Week of 20 april

A relatively light economic calendar left the market moving mostly on Middle East headlines, overshadowing a positive UK GDP reading. Brent jumped to $103 per barrel after peace negotiations failed over the weekend, then slipped as low as $94 amid signs of progress in the conflict. However, it is set to end the week around $98 as the Strait of Hormuz remains effectively shut.

Another quiet economic calendar in the week ahead will give the market room to react to developments in the Persian Gulf and an intensifying earnings season. Among expected events are flash PMIs from key economies and inflation figures from the UK and Japan.

Week in Review

Markets started the week disappointed but cautiously optimistic after talks between the US and Iran failed to reach a deal to end the conflict. However, as the ceasefire remained in place, the risk-off move was fairly mild, with gold dipping below $4,700 an ounce at the start of the week and global equities in the red. However, the situation reversed around mid-week after US President Donald Trump confirmed that the parties would resume talks.

US forces maintained a blockade of Iranian ports, and some ships were able to transit the Strait of Hormuz. However, less than a handful of crude shipments traversed the waterway, meaning it remains effectively shut. IEA Executive Director Fatih Birol warned that it could take up to two years to return to pre-war production levels, amid reports that there were as few as six weeks of jet fuel supplies in Europe. Gold prices almost touched $4,900 before retreating later in the week amid improving optimism, and remain just above $4,800 ahead of the weekend.

ECB President Christine Lagarde said it would be a mistake to look through the energy shock, adding that the central bank is ready to act if it has the data. Futures markets price in at least one rate hike later this year.

On the data front, US PPI prices were well below expectations in March, rising just 0.5% versus 1.1%. The report showed that inflationary pressure from energy was lower than anticipated, and tariff pressures were beginning to fade. However, markets are still pricing in a 70% chance that the Fed will stay on hold for the rest of the year. UK February GDP came in much stronger than expected, with rolling three-month growth jumping to 0.5% from 0.1%, giving the British economy more room to absorb the effects of the war in the Middle East. Markets are now pricing in one BOE rate hike in June.

Biggest Market Movers

• The S&P 500 rose to a record high this week, erasing all losses from the war amid optimism ahead of the Q1 earnings season.
• Nasdaq is the top-performing stock index this week, as TSMC's earnings affirm market optimism that AI will continue to power growth.
• The greenback retreated through the week amid easing risk aversion and solid corporate earnings.
• AUD was the strongest performer among the majors after jobs met expectations, while the nation struggled to secure refined fuel supplies, raising inflation worries.
• JPY was among the underperforming currencies after reports that the BOJ is split over how to respond to the situation in the Middle East.

Top Events in the Week Ahead

Talks between the US and Iran, which may last through the weekend, will likely be the focus again. After the ceasefire has held for almost two weeks, there is doubt about whether it will be extended before the Wednesday deadline. There is a high risk of brinkmanship ahead of and during the negotiations, which could spook the markets. Traders will have to contend with a flood of corporate earnings while the Fed enters its pre-rate-decision blackout ahead of its April meeting. The main theme in the data is likely to be inflation, as markets try to gauge whether central banks will have to raise rates or can "look through" the pricing pressures from the war.

Global Flash PMIs and War Effect

Traders will be keen to see Thursday's release of flash April PMI figures from select countries, following the March reading, which fell to the lowest level in nearly a year amid concerns about energy supplies. After equities recovered in early April, the question is whether optimism has returned to business or if the economy will be depressed for a second month in a row. The pricing component of the index will also provide additional insight into how much of the energy supply crisis is driving inflationary pressures. With the S&P 500 at record highs, traders will keep an eye on whether the prior highs at 7020 hold firm.

UK Inflation and BOE Outlook

The UK's March CPI reading will shape expectations for the BOE's upcoming meeting. After February, CPI remained steady while the economy grew, and markets will look to factor in the war's impact and the likelihood that the BOE will hold off on raising rates to prevent inflation from rising too quickly. The consensus is that the headline UK CPI will rise to 3.4% from 3.0% previously. However, the core rate is anticipated to slip to 2.8% from 3.2% a month earlier, which could keep hopes alive that the BOE will hold steady. Earlier in the week, on Tuesday, the UK March unemployment rate is expected to rise to 5.3% from 5.2% in February, affirming the dove's case that slack is continuing to grow in the labour market. As the FTSE 100 moves away from record highs, traders will want to see where the corrective leg might find a local bottom, with a focus on 10500 for now.

Japan Inflation Remains Depressed

Friday's release of Japanese March CPI could be a headache for the BOJ, which is trying to shore up a weak yen. Despite the rise in energy prices, headline inflation is anticipated to rise to just 1.5% from 1.3% prior. The core rate is a little better, expected at 1.8%, up from 1.6% in February. But it is still below the BOJ's 2.0% target and could complicate further rate hikes and weaken the currency. The weakening of the yen could be suggesting a rise past 160.00 unless price action leads USDJPY towards 158.00.

Other Events and Earnings

Monday has the China Loan prime rate and the Canadian CPI. Tuesday sees Japan's trade balance. Australia's Westpac Leading Index is released on Wednesday. Thursday includes Canadian PPI. For Friday, UK retail sales are expected.

Earnings season gets firmly underway this week, with a multitude of major names reporting, including GE Aerospace, UnitedHealth, RTX, Tesla, Philip Morris, Texas Instruments, Intel, American Express, NexEra Energy, Procter & Gamble, Associated British Foods, Reckitt Benckiser, and Sainsbury's.