The economic calendar for the week of May 18-22 is packed with data that could significantly impact markets. While the week is relatively light on US economic releases, there are several key events that investors should keep an eye on. The Federal Reserve's (Fed) policy decisions, global bond yields, and business surveys are all set to take center stage. Here's a closer look at what to expect and why it matters.
The Fed's Tightening Bias
One of the most anticipated events is the release of the Federal Open Market Committee (FOMC) minutes from their April meeting. The minutes will provide insight into the committee's thinking and the potential for a shift in policy. The Fed has been signaling a tightening bias, and the minutes could indicate how many other participants leaned toward either a neutral or hawkish stance. This is particularly interesting given the recent flip in Fed funds futures, which now price in a hike rather than a cut.
Personally, I think the minutes will reveal a growing consensus for a rate hike, especially with inflation running hot. The easing-bias language in the Fed's communication is likely to be short-lived, and a hawkish shift is expected in June. This could have significant implications for markets, as it would likely lead to a re-pricing of risk assets and potentially impact the housing market.
Global Bond Yields
Another critical aspect to monitor is global bond yields. Yields have surged across developed markets, with the UK 10-year gilts leading the way at 5.18%. The US 10-year yield is at 4.60%, and the 30-year yield has topped 5.10%. This is a significant shift from the low yields seen in 2021, and it raises questions about the sustainability of these higher levels.
What makes this particularly fascinating is the potential impact on global economic growth. Higher yields could lead to a slowdown in investment and consumption, especially in countries with high debt levels. This could have broader implications for the global economy, including the potential for a recession. However, it's also possible that central banks will continue to tighten policy, leading to a 'soft landing' scenario.
Business Surveys
The S&P Global flash PMIs for May will provide the first hard read on the month's economic activity. The manufacturing PMI is expected to remain strong, while the non-manufacturing PMI could slip. The NY Fed survey was very strong for May, which could indicate a resilient services sector.
From my perspective, these surveys will be crucial in assessing the health of the economy. A strong manufacturing sector could suggest that businesses are adapting to higher input costs, while a weak services sector could indicate a slowdown in consumer spending. This raises a deeper question: are we seeing a 'split recovery' where the manufacturing sector is doing well, but the services sector is struggling?
The Trump-Xi Summit
The Trump-Xi summit in Beijing produced no comprehensive tariff deal, but it did result in verbal alignment on keeping the Strait of Hormuz open and barring Iran from nuclear weapons. This is a significant development, as it could impact the dynamics in the Gulf War.
One thing that immediately stands out is the potential for a prolonged blockade of Iran's ports. This could have significant implications for global oil markets, as the Strait of Hormuz is a critical transit route. It also raises questions about the sustainability of the current geopolitical tensions in the region.
Conclusion
The week ahead is packed with data that could significantly impact markets. The Fed's policy decisions, global bond yields, and business surveys are all set to take center stage. While the week is relatively light on US economic releases, the events mentioned above could have far-reaching implications for the global economy.
If you take a step back and think about it, the key question is: how will central banks balance inflation and growth? The answer to this question will likely shape markets in the coming months and could have significant implications for the global economy.
