It's that time of the week again for the Federal Reserve's interest rate meeting, and Powell is going to come out and 'teach' again. How will the market move this week? Let's discuss from three aspects.
1. Last week's economic data: temporarily no need to panic about recession.
First, let's talk about last week's 'report card': although the US GDP in the first quarter showed negative growth, it was mainly because everyone stocked up on too many imports in advance. Removing this factor, consumption was actually quite strong, and there were no significant reductions in purchases, which temporarily alleviated worries about an 'economic collapse.'
Looking at the non-farm payroll data, the number of new jobs in April exceeded expectations. Although part of this was due to logistics positions increasing because of tariffs, removing this 'inflation', the real job growth still surpassed expectations.
The most critical point is that several major tech giants' earnings reports were stable. Microsoft, Meta, and Google continue to show strong profitability, and capital expenditures are still increasing, which has completely alleviated investors' concerns about 'earnings report disasters'.
However, don't be too optimistic; April was just the first month of the 10% baseline tax rate and some industry tariffs coming into effect. The subsequent impact will need to be observed gradually, much like taking a pill—any side effects of the medication still need to be monitored.
3. Market trends: cautious in the short term, waiting for two major signals.
Last week, US stocks and Bitcoin performed well, with US stocks returning to early April highs, and Bitcoin touching 97,000. But this week there are two 'bombshells':
1. Federal Reserve interest rate meeting: will Powell lean 'hawkish'?
It is highly likely that interest rates will remain unchanged in May, after all, last week's data was pretty good, giving the Federal Reserve reason to continue observing. However, Powell's speech may lean 'neutral to hawkish', which basically means 'although we are not changing interest rates now, don't expect me to cut rates soon, inflation still needs to be monitored.'
As mentioned before, major market fluctuations primarily depend on policies. If there are no major movements on tariffs from Trump’s side, even if Powell wants to act, it won't matter; now that Trump is making some moves on tariffs, Powell is more likely to 'hold steady' in the short term.
2. Tariff negotiations: don't be scared by 'the wolf is coming'.
This week, the Canadian Prime Minister is visiting the US, and there will be phone calls between Australia and Trump, all related to tariff negotiations. However, the breakdown of talks between Japan and the US and Trump's threat to impose a 100% tariff on imported films has caused some market panic.
Last week's positive economic data provided short-term confidence to the market, but the lack of progress in tariff negotiations diminished the upward momentum. The fact that the cryptocurrency market didn't rally on Friday night is a signal. In the short term, Bitcoin may be weaker than US stocks, as US stocks have tech earnings supporting them, while the crypto market is more sensitive to policy changes.
Potential good news: waiting for the first 'clearing' agreement.
If the first concrete trade agreement can be announced this week (for example, a consensus between India and the US), the market will definitely be boosted. But if the situation continues to be 'talk without resolution', worry will keep resurfacing.
To put it simply, the market is currently like sitting on a seesaw: one side has economic data temporarily stable, while the other side has significant uncertainty in tariff negotiations.
Investors might as well take a laid-back approach, focusing on the 'hawkish degree' of Powell's speech and whether there are any developments in the tariff agreement, and not be swayed by short-term fluctuations—after all, in the cryptocurrency and stock markets, patience is more important than quick reactions.