The week of April 29 to May 3 is crucial, with attention focused on the release of key economic data in the United States, including GDP, PCE inflation, and nonfarm payrolls, against a backdrop of escalating trade tensions with China. The Bank of Japan will keep its monetary policy unchanged, while the Eurozone and Australia will release their inflation figures. In addition, Canada will hold general elections, all in an environment of financial uncertainty fueled by Trump’s volatile tariff rhetoric.
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Key Points to Watch Out For:
- A flood of U.S. data will shed light on the U.S. economy at a time when the tariff war is escalating.
- GDP, PCE inflation, and nonfarm payrolls will be the highlights of the week.
- The Bank of Japan will hold interest rates steady and may lower its growth forecasts.
- Eurozone and Australian CPI are also on the calendar, and Canadians will head to the ballot box.
Trump’s Mixed Messages on Tariffs Fuel Market Uncertainty
Financial markets experienced a brief moment of optimism last week when U.S. President Donald Trump signaled a possible easing in the ongoing trade war with China. However, that optimism quickly faded as it became clear that the Trump administration’s concessions were less significant than initially suggested.
Trump’s erratic strategy, which relies on offering limited incentives while maintaining a tough stance, has done little to lure Beijing back to the negotiating table. The imbalance between the “carrot and the stick” has proven ineffective, especially now that China views the dispute as a matter of national pride. Contrary to Trump’s expectations, China shows no signs of capitulation.
This lack of progress poses a challenge for the White House, which has signaled its willingness to reduce the high 145% tariff within two to three weeks if an agreement is reached. However, Chinese officials say that negotiations have not even formally resumed, calling Trump’s approach into question. Meanwhile, other potential concessions, such as the removal of tariffs on U.S. car manufacturers, remain uncertain, and Trump has even threatened to impose additional tariffs on Canadian car imports.
Rather than providing clarity, this volatile approach is exacerbating uncertainty for U.S. businesses. Although the White House has acknowledged the recent market turmoil and expressed its desire to reach trade agreements, these assurances do little to alleviate immediate concerns about the U.S. economic outlook.
The Dollar and Wall Street Await Key Economic Data
This week’s economic calendar is packed with important releases that could either reinforce or alleviate recession fears. On Tuesday, April 29, the April consumer confidence index and March JOLTS job openings will provide a first glimpse. However, all eyes will be on the preliminary GDP estimate on Wednesday, April 30, as some analysts point to a possible contraction in the first quarter.
The Atlanta Fed’s GDPNow model forecasts an annualized decline of 2.2%, while a Reuters survey of analysts expects modest growth of 0.4%, well below the 2.4% recorded in the fourth quarter. Also on Wednesday, April 30, the ADP employment report and key inflation indicators, including core PCE, will be released. The core PCE index is expected to rise only 0.1% month-on-month in March, which would reduce the annual rate from 2.8% to 2.5%.
Personal consumption is expected to remain solid at 0.4% month-on-month, suggesting consumer resilience. Additional data includes the Chicago PMI and pending home sales. On Thursday, May 1, Challenger job cuts and the ISM manufacturing PMI will take center stage. The PMI is expected to fall to 47.9 in April, and markets will be closely watching the employment and price sub-indices.
The highlight of the week will be the nonfarm payrolls (NFP) report on Friday, May 2. Employment growth is expected to slow from 228,000 in March to 130,000 in April, with unemployment steady at 4.2% and average earnings rising 0.3%. A weaker-than-expected NFP, coupled with soft core PCE data, could raise hopes for a rate cut in June, although this remains unlikely in May.
For the U.S. dollar, disappointing figures would likely be negative. However, Wall Street could interpret weak data positively if it reinforces the case for monetary easing, unless recession fears prevail.
The Bank of Japan Is Expected to Hold Interest Rates Steady Amid Rising Risks
The Bank of Japan is unlikely to adjust its monetary policy at its meeting on Thursday, May 1, and will opt to monitor the economic impact of Trump’s tariff measures. Inflation rose to 3.2% year-on-year in March (core CPI), and the Bank of Japan believes that wage increases are becoming more sustainable. However, risks to growth have increased since February, when Trump imposed widespread tariffs, including on Japan’s steel and automotive sectors.
As a result, the Bank of Japan is expected to lower its growth forecasts in its quarterly report. It remains to be seen whether it will also revise its inflation forecasts. For now, policymakers seem confident that inflation will remain on track and are likely to leave the door open for future rate hikes.
If Governor Ueda signals that rate hikes remain on the table, this could support the yen, which has already benefited from safe-haven demand. Key data from Japan this week includes March industrial production, due on Wednesday, April 30, and labor market statistics, due on Friday, May 2.
The Eurozone Awaits GDP and CPI Data Amid a Slowdown
The latest April PMI surveys highlighted further weakness in the Eurozone, reflecting the impact of U.S. tariffs. With global trade tensions weighing on activity, markets may downplay the preliminary first-quarter GDP figures due on Wednesday, April 30, even if they are solid.
Persistent weak inflation and downward revisions to growth forecasts suggest that the European Central Bank is far from finished with its monetary policy easing. After cutting rates by 175 basis points, the ECB is expected to maintain its accommodative stance.
The preliminary CPI report on Friday, May 2, will be key. The headline inflation rate, which moderated to 2.2% in March, is expected to fall further to 2.0% in April. A weak CPI reading would give the ECB little reason to pause, keeping downward pressure on the euro.
However, broader movements in the euro are likely to be driven by the U.S. dollar and market reaction to developments in Trump’s trade agenda. If tensions ease, the dollar could rebound, further weighing on the euro’s recent gains.
Australian CPI Unlikely to Change RBA Expectations
Inflation data in Australia will be in focus this week, with the release of quarterly CPI figures on Wednesday, April 30. The Reserve Bank of Australia has only cut rates once during the current cycle, citing sluggish inflation.
Monthly CPI fell to 2.4% year-on-year in February, breaking a three-month streak of increases. The first-quarter figure is expected to show a further moderate decline. However, the RBA is more likely to focus on core inflation indicators. If core inflation also weakens, markets will see few obstacles to a rate cut at the next meeting in May.
Even so, the Australian dollar may not react significantly, as the rate cut in May is already fully priced in, with more expected later in the year. Australian traders will also be watching China’s manufacturing PMIs (official and Caixin) for clues on how U.S. tariffs are affecting Asia’s largest economy.
Conclusion
Canadians will vote in a general election on Monday after former central bank governor Mark Carney called early elections following Justin Trudeau’s resignation. The Liberals were trailing until Trump’s trade threats reignited public support.
Carney’s handling of the trade crisis appears to have resonated with voters, putting the Liberals ahead of the Conservatives. However, the outcome remains uncertain. The Liberals may not win a majority, and with their coalition partner, the NDP, expected to lose ground, a hung parliament could weigh on Canadian stocks and the Canadian dollar.
A Liberal majority could give the Canadian dollar a slight boost, but a surprise Conservative victory could have an even greater impact on the currency, given its promises of deeper tax cuts.
