Central bank rate decisions take centre stage this week

In focus today, the ECB releases its survey on the access to finance of enterprises (SAFE), which provides insights into firms' selling price expectations, wage costs, and inflation expectations. The Bank of Japan is expected to maintain its overnight rates unchanged. The Middle East situation remains critical, influencing the timing of policy changes. This week, monetary policy decisions will dominate market movements. The key rate announcements include the Fed’s decision on Wednesday and the ECB’s on Thursday, where we expect both central banks to hold rates steady. Additionally, the Bank of England and Bank of Canada are scheduled to keep their policy rates unchanged. Economic data to watch includes euro area flash April inflation and Q1 GDP from both the euro area and the US, all due on Thursday. In the Middle East, hopes for peace have diminished as President Trump cancelled planned US-Iran talks in Islamabad, keeping US envoys in the US. Tehran demands the removal of the US maritime blockade before negotiations can proceed. Iranian Foreign Minister Abbas Araqchi continues diplomatic efforts with mediators in Pakistan and Oman. Oil prices rose 1.2% to USD 106.6/bbl, with only one oil products tanker entering the Gulf on Sunday, sustaining concerns over prolonged constraints. In the US, a shooting incident at the White House Correspondents' dinner targeted President Trump and his administration. The suspect was apprehended after firing at a Secret Service agent, marking the third assassination attempt on Trump since 2024. This incident reignited concerns over the security of top officials amid heightened political tensions. Republican Senator Thom Tillis announced he would allow Kevin Warsh’s nomination as the next Federal Reserve Chair to advance, following the Justice Department’s decision to close its investigation into Jerome Powell. Warsh’s confirmation is expected before Powell’s term ends on 15 May. In China, industrial profit growth accelerated in March, rising 15.8% year-over-year, the fastest pace since September. AI-related industries like semiconductors remain strong, while consumer-facing sectors struggle due to weak domestic demand. The Middle East war’s impact on economic data is yet to be fully reflected, with rising energy prices expected to increase input costs for manufacturers, potentially eroding margins or leading to higher consumer prices. In Germany, the Ifo indicator declined more than expected in April, with current conditions falling to 85.4 and expectations dropping to 83.3, the lowest since late 2023. The German government cut its 2026 GDP growth forecast to 0.5% year-over-year from 1.0%, highlighting fiscal policy as the sole expected growth driver. In Sweden, producer prices rebounded in March, rising 2% year-over-year after five months of declines, driven by a sharp 15.8% surge in energy prices. Excluding energy-related products, producer prices fell 0.5% year-over-year. Equity markets rose on Friday and over the course of last week but are now in a more divergent market environment. Until recently, markets traded broadly in risk-on or risk-off fashion based on developments around the Iran war. Last week saw strong earnings, particularly in technology, and energy outperforming due to higher oil prices. When technology and energy lead, the US benefits the most. Europe, however, continued to lag, trading roughly sideways. The S&P 500 and Nasdaq reached new all-time highs on Friday, while the Nikkei 225 is making a new all-time high this morning. The technology sector has outperformed energy by around 20% over the past month, with semiconductors rising for 18 consecutive trading days in the US. Asian markets are higher this morning, led by South Korea and Taiwan, which are up roughly 60% and 35% year-to-date, respectively. European futures are also higher this morning. Tech-heavy Nasdaq futures are trading higher, while Dow Jones futures are slightly lower. The week begins light on macro releases but will feature important data, including euro area HICP and US Q1 flash GDP, as well as data from Norway and Sweden.