Week Ahead: Fed and POTUS go head-to-head

It should be another fascinating week for markets with the Fed meeting formally for the first time since the tumult and mayhem around President Trump’s Liberation Day. Of course, pressure on Jerome Powell to cut rates has come from on high, and it appears very likely President Trump will have something to say about the Fed’s expected on hold decision. But there doesn’t seem to be any reason to ease policy just yet, as rate setters try and square up their dual mandate of price stability and maximum employment.

It’s still too early to see damage to growth, inflation and jobs which means the Fed is likely to be ‘behind the curve’ if it waits for NFP and other backward-looking labour data to roll over. Media stories about empty shelves in US retailers while prices rise will also heap pressure on Jay Powell. And yet, stock markets are relatively buoyant, on expectations of at least three and a bit (80bps) of rate cuts this year, US-China talks to kick off in the next few weeks, plus some tax cuts thrown in too.

We remind ourselves that after all the April chaos, the S&P 500 saw the smallest monthly change in almost two years. That’s bullish and the rebound in the S&P 500 has been impressive, with Mag 7 results generally solid, as AI capex remains in play and foreign selling of US equities has burned itself out. The benchmark index is enjoying a nine-day win streak, which last occurred in late 2004. The 200-day SMA is now close at 5,746, with support at a major Fib retracement level (61.8%) of this year’s-high-to-low at 5,646.

In Brief: major data releases of the week

Monday, 5 May 2025

– US ISM Services: April non-manufacturing ISM is seen falling to 50.2 from 50.8, so close to contractionary levels. Services activity has remained in expansionary territory since July 2024. New orders and the prices components will be in focus due to uncertainty over tariffs and the economy.

Wednesday, 7 May 2025

– FOMC Meeting: The Fed will leave rates unchanged at 4.25-4.5%, with consensus expecting policymakers to stick to their “wait-and-see” stance. Pressure from President Trump to cut rates will be ignored, with Powell & Co generally more focused at present on inflation than the labour market. 

Thursday, 8 May 2025

– Bank of England Meeting: Consensus expects the MPC to cut the base rate by 25bps to 4.25%. A 9-0 vote is forecast, though Dhingra could vote for a bigger 50bps change. A move at every other meeting with a MPR appears to be the bank’s preferred bias. Sticky services inflation could mean little change to “gradual and careful” forward guidance.

Friday, 9 May 2025

– Canada Jobs: The economy is seen adding 24.5k jobs, after the -32.6k in March. That was the first decrease in more than three years as tariff uncertainty spurred layoffs. The unemployment rate is likely to remain steady at 6.7%.

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