1/ FED MEETING ON INTEREST RATES
The Fed's policy meeting comes after data showed a decline in US GDP in the first quarter of 2025 and President Donald Trump pressured the central bank to cut interest rates.
The market generally expects the world's leading central bank to keep interest rates unchanged at the meeting scheduled for Wednesday (May 7). However, the focal issue the market wants to know now is when this bank might continue its monetary policy easing cycle, and whether June will be the "live" meeting to do so.
US central bank officials will have to balance concerns about the potential for economic recession with worries about a resurgence of inflation caused by tariffs.
And they are under significant political pressure. President Donald Trump has repeatedly criticized the Fed's policy and Fed Chairman Jerome Powell, raising concerns about the independence of the US central bank, although he seems to have recently stopped threatening to try to fire the Fed chair.
2/ IMPORTANT ASIAN DATA
While uncertainty remains about progress in US-China trade negotiations, investors will monitor trade data from China, to be released on May 9.
As the first data from China released since President Donald Trump's 145% tariff on most Chinese goods took effect, this data will provide insights into the impact of high tariffs on the world's second-largest economy.
Inflation data will be released on May 10. If the trade conflict persists, China may fall into a deflationary state.
Elsewhere in Asia, Indonesia, Thailand, and the Philippines will release data on economic growth and consumer prices. The risks from US tariff increases have reduced growth prospects in the region and raised concerns about the need for further interest rate cuts.
3/ EUROPE CONCERNS ABOUT TARIFFS
Some unusual positive trends in the UK have emerged as fears of tariffs loom over much of the world, with the pound rising to a three-month high against the USD, the FTSE All-share index increasing by 10% over four weeks, and expectations of interest rate cuts.
Concerns about the impact of global trade conflicts on the UK economy, along with cheaper imports and predicted slower wage growth, have led the Bank of England (BoE) to prepare for the possibility of the economy entering deflation.
Almost all traders expect the BoE to cut borrowing costs by 0.25 points on Thursday (May 8). The market also anticipates that the Swedish central bank (Riksbank) will take similar action on the same day, which could drive the European Central Bank to cut rates for the eighth consecutive time in the meeting next June.
UK bonds are also rising in price, with the 10-year government bond yield down about 56 basis points from the peak in January, giving the debt-laden Labour government some room to combat deeper spending cuts and stronger tax increases.
4/ INTEREST RATES IN EMERGING MARKETS
For the central banks of emerging markets, the story is even more complicated as they navigate trade conflicts to minimize the impacts on inflation amid a weakening USD.
While most central banks around the world are considering when to lower interest rates further, the central bank of Brazil is on track to raise interest rates, at least for now.
The governor of the Brazilian central bank, Gabriel Galipolo, confirmed the possibility of raising interest rates at the meeting on Tuesday and Wednesday (May 6-7) as the largest economy in Latin America faces still uncertain economic prospects and inflation above target.
Poland's reference interest rate has been at 5.75% since October 2023 and they have planned for a cut in the coming months. However, lower-than-expected inflation pressure has led more policymakers in the country to signal that borrowing costs may be reduced sooner than anticipated. The Polish central bank will also meet on May 6-7.