Relatively calm week in terms of economic calendar ahead of us. The Bank of England will decide on further monetary policy actions and the newest inflation data will become available in the US. Meanwhile, earnings season continues to deliver important updates about the first quarter of the year.
Wednesday 10.05. 12:30 GMT, U.S. Consumer Price Index and U.S. Core Consumer Price Index YoY (April)
The CPI index is an important economic indicator that measures changes in the prices of consumer goods and services. It includes various types of products, such as food, fuel, transportation services, cosmetics, household goods, clothing, and many others. The purpose of the CPI index is to measure the increase or decrease in the cost of living for consumers. This means that as the CPI index rises, consumers' purchasing costs increase, which in turn affects the purchasing power of their money. The CPI index is used to monitor inflation, or the overall rise in prices in the economy. It allows us to assess whether prices are rising too fast or too slowly, and to determine what economic policy measures should be taken to offset the negative effects of inflation. The results of the CPI index are published regularly, enabling consumers, businesses, and governments alike to make informed decisions on spending, investment, or fiscal policy.
An important difference between the CPI and Core CPI is that the latter measures the level of price change excluding food and energy. Their presence or absence in the basket may make a considerable difference in the outcome. Generally, central banks prefer Core CPI as a measure of inflation because food and energy prices tend to be more volatile.
The previous reading of this indicator was 5%, which was slightly below forecasts of 5.2% at the time. The latest forecast is also 5.2%. There has been an intense downward trend for this indicator for less than a year. In the case of Core CPI, the trend is no longer so steeply downward. It is much more moderate and has an upward deviation. The previous reading, its forecast, and the forecast for next time are 5.6% meaning that Core CPI has now exceeded the headline CPI.
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Source: investing.com, graph: author
On the one hand, if the reading is higher than expected, it means that inflation is higher, which favors a fall in the value of the US Dollar. Still, it is also a stimulus for the Fed to raise interest rates and reduce the money supply causing an increase in the value of the US Dollar. On the other hand, if the reading is lower than expected, it means lower inflation, but it may give the FED an argument to stop its policy of raising interest rates.
Impact: USD
Thursday 11.05. 11:00 GMT, U.K. Interest Rate Decision
The BOE's main goal is to maintain price stability and achieve its 2% inflation target. To this end, the bank monitors inflation, and a number of macroeconomic indicators, such as industrial production and unemployment. The decision on interest rates is made by the Monetary Policy Committee every month. The committee's vote is secret, and the result of the decision is published after the meeting. Traders in the financial markets watch interest rate decisions closely because changes in rates affect the value of a country's currency. Generally, when interest rates rise, the currency gains in value, and when interest rates fall, its value may decrease. Interest rates also affect the economy. High interest rates may counter inflation, but at the expense of limiting GDP growth. Low interest rates could encourage borrowing and investment, which could contribute to GDP growth, but at the same time may increase the risk of inflation. The impact of interest rates on the economy and the value of the currency makes them one of the most important tools of monetary policy.
At the end of 2021, the trend of sharply raising interest rates began after they had been kept very low in previous years. The previous time it was raised to 4.25%, and this was in line with the forecast. The current forecast is 4.5% implying a 25-basis point increase.
Tradingeconomics.com
A higher-than-expected rate may be bullish for the GBP and bearish for the stock market, while a lower-than-expected rate may be bearish for the GBP and bullish for the stock market.
Impact: GBP, FTSE100
Friday 12.05. 06:00 GMT, U.K. Gross Domestic Product (GDP) YoY
Gross domestic product (GDP) is an indicator that measures the value of all goods and services produced in a country over a specified period of time, in this case – the first quarter of 2023. GDP is the most important measure of a country's economic activity and is a basic indicator of economic health. GDP considers all types of production, that is, both goods and services, that are produced in a country. This reading measures the change in GDP from one year ago indicating whether a country's economy is growing or slowing down. GDP is also often used to compare the economies of different countries.
The previous reading of GDP calculated in this way was 0.6%, which was above expectations according to which 0.4% was expected. Currently, 0.4% is also forecast.
Source: FXStreet
A higher-than-expected GDP growth may be bullish for the GBP while a lower-than-expected GDP growth may be bearish for the GBP.
Impact: GBP
Stocks to watch
Berkshire Hathaway B (BRKb) announcing its earnings results for the quarter ending on 03/2023. Forecast: 3.64. Positive earnings surprise in 5 out of the last 10 reports. Time: Monday, May 8.
PayPal Holdings Inc (PYPL) announcing its earnings results for the quarter ending on 03/2023. Forecast: 1.1. Positive earnings surprise in 7 out of the last 10 reports. Time: Monday, May 8, after the market closes.
Airbnb (ABNB) announcing its earnings results for the quarter ending on 03/2023. Forecast: 0.1798. Positive earnings surprise in 7 out of the last 10 reports. Time: Tuesday, May 9, after the market closes.
Walt Disney (DIS) announcing its earnings results for the quarter ending on 03/2023. Forecast: 0.9482. Positive earnings surprise in 7 out of the last 10 reports. Time: Wednesday, May 10, after the market closes.
Santa Zvaigzne-Sproge, CFA, Head of Investment Advice Department at Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and educational purposes. The personal opinion of the author does not represent and should not be constructed as a statement, or investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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