The week of May 12–16 is shaping up to be decisive for global markets, with key U.S. data—including inflation, GDP, and nonfarm payrolls—that could redefine expectations for rate cuts by the Federal Reserve. Internationally, possible moves by the Bank of England and the Bank of Japan are expected, while employment and inflation figures in Europe, Asia, and Canada will also influence market sentiment. All of this comes amid growing trade tensions with China and key negotiations currently underway.
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Key Points to Watch Out For:
- The U.S. CPI report is taking center stage as the key indicator for assessing the impact of tariffs.
- Progress in trade negotiations, especially with China, will also be watched closely.
- U.S. retail sales and GDP figures for the U.K. and Japan are also on the calendar.]
Will April’s CPI Reflect Reciprocal Tariffs?
Despite persistent concerns about a recession, current data indicate that, in the worst-case scenario, the U.S. economy is entering a slowdown rather than a full-blown contraction. Inflation also remains contained, with declines in both the Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE) index in March. However, this moderation is unlikely to continue. Widespread reciprocal tariffs came into effect on April 9. Although tariffs exceeding the universal 10% rate were deferred for 90 days and some exemptions were granted, most imports are now more expensive—particularly those from China, which face tariffs of up to 145%.
That said, the cost increase is likely to have had a limited impact on the CPI in April. Many companies imported goods before the tariff deadline, and others are cautiously postponing price increases in anticipation that upcoming trade negotiations may lead to a reduction in tariffs. This largely depends on the Trump administration reaching agreements with its main trading partners in the near term—a prospect that remains uncertain.
Therefore, the April CPI report is not expected to show a sharp increase. The headline CPI is forecast to rise 0.3% month-on-month, which would keep the annual rate steady at 2.4%. The core CPI is also expected to rise 0.3% month-on-month, with the year-on-year figure unchanged at 2.8%.
The Federal Reserve pointed to growing risks to both inflation and unemployment at its May monetary policy meeting. Any upside surprise in the CPI report on Tuesday, May 13, could lead investors to further reduce their expectations for rate cuts in 2025.
Also Watch for Retail Sales and the UoM Survey
Given that full employment is part of the Fed’s dual mandate, inflation is only one piece of the puzzle. The central bank remains cautious—managing inflation expectations and watching for signs of economic deterioration. Any significant weakening could change its current “wait-and-see” approach, as several Fed officials have hinted.
Retail sales could provide that signal. After a revised 1.5% increase in March, retail sales are expected to have slowed to just 0.1% in April. These figures will be released on Thursday, May 15, along with producer prices, industrial production, and the Philadelphia Fed manufacturing index. More data will be released on Friday, May 16, including building permits, housing starts, the Empire State manufacturing index, and the preliminary University of Michigan consumer confidence survey.
The UoM survey could be particularly influential, as its inflation expectations have risen recently—potentially reinforcing the Fed’s cautious tone.
Markets Closely Watching U.S.–China Trade Negotiations
As investors parse every piece of data for clues, trade-related headlines may carry even more weight. U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will meet with Chinese officials in Switzerland on Saturday—the first high-level meeting since tensions escalated in February.
Although markets are optimistic about the resumption of talks, significant differences remain between Washington and Beijing. Any disappointment in the negotiations could reverse the recent momentum in risk appetite at the start of the week.
The Pound Remains Resilient After the U.S.–U.K. Trade Deal
The pound could prove more resilient in a global sell-off after the U.S. and U.K. reached a preliminary trade deal that reduces tariffs on cars and steel from 25% to the standard 10%. Although the U.K. has not secured any major concessions, the agreement follows progress with India and improved relations with the EU.
The pound remains above $1.32 but lacks momentum to break above $1.34. In the absence of a global risk rally, upcoming U.K. economic data may not be enough to fuel further gains.
March employment figures will be released on Tuesday, May 13, and the Bank of England will be closely watching wage growth, which remains stubbornly high. The BoE does not expect to reach its 2% inflation target until 2027 but is maintaining its dovish stance due to concerns about growth. First-quarter GDP data, due out on Thursday, will provide further insight.
The Euro Struggles Amid Stalled Trade Negotiations
In the eurozone, it will be a relatively quiet week for data. However, attention will be focused on trade negotiations between the U.S. and the EU. According to reports, the EU is considering retaliatory tariffs worth up to €95 billion on U.S. products if negotiations fail. Any progress could support the euro, which has been consolidating recent gains driven by the trade war.
Germany’s ZEW confidence index on Tuesday, May 13, and eurozone employment figures and revised first-quarter GDP on Thursday, May 15, will be the most important data releases.
Japanese GDP Could Undermine the Bank of Japan’s Tightening Prospects
The Japanese economy is likely to have contracted by 0.1% in the first quarter, according to GDP figures due on Friday, May 16—highlighting the fragility of the recovery even before U.S. tariffs came into effect. This weak performance is one of the reasons why the Bank of Japan has been less optimistic about further rate hikes.
However, persistent food inflation remains a concern. Better-than-expected GDP data could reignite expectations of further tightening, which would support the yen.
The Bank of Japan’s summary of opinions on its latest monetary policy meeting, published on Monday, May 12, could provide clues about policymakers’ commitment to normalization.
Conclusion
Data on first-quarter wage growth in Australia (Wednesday, May 14) and April employment figures (Thursday, May 15) will be closely watched. Markets currently price in a 90% chance that the Reserve Bank of Australia will cut rates at its next meeting in May—which would mark the second cut in this cycle.
While this data is unlikely to significantly alter that outlook, any major surprises could shift sentiment and influence the Australian dollar. However, early in the week, attention will remain focused on U.S.–China trade negotiations and Chinese inflation data (CPI and PPI), due on Saturday, May 17.
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