This week, global financial markets underwent dramatic shifts, as further weakening in the Fed's employment data bolstered confidence in a rate cut prospect, pushing U.S. stocks close to historical highs again. Meanwhile, European stocks reached new historical highs stimulated by corporate earnings and expectations of the European Central Bank starting rate cuts in June. Gold surged strongly in the latter half of the week, while oil prices declined due to expectations of prolonged high U.S. interest rates and a strengthening dollar.

Looking at market performance, last week saw comprehensive gains across the three major U.S. stock indices, with the Dow Jones rising for eight consecutive trading days. European stocks reached new historical highs, the U.S. dollar rebounded strongly to close above 105.20, halting its continuous decline. Gold surged on Thursday and Friday, briefly reaching $2375, marking a near $60 increase for the week. International crude oil prices fluctuated and closed the week roughly even.

Last week, primary data from Europe and the U.S. was scarce, but the market excitement over Fed rate cut expectations was not over, fueled by the rise in initial jobless claims on Thursday, echoing the previous week's decline in non-farm payrolls. In Europe, boosted by corporate earnings and expectations of the ECB bond rate cut starting in June, European stocks reached new historical highs.

After a period of sharp rebounds, more indications suggest that the U.S. labor market may begin to soften, with economic data showing that the U.S. economy is in a dire state, posing a challenge to the Fed's policy outlook.

Fed Chair Powell stated after the April 30-May 1 meeting that policymakers might keep interest rates high for a while. He also mentioned that he does not see signs of "stagflation" in terms of economic growth or inflation. The Fed's cautious approach does not align with several European central banks that have already begun easing monetary policies.

Last week was a busy one for foreign central banks. The Swedish central bank started a rate-cutting cycle, the first easing policy in eight years. Previously in March, the Swiss National Bank decided on its first rate cut. The Bank of England, the Reserve Bank of Australia, and the Bank of Mexico all kept policy rates stable, with the Bank of England providing a dovish outlook, in stark contrast to the hawkish outlooks of Australia and Mexico. The Central Bank of Brazil slowed its monetary easing pace, cutting the Selic rate by 25 basis points to 10.50%. ECB meeting minutes from April indicate that inflation in the Eurozone is expected to fall to 2% next year, leading to a possible rate cut in June.

Early last week, several Fed officials downplayed rate cut expectations under the influence of hawkish threats, which dominated early week market sentiments. The high interest rates theme led to the dollar strengthening for three consecutive trading days, breaking above the 105.74 level.

The Japanese yen fell for three consecutive trading days at the beginning of the week, touching 155.95. The yen had risen over 3% the previous week, with market participants noting that Japan might intervene again due to the rapid fall of the yen. Last Friday, Japan's Finance Minister Suzuki Shunichi reiterated Tokyo's recent warnings, stating readiness to act against disorderly exchange rate fluctuations.

Gold briefly fell near the $2300 support but changed course on Thursday after U.S. initial jobless claims reinforced Fed rate cut expectations, pausing the dollar's rally. Spot gold plummeted near the $2300 support last Wednesday. Gold rebounded, reaching a peak of $2375, recording the best weekly performance in five weeks.

WTI crude spot rose 0.10% last week, closing at $77.71 per barrel, while Brent crude fell 0.21%, closing at $82.35 per barrel. This was due to Fed officials indicating that interest rates would remain high for an extended period, potentially suppressing demand in the world's largest oil consumer.

The S&P 500 hovered around 5220 points, rising for the third consecutive week, marking the most recent gain since February. The Dow Jones Industrial Average rose for the eighth consecutive trading day. Major U.S. stock indices continued to rise this week. The S&P 500 was up 1.85%, the Nasdaq rose 1.14%, the Nasdaq 100 increased by 1.51%, and the Russell 2000 rose by 1.18%, all continuing to rise for three weeks. The Dow rose 2.16%, marking the largest weekly gain since December 15, 2023.

Bitcoin rebounded to $63,000 before last weekend as the unexpected rise in U.S. initial jobless claims spurred bets on a Fed rate cut. The market has confirmed plans to open Bitcoin spot ETFs to mainland Chinese investors through the Hong Kong Stock Connect, as the U.S. November elections kick off, celebrating a rare shift by President Trump to support Bitcoin.

Outlook for This Week

This week, investors will focus on U.S. CPI inflation data. Following a dovish decision by the Bank of England, GBP traders will pay attention to this week’s UK employment data, while the performance of the Australian job market will indicate whether the Reserve Bank of Australia might hike rates next. Moreover, as the second quarter approaches, more data from China will be released.

In the U.S., the Federal Reserve appears not as hawkish as expected. Chairman Powell ruled out a rate hike last week and hinted at a preference for cutting rates. The April non-farm payroll report reinforced this view, and more policymakers are aligning with this perspective this week.

Market focus this week will shift to the U.S. CPI for April, scheduled for release on Wednesday. Inflation rates in April are expected to show robust growth, albeit slower than in March, suggesting a possible downward adjustment in Wednesday's data. Therefore, if the data indicates that recent price stickiness is temporary and inflation is resuming its decline, traders might further adjust their rate path expectations negatively impacting U.S. bonds and the dollar.

Additionally, market participants may get an early indication of April's inflation trend on Tuesday, when the PPI for the month is released. U.S. retail sales data, also set to be released alongside the CPI, could further influence market perceptions of the Fed's rate trajectory.

In the Eurozone, the agenda includes speeches by several ECB officials from the Netherlands, Germany, France, and Italy. The ECB’s bi-annual financial stability review is due for release on Thursday. Germany’s ZEW investor confidence index will focus on Tuesday, marking a relatively calm data release week. The final report on Eurozone inflation for April will be released on Friday.

The European Commission, based in Brussels, will release regional economic forecasts on Wednesday, including predictions on growth, inflation, budgets, and deficits.

The Bank of England appeared more dovish than expected last Thursday, maintaining the interest rate but with two members voting for a 25 basis point cut. Coupled with tempered inflation expectations, this suggests that officials see inflation continuing to soften. The pound surged significantly upon the announcement as investors grew more confident that the first 25 basis point cut would be realized in August.

On Tuesday, the UK will release employment data for March. Investors will likely focus on wage growth to see if it further softens, which could significantly rise as forecasted by the Bank of England. Thus, if wages rebound, the pound might indicate a downward trend related to the Bank of England, as traders might start considering a June rate cut as a better option.

Following the disappointment of the Reserve Bank of Australia's decision to maintain a neutral stance, Australian traders now turn their attention to Wednesday's Wage Price Index and Thursday's employment report. Although the RBA in this week's decision “did not rule out any possibilities,” a likely interest rate increase in September might benefit the forex market. If Wednesday's inflation data from Australia encourages investors to increase their bets on a Fed rate cut, the forex might also benefit from further improvements in risk appetite.

Official Chinese PMI data indicates that both manufacturing and services are expected to show significant growth since March, with expectations for a robust start to Q2. However, China's imports and exports contracted after March, with growth resuming in April, indicating improving demand.

That said, although strong Q1 GDP growth reduced the necessity for Chinese policymakers to urgently enhance stimulus measures, concerns about the stability of the economic recovery might re-emerge if this week's data further proves a slow start to Q2. This could put pressure on labor and the Australian and New Zealand dollars, with labor shedding some of the employment-related gains.

On Thursday morning in Asia, Japan will release its first estimate of Q1 GDP, to see if the economy continues to grow or re-enters contraction. If the latter, the yen might continue to fall, approaching the 1 USD to 160 JPY range that triggered last week's first round of impact. Even if Japan intervenes again near that range, the likelihood of a trend reversal remains slim, as another quarter of economic contraction might trigger market speculation that the Bank of Japan's next rate hike could be further delayed.

Translation to English: **Overview of Key Events and Economic Data This Week (Beijing Time)**

Key Events:

**Tuesday (May 14):** Fed Chair Powell and ECB Executive Board member Knot to speak at a joint conference; OPEC to release its monthly oil market report.

**Wednesday (May 15):** IEA to publish its monthly oil market report.

**Thursday (May 16):** Deputy Governor of the Reserve Bank of Australia, Michele Bullock, to speak; Bank of England Monetary Policy Committee member Megan Greene to speak.

**Friday (May 17):** 2024 FOMC voting members, Cleveland Fed President Loretta Mester, and Atlanta Fed President Raphael Bostic to speak on the economic outlook; China’s State Council Information Office to hold a press conference on the operation of the national economy.

Economic Data Overview:

**Monday (May 13):** New Zealand Q2 one-year ahead inflation expectations (%); China’s April M2 money supply year-on-year (%).

**Tuesday (May 14):** Australia's ANZ consumer confidence index for the week ending May 12; UK March unemployment rate by ILO standards (%); Eurozone May ZEW economic sentiment index; U.S. April PPI annual rate (%); U.S. April core PPI annual rate (%).

**Wednesday (May 15):** Eurozone Q1 GDP quarter-on-quarter adjusted final value (%); U.S. April CPI annual rate unadjusted (%); U.S. April core CPI annual rate unadjusted (%); U.S. April retail sales month/year rate (%); U.S. EIA crude oil inventory change for the week ending May 10 (thousands of barrels).

**Thursday (May 16):** Japan Q1 real GDP quarter-on-quarter adjusted preliminary value (%); Australia April seasonally adjusted unemployment rate (%); Australia April employment change (thousands); U.S. April import price index month/year rate (%); U.S. April housing starts total annualized (thousands); U.S. April industrial production month rate (%).

**Friday (May 17):** UK April CPI annual rate (%); UK April retail price index annual rate (%); Eurozone April harmonized CPI annual rate - unadjusted final value (%); U.S. April Conference Board leading indicators month rate (%).