Spotlight shifts from Fed to Trade talks & Brexit

This holiday shortened trading week is expected to be the divide for lack of recent volatility, however, despite the scarcity of liquidity, the uptick in volatility has yet to appear.

Even U.S equities mixed earnings results (Alphabet bad, Apple better than expected), there has been no sense of urgency in this asset class. More than 350 firms in the S&P 500 have disclosed their quarterly results. Still, about +76% of companies reporting are beating the streets profit estimates.

Global bond yields remain contained to their tight yield ranges despite the slightly more ‘hawkish’ rhetoric and revised growth targets by a number of central banks of late.

Year-to-date, the U.S dollar has been supported by G7 rate differentials and global growth worries. Investors continue to look for a top, however, the greenback seems to have no intentions to fall into the abyss any time soon.

Central Banks

This week, the Fed stuck to the patient script, however, Powell and company’s inflation optimism has taken rate cut bets in the short-term off the table. The Fed is likely to remain patient throughout the summer and contrary to what Fed Fund futures are saying, they see transitory factors at work on inflation and that it will pick up later in the year. Short-term interest rate futures have fallen after this week’s meeting and dealers now see a +29% chance of a cut at the September pow-wow and a coin flip for the December meeting.

Nevertheless, the Fed surprised many by lowering the so-called interest on excess reserves rate (IOER), which is what it pays deposit-taking banks to park cash on the Fed’s books. Although it maintained the federal-funds rate target range, persistent upward pressure on the funds rate was behind the Fed’s action.

The Bank of England (BoE) overall theme is that U.K policy makers are waiting for more clarity as Brexit looms. The central bank left its key interest rate unchanged at +0.75% but repeated its expectation that borrowing costs will rise over the coming years if the U.K.’s split from the EU is “smooth.”

The BoE estimates that the economy grew at an annualized pace of around +2% during Q1, more than twice as quickly as in the final three months of last year. If the BOE is right, the U.K. economy will have shared in a surprise upswing in the global economy. The U.S. and eurozone have each reported unexpectedly strong accelerations in the first quarter, while in China growth held steady, confounding expectations of a slowdown.

The Czech Central Bank raised its two-week repurchase rate by +25 bps as expected. It’s the eight-hike since 2017, up a total of +200 bps. The vote to hike was unanimous – in the post rate decision press conference, the staff forecasts raised Q2 2020 headline CPI from +1.9% to +2.0% but maintains Q3 2020 headline CPI at +2.0% and cuts 2019 GDP growth forecast from +2.9% to +2.5%.


The U.K. government says it’s “hopeful” that an agreement can be reached on a consensus approach to Brexit with the opposition Labour Party. PM Theresa May has hinted that some kind of customs union could be a compromise, and has set a deadline of next week for talks to conclude.


Alongside the earnings season, the chances of a breakthrough in the Sino-U.S trade talks are back on top of the agenda, with negotiations between the U.S and China set to continue in Washington next week.

On the Economic Calendar, tomorrow its non-farm payrolls (May 3) and the market is expecting another very strong report for April, with unemployment remaining at +3.8%, +180,000 new jobs being added and, arguably most importantly, wages rising by +3.4%. On Sunday, China releases its Caixin services PMI (May 5).

Note: On Friday after U.S close Turkey gets its review rating from Fitch, but with the country already at junk status, they are not likely going to get a bump up.

Market concerns:

• New trade war fronts opening up US/EU, US/USMCA, US/MEXICO
• U.K/Brexit fallout
• US-China trade deal – details may emerge
• Trans-Atlantic trade tensions to intensify
• OPEC, Saudis, Venezuela & Trump
• Iran is threatening to close the Strait of Hormuz
• Venezuela/Russia/U.S tension
• Geo-political concerns in Russia, Ukraine & France
• India/Pakistan – tension remains high amongst two nuclear nations
• U.S ramps up trade talks with India and Turkey
• ‘Twitter Trump’
• Spanish election expected to deliver a “minority” surprise April 28

Next week: JPY & GBP bank holiday, AUD retail sales and NZD (May 6), RBA & RBNZ monetary policy announcement (May 7), Fr. Bank holiday & NZD annual budget (May 8), CAD Trade balance & U.S PPI, RBA monetary policy statement (May 9), GBP GDP & CAD employment change (May 10).

Central Banks Monetary Policy decisions for May 2019

1-May USD United States Federal Reserve
2-May CZK Czech Republic Czech National Bank
2-May GBP United Kingdom Bank of England
7-May AUD Australia Reserve Bank of Australia
7-May MYR Malaysia Central Bank of Malaysia
8-May NZD New Zealand Reserve Bank of New Zealand
8-May THB Thailand Bank of Thailand
8-May BRL Brazil Central Bank of Brazil
9-May NOK Norway Norges Bank
15-May PLN Poland National Bank of Poland
16-May IDR Indonesia Bank Indonesia
16-May MXN Mexico Banco de Mexico
23-May ZAR South Africa South African Reserve Bank
28-May HUF Hungary Central Bank of Hungary
29-May CAD Canada Bank of Canada
31-May KRW South Korea Bank of Korea

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell