Fundamental Comment

Economic Week: Trade Talks, US Inflation Data Under Scrutiny

Economic Week: Trade Talks, US inflation

The most prominent economic events this week are the continuation of trade talks between the United States and China in Washington as well as the release of US inflation data and gross domestic product in Britain.

In addition, some of the economic reports issued by China which include service, trade balance and the producer prices inflation gauge may be very carefully watched by investors.

Dollar Retreats Ahead of Trade Talks

The dollar rose at the end of last week after reports indicating that the latest round of US-China trade talks in Beijing may have reached a deadlock.

Chinese Vice Premier Liu Hu will visit Washington for another round of trade talks this week, which some analysts believe could be the last and most decisive round.

It should be noted that in the event of a trade agreement between the two sides, this will adversely affect the dollar since it is still classified as a safe haven by investors in the financial markets.

On the economic data front, the U.S. consumer price index may show a 0.4 percent rise in April and an acceleration to 2.1 percent from 1.9 percent (YoY), according to median forecasts.

The Federal Reserve kept interest rates steady last week amidst the low U.S. inflation, and Fed Chair Jerome Powell said: "We will watch inflation carefully to see that this is transitory."

Euro to Follow the General Market Sentiment

This week, the euro will likely be subject to the general market sentiment due to the absence of significant economic data from the euro area.

Perhaps most notable data this week will be the eurozone Composite Manufacturing and Services PMI, which may show a slight drop in growth in April to 51.3 from 51.6 in March.

The European Commission will also publish its latest economic forecasts for the eurozone on May 7, which could include a cut in growth outlook in light of the global slowdown and Brexit uncertainty.  

Pound Eases From 4-week High Ahead of GDP Data

For the pound, the most important economic data that may affect its movements this week is the UK's preliminary GDP for the first quarter, as well as any developments related to Brexit.

The UK economy will post a growth rate of 0.4 percent in the first quarter of this year after expanding by 0.2 percent in the fourth quarter last year, according to market expectations for the high-relevance report.

The UK will also release important economic indicators including industrial production, trade balance and monthly gross domestic product for March.

Gold and Oil Seek Direction

Gold fell last week after US Federal Reserve Chairman Jerome Powell downplayed short-term interest rate cuts.

The direction of the yellow metal this week will largely depend on the movements of the US dollar according to this week’s trading talks, as well as the ability of the metal to rise again towards the resistance level at $1,275 an ounce.

Oil prices fell for the second week in a row last week as rising US oil production compensated for a fall in production in Iran and Venezuela, which have been sanctioned by the United States.

US crude oil production reached a record high of 12.3 million barrels per day (bpd) in the week ended April 26, up 2 million bpd last year.

Brent crude prices are highly predicted to continue the downside correction after hitting its highest level in six months in the last week of April.

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