The Week Ahead
20 May

The Week Ahead – 20 May

Financial markets enjoyed another solid week, with positive market moves across all major asset classes. The weaker than f’cst US CPI data saw global equities move higher on the expectation that the US Fed could look to reduce cash rates through the 3q24.  The better than expected numbers also resulted in the US$ falling across all major currencies (outside the JPY).  The A$ enjoyed one of its best weekly moves against the US$ since the mid point of 2023.

While the selloff in the US$ has prompted some market participants to f’cst the potential for a further decline through the residual of 2024, we still see the US$ remaining stronger for longer given the current interest rate differentials to Aust (and other countries), the level of fiscal expansion by the US Govt that will require ongoing funding by the US Treasury, continued heightened geopolitical risks that will see the US$ remain as the World’s safe haven currency and the ongoing demand for high end US technology (inclusive of additional onshoring) that is likely to see further capital inflows into the country.  As we head into the back end of the US corporate reporting season, AI behemoth Nvidia set to report its earnings results on Wed.

The result will be closely watched after a series of weak guidance from other IA companies. A poor result could see markets move lower. In China, the announcement by the Government to further support the ailing property market (i.e. relaxing mortgage rules, scrapping min national mortgage rate, cutting the deposit requirement and encouraging local govt to purchase excess property supply) highlight the ongoing concerns over the struggling property market with prices (along with consumer demand) continuing to fall.  The failure of Chinese authorities to stem the decline could derail the (near term) improving growth outlook for the economy.

In the US, there is a raft of housing data (i.e. new home sales, existing home sales, mortgage applications etc) along with PMI data, which is f’cst to show ongoing expansion in the services sector (f’cst 51.4 pts) with the manufacturing set to remain broadly flat (f’cst 49.9 pts). In Aust, it remains a relatively quiet week, with only the release of (WBC) consumer confidence data as well as the release of the RBA Board minutes (May), while in the UK the market will be focused on the release of CPI data (f’cst 2.1% y/y, -1.2% pcp), which will further reiterate the market’s call for a BoE rate cut through the northern hemisphere summer.

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