The dollar was mostly firmer against the majors last week. NOK, GPB, and JPY outperformed while CAD, NZD, and SEK underperformed. The dollar mounted a recovery on the back of solid data and a hawkish Fed, as well as increased optimism regarding the trade war. Those themes will be tested this week with the release of key inflation and retail sales data, as well as potential disappointment regarding a U.S.-China trade deal after a weekend of positive comments.

AMERICAS

The U.S. and China both saw “substantial progress” in weekend trade talks. Of note, China Vice Premier He called the talks “an important first step” toward resolving their differences. Neither side would discuss specifics, but Vice Premier He said they had agreed to create a mechanism for further talks. Treasury Secretary Bessent said the U.S. would share further details on Monday while Vice Premier He promised a joint statement. While we remain skeptical that anything of substance could be agreed upon after only two days of talks, it’s clear that both sides are looking to de-escalate the situation. Stay tuned.

Market expectations have adjusted to last week’s hold by the Fed. The odds of a June cut have fallen below 20%, rising to around 70% in July and fully priced in for September. Looking ahead, the swaps market is pricing in around 75 bp of total easing over the next 12 month, down from 125 priced in last week. There are plenty of Fed speakers this week. Kugler speaks Monday. Waller, Jefferson, and Daly speak Wednesday. Powell and Barr speak Thursday. All are expected to mirror Powell’s wait and see stance.

Inflation data come into focus. April CPI will be reported Tuesday. Headline is expected to remain steady at 2.4% y/y while core is expected to remain steady at 2.8%. The Cleveland Fed’s Nowcasting model has headline at 2.3% and core at 2.8%. Looking ahead to May, that model has headline at 2.4% and core at 2.8%. Keep an eye on super core (core services less housing), a key measure of underlying inflation. In March, super core inflation fell to four-year low of 2.9% y/y vs. 3.8% in February. Higher tariffs can ultimately derail the disinflationary process.

PPI will be reported Thursday. Headline is expected to fall two ticks to 2.5% y/y, while core is expected to fall two ticks to 3.1% y/y. Keep an eye on PPI ex-trade, transportation, and warehousing, as it feeds into the PCE calculations. In March, this measure came in at 4.0% y/y and was the lowest since November 2023.

April retail sales data Thursday will also be important. Headline is expected at 0.1% m/m vs. 1.5% in March, while ex-autos is expected at 0.3% m/m vs. 0.6% in March. The so-called control group used for GDP calculations is expected at 0.3% m/m vs. 0.4% in March.

The Q2 growth outlook is solid. The Atlanta Fed GDPNow model has Q2 growth at 2.3% SAAR now and is nearly back at the initial estimate of 2.4%. It will be updated Thursday after the data. Elsewhere, the New York Fed Nowcast model has Q2 at 2.4% SAAR and will be updated Friday, while its initial Q3 estimate will come at the end of May.

University of Michigan reports preliminary May consumer sentiment Friday. Headline is expected at 53.3 vs. 52.2 in April. The sentiment data no longer appear to be a reliable indicator of future spending behavior. Instead, attention will be on inflation expectations as last month’s data indicated they’re becoming unanchored. In March, 1-year inflation expectations soared to 6.5%, the highest since November 1981, while inflation expectations 5 to 10 years out surged to 4.4%, the highest since June 1991.

March TIC data will also be reported Friday. Concerns about capital outflows from the U.S. picked up after the reciprocal tariff announcement but this March data is too early to reflect this. Net foreign purchases of long-term US securities increased by $142 bln in February. Private foreign investors continue to lead the charge with a net increase of $125.8 bln in US Treasury bonds and notes in February. Private foreign investors have more than offset foreign central banks’ net selling of longer-term US Treasury bonds and notes. Of note, Japan officials have downplayed the notion of using its UST holdings as a bargaining chip in trade talks with the U.S.

EUROPE/MIDDLE EAST/AFRICA

European Central Bank expectations have fallen. A cut at the next meeting June 5 is nearly priced in. However, the swaps market is pricing in about 50 bp of total easing over the next 12 months that would see the policy rate bottom near 1.75%. There are plenty of ECB speakers this week. Escriva, Makhlouf, and Knot speak Tuesday. Nagel and Holzmann speak Wednesday. Cipollone (twice), Elderson, Guindos, and Villeroy speak Thursday. Lane speaks Friday.
Germany reports May ZEW survey Tuesday. Expectations are expected at 10.0 vs. -14.0 in April, while current situation is expected at -76.9 vs. -81.2 in April. German readings have improved in recent weeks but it remains to be seen whether this can be sustained.

U.K. highlight will be GDP data Thursday. Consensus sees 0.6% q/q vs. 0.1% in Q4. Risks are skewed to the upside as the composite PMI improved to a full point to 51.5 in March before falling back into contraction territory in April. However, the data will not yet the capture the drag to UK growth from the impact of higher US tariffs announced in April. Private consumption is expected at 0.5% q/q vs. 0.1% in Q4, while government spending is expected at 0.5% q/q vs. 0.5% in Q4.

Labor market data Tuesday will also be important. Unemployment is expected to rise a tick to 4.5% in the three-month period ending in March. Weekly earnings ex-bonuses are expected at 5.6% y/y vs. 5.9% previously, while private earning ex-bonuses are expected at 5.7% y/y vs. 5.9% previously. For reference, the Bank of England (BOE) projects private sector regular pay of 5.8% y/y in March and an unemployment rate of 4.6% in Q2. Overall, labor market slack is rising. The vacancies to unemployment ratio is below the BOE’s estimated equilibrium level and net additional desired hours have increased.

Bank of England expectations are steady after last week’s 25 bp cut. The three-way vote split suggests back-to-back rate cuts are unlikely. Indeed, the BOE reiterated its guidance for “a gradual and careful approach” to further rate cuts. Odds of a 25 bp cut in June are around 20%, while the swaps market implies 75 bp of total easing over the next 12 months. MPC members Lombardelli, Greene, Mann, and Taylor speak Monday. Chief Economist Pill and Governor Bailey speak Tuesday. MPC members Breeden speaks Wednesday, Dhingra speaks Thursday, and Lombardelli speaks Friday.

The Riksbank publishes the minutes of last week’s meeting Wednesday. At that meeting, the Riksbank kept rates steady at 2.25%, as expected. However, it was a dovish hold as the bank warned that more easing may be in the pipeline after signaling in March that it was done easing. Specifically, the Riksbank stressed that “it is somewhat more probable that inflation will be lower than that it will be higher than in the March forecast. This could suggest a slight easing of monetary policy going forward.” The swaps market agrees and is pricing in nearly 50 bp of further easing over the next 12 months. Updated macro forecasts will come at the June meeting.

Norway reports Q1 GDP Thursday. Mainland GDP is expected at 0.7% q/q vs. -0.4% in Q4 and would be consistent with the growth outlook improvement in the Norges Bank’s Regional Network contacts survey. At its May 8 policy meeting, the Norges Bank kept the policy rate steady at 4.50% and pointed out that “the Committee’s current assessment of the outlook implies that the policy rate will most likely be reduced in the course of 2025.” The Norges Bank March Monetary Policy Report implies 50 bp of easing by year-end to 4.0%, which is roughly in line with swaps market pricing.

ASIA

Bank of Japan publishes its summary of opinions for its latest meeting Tuesday. At that April 30-May 1 meeting, the bank delivered a dovish hold. The decision was unanimous and the BOJ reiterated its guidance that it will continue to raise the policy rate if the outlook for economic activity and prices will be realized. However, the bank warned that risks to the economic and inflation outlooks are skewed to the downside. It slashed its growth forecasts for FY25 and FY26 due to the impact of trade and other policies. The BOJ also trimmed its core inflation forecasts for FY25 and FY26, mainly due to the decline in crude oil prices and weaker expected GDP growth. The BOJ is still seen on hold through 2025. Looking ahead, the swaps market is pricing in only 25 bp of tightening over the next two years.

Japan highlight will be Q1 GDP data Friday. Consensus sees -0.1% q/q vs. 0.6% in Q4. Private consumption is expected at 0.1% q/q vs. 0.0% in Q4, while business spending is expected at 0.5% q/q vs. 0.6% in Q4. Of note, inventories are expected to add 0.2 ppt to growth vs. -0.3 ppt in Q4, while net exports are expected to subtract -0.5 ppt from growth vs. 0.7 ppt in Q4. The BOJ downgraded its fiscal 2025 growth outlook to 0.5% from 1.1% reflecting trade-related uncertainties.

March current account data will be reported Monday. An adjusted surplus of JPY2.465 trln is expected vs. JPY2.317 trln in February. However, the investment flows will be of more interest. The February data showed that Japan investors remained net buyers of U.S. bonds (JPY1.467 trln) for the fourth straight month. Japan investors stayed net sellers of both Australian bonds (-JPY92 bln) and Canadian bonds (-JPY165 bln) for the second straight month. Investors stayed net buyers of Italian bonds (JPY426 bln) for the second straight month. Overall, Japan investors stayed total net buyers of foreign bonds (JPY3.1 trln) for the second straight month. It’s still too early to say that Japan investors have stopped chasing higher yields abroad.

Australia highlight will be April jobs data Thursday. Consensus sees 20.0k jobs added, vs. 32.2k in March, while the unemployment rate is expected to remain steady at 4.1%.

Australia reports Q1 wage price index Tuesday. Wage growth is expected at 3.2% y/y vs. 3.2% in Q4. Wages growth has passed its peak and projected to slow further. The RBA liaison contacts expect wages growth to continue to moderate over the year ahead but remain above its long-run average.

New Zealand highlight will be Q2 inflation expectations Thursday. Firms’ inflation expectations are near the 2% mid-point across all time horizons leaving plenty of room for the RBNZ to deliver more easing. At its April 8 meeting, the RBNZ cut rates 25 bp to 3.50% and noted it “has scope to lower the OCR further as appropriate.” The swaps market is pricing in 75 bp of rate cuts in the next six months that would see the policy rate bottom around 2.75%.