This week global trading closed with little relief that the central bank of the United States (US) or The Federal Reserve (The Fed) decided to keep interest rates. However, entering the second week of May there are five major themes that tend to dominate investor and merchant thinking in the coming weeks.
1.Producer price and consumer price indexes
The Federal Reserve has acknowledged US inflation has risen, adding to confidence that interest rates will rise faster this year than previously anticipated. Price index data scheduled for next week may cement investors' views.
Although the Fed maintains its interest rates, the central bank includes a slightly hawkish language in its statement, noting that "on a 12-month basis, both overall inflation and inflation for goods other than food and energy have moved closer. up to 2% ".
The latest data shows the US economy added 164,000 jobs, less than forecast, while wages barely rose. However, the Fed's preferred inflation measure, called the core PCE, rose 1.9% in the 12 months to March, the biggest gain since February 2017.
Global investors are now awaiting release of producer price index data and consumer price indexes due for release on Wednesday and Thursday and investors are worried that stock and bond markets will not get much of a hold on fears of rate hikes in recent weeks.
The Fed is currently signaling two rate hikes this year, but the inflation rate, if strong enough, can only confirm expectations that it will suppress a one-third increase.
2. Sterling Selling
The central bank's big event next week is a May 10 meeting by the Bank of England (BoE), with market expectations now strongly supporting interest rates held at the current 0.5% level.
Estimates of UK interest rates have swung sharply since early April when investors rate 90% of BoE's chances of raising interest rates by 25 basis points.
But a spate of weak economic data will almost certainly remain in the hands of the BoE. The central bank has cut its forecast interest rate hikes, with some not expecting at all by 2018. The BoE has also made sterling more than six per cent lower in two weeks, turning it into the red line for 2018.
Investors will be monitoring the language of BoE Governor Mark Carney to signal about what it wants for a further rise in 2018. More dovish comments from BoE can send sterling lower.
3.Twosome Gruesome
Almost five years after taper-selling in emerging markets, a rising US dollar and rising global borrowing costs crushed Argentina and Turkey like a destructive ball.
With pesos and lira reaching record lows, Argentina should raise its interest rate to 40% in the third emergency hike in a week. Turkey also raised interest rates recently by 75 basis points after keeping it loose for many years.
While most emerging markets are suffering at some level, Turkey and Argentina stand out because of the rampant inflation and dependence on foreign financing - both have large current account deficits and double-digit price growth, 25% in Argentina's case.
Higher interest rates will help. But with the dollar showing few signs of wilting and the US economy getting closer to its highest level for four years, the pain could last longer.
4.Euro Pain
The surge of the US dollar has come as an unexpected spring gift for the eurozone stock market after the first-quarter results hit from the single currency's strength.
The recent euro's decline to a four-month low helped the euro stocks outperform Wall Street for the second month running in April. May is a good start and a three-month streak, if realized, will be the longest since January-March 2015 when the euro reaches a 12-year low against the US dollar.
Profit growth for eurozone companies in the STOXX 600 index seen rising to 4.5% in the second quarter from 1.4% expected for the first. In the last two quarters of 2018, they were seen up 18.7% and 13.7%, according to Thomson Reuters data.
True, there are other variables as well, especially the speed at which the European Central Bank will stop the stimulus. But the hawkish change there is seen as a distant prospect and meanwhile, euro equity investors should enjoy the ride.
5.Out of Stock?
For all the talk about Asia's resilience to shocks, foreign investors are scared at first signs of rising US oil yields and prices. This is seen in Indonesia, India, Thailand, South Korea and Malaysia where these five countries see foreign capital flows out of the bond market and the stock market.
The exit of foreign capital ultimately forced central banks to intervene to limit currency depreciation, while simultaneously taking steps to keep the domestic market liquid as possible. They are reluctant to raise interest rates. But that means digging up the foreign exchange reserves they have built since the volatility attacks in the past. Indonesia alone has spent US $ 6 billion of this reserve during February and March to stem the decline in the rupiah.