Investors are gearing up for the release of closely watched inflation numbers in the U.S. this week, as they try to assess whether the Federal Reserve will pause its rate hikes next month. Meanwhile, the Bank of England is expected to hike rates again, China is set to release more economic data, and oil prices continue to struggle.
Inflation Numbers in the U.S.
On Wednesday, the U.S. will release April inflation data, and economists are expecting the core consumer price index to increase by 5.5% on a year-over-year basis, excluding volatile food and fuel prices. This is slightly lower than the 5.6% increase seen in March. However, the headline rate of inflation is expected to increase by 5% annually, indicating that price pressures are still present.
The Federal Reserve recently delivered its tenth straight interest rate increase, but it hinted that it may pause its aggressive tightening campaign at the next meeting in June. If inflation numbers turn out weaker than expected, this could bolster expectations for a Fed rate cut later this year. Conversely, an above-forecast print would support the case for the Fed to keep rates higher for longer.
Other economic data to watch out for this week includes the producer price index on Thursday, along with weekly initial jobless claims numbers. Friday’s employment report for April showed that jobs growth and wage gains remain strong, mitigating fears over the possibility of a recession.
Sell in May?
The old adage “Sell in May and go away” suggests that May is the perfect time to take profits on equities and stay out of the stock market until after the summer. However, this pattern seems to be fading over time.
According to Reuters calculations, over the last 50 years, the S&P 500 has gained an average of 4.8% between November and April, and just 1.2% between May and October. But over the last 20 years, the outperformance of November-April over May-October has narrowed to 1%. Over the last 10 years, November-April has even underperformed May-October by 1 percentage point, and over the last five years, it’s underperformed by 3 percentage points.
Bank of England
On Thursday the Bank of England is expected to raise interest rates by another 25 basis points as it continues to battle against inflation. Inflation in the UK is currently running at 10.1%, higher than in the Eurozone, driven up by food costs and labor shortages linked to Brexit.
The combination of high inflation and a tight labor market are fueling expectations for further rate hikes this year, and the Bank’s updated projections for growth and inflation will be closely monitored. The day after the BOE decision, the UK is set to release data on first-quarter GDP, which is expected to show weak growth.
Oil Price Slide
Oil prices rebounded slightly on Friday but posted their third consecutive weekly decline amid persistent concerns over the demand outlook. Benchmark Brent ended the week down around 5%, while crude oil dropped 7%, even after the rebound on Friday. Both benchmarks were down for three weeks in a row for the first time since November.
The selling frenzy over the past week has been driven by worries about demand linked to recession risks and the strain in the US banking sector. However, analysts believe that oil demand concerns are overblown, and they expect a price correction upward in the coming weeks.
China Data
A string of economic data out of China this week will offer further insight into the uneven post-COVID recovery in the world’s second-largest economy. April trade data is due out on Tuesday and is expected to show that exports have slowed after a surge higher in
