peter Dutton, with big spending promises from both threatening the nation’s AAA credit rating.
Singapore’s parliamentary election will test new PM Lawrence Wong as his People’s Action Party faces increasing opposition despite its own spending pledges.
The hard-right eurosceptic is leading polls in the first round after a previous election was cancelled over alleged Russian interference.
(Graphics by Vineet Sachdev and Sumanta Sen, compiled by Karin Strohecker, editing by Barbara Lewis)
