WEEKLY UPDATE – Central banks and US consumers were present in the markets

LONDON, May 6 (Reuters) – The central banks of Australia, Britain and Sweden will meet next week as markets assess how much room the U.S. Federal Reserve (Fed) has to cut interest rates this year.

Overview of the market outlook in the coming days:

1/ Are you unsure about the “GOLDILOCKS” SCENARIO?

American consumers will be the center of attention this Friday with the release of the first estimate of family morale for the month of May, calculated by the University of Michigan.

This indicator will provide insight into their inflation expectations and the economic outlook, as recent persistent inflationary pressures begin to cast doubt on the story of resilient growth and falling consumer prices. This so-called “Goldilocks” scenario has supported stock markets so far.

A sign that rising prices are eroding consumer confidence could prompt the Fed to keep interest rates high, further increasing pressure on stocks and bonds.

The Fed lamented a too-slow decline in inflation at the end of its monetary policy meeting on Wednesday, while leaving the door open to rate cuts this year.

Economists polled by Reuters expect the consumer confidence index to rise to 77.9 from 77.2 in April.

2/ OUTSIDE THE US MARKET

Faced with uncertainties related to doubts about a Fed rate cut this year, investors are looking to diversify to protect themselves from turbulence in US markets.

One of Wall Street’s flagship indexes, the S&P 500, fell more than 4% in April, while Treasury bonds posted their worst monthly performance since September last month.

In this context, eyes are on Europe, especially in Britain, where London’s FTSE 100 index is considered a haven compared to the S&P 500, which is dominated by technology stocks.

The FTSE 100, rich in so-called ‘value’ sectors, i.e. undervalued, such as oil and mining, is currently close to its all-time high.

But it’s difficult to insulate a portfolio from the swings on Wall Street. Investment bank Baird estimates that the long-term correlation between the European Stoxx 600 and the S&P 500 is almost 90%. Barclays calculates that a one percentage point increase in US government bond yields typically leads to a 56 basis point increase in global interest rates.

3/ PATIENCE IN SIGHT

The Bank of England (BoE) will publish its monetary policy decision and new quarterly economic forecasts on Thursday.

While members of the Monetary Policy Committee (MPC) openly discussed the possibility of a rate cut early this year, actual data and business surveys have painted a rather mixed picture of price pressures in the UK economy, a situation similar to that in the United States. States.

More and more investors are betting that the BoE would have to wait until September before cutting its policy rate for the first time, given the lack of new data expected next Thursday.

The monthly figures for the United Kingdom’s gross domestic product (GDP) will be released on May 10.

Elsewhere in Europe, Sweden, after the Swiss National Bank (SNB), is seen as the second major country likely to start cutting rates after the Riksbank meeting on May 8, with inflation falling faster than expected.

The Norwegian central bank opted for the status quo on Friday and was able to extend its restrictive policy.

4/ AUSTRALIAN INFLATION SURPRISES

The Reserve Bank of Australia (RBA) meets on May 7 and the timing is particularly good as inflation in the first quarter was higher than expected.

No policy changes are expected, but markets will be closely watching Governor Michelle Bullock’s comments.

With inflation rising to 1% in the first quarter, compared to an expected 0.8%, markets have downgraded the likelihood that the RBA will raise rates again. However, some observers note that this revision also coincides with an unexpected decline in Australian retail sales in March.

(Writing by Rae Wee in Singapore, Ira Iosebashvili in New York, Andy Bruce in Manchester, Naomi Rovnick and Marc Jones in London; graphics by Pasit Kongkunakornkul, Kripa Jayaram, Prinz Magtulis and Marc Jones; edited by Dhara Ranasinghe; French version Claude Chendjou , edited by Blandine Hénault)