Week ahead: Will the Bank of England cut interest rates?

After the Fed the focus remains very much on central banks with both the Reserve Bank of Australia (RBA) and the Bank of England (BoE) set to decide policy this week. Stronger than expected inflation in the March quarter could see the RBA hike rates, whilst focus on Threadneedle St. is when to begin cutting. Meanwhile, earnings season continues apace in Europe and the U.S. with Disney, Uber, and Arm Holdings among the large cap firms reporting this week.

Here are the week’s key events:

Monday, May 6th: China’s Caixin Services PMI, Palantir Earnings

London and Tokyo are closed for holidays, but Europe and the U.S. will be open. The Asian session highlight is the Caixin services PMI from China, which comes ahead of a batch of services PMIs from the Eurozone and the UK.

On the earnings front, check out Palantir — the stock is well into correction territory. It’s been part of the AI hype cycle but has come off in recent weeks as some of the more speculative ends of the tech sector came under pressure. Earnings could deliver some volatility — last time the stock jumped by a fifth on “unrelenting” AI demand.

Earnings: Palantir (PLTR), Lucid Group (LCID)

Tuesday, May 7th: Reserve Bank of Australia Policy Meeting

Will the RBA hike Australian interest rates? Unexpectedly high inflation in the March quarter has the market discounting cuts and talking up the possibility of another hike. The RBA’s cash rate sits at 4.35%. Governor Bullock warned that the inflation battle “isn’t yet won”, and the risks to its outlook remain “finely balanced”. Capital Economics has put its head above the parapet to say it expects a hike:

“The case for the RBA to tighten policy is growing increasingly compelling. Underlying inflation is all but certain to overshoot its current forecast ... we now expect the RBA to hike rates by another 25bp when it meets.”

The consensus however is for the central bank to remain on hold, with the country’s Federal budget announcement due a week later.

Earnings: The Walt Disney Co (DIS), Arista Networks (ANET), Occidental Petroleum (OXY), Rivian Automotive (RIVN), Twilio (TWLO), Upstart Holdings (UPST)

Wednesday, May 8th: Shopify, Uber, ARM Holdings Earnings

Crude oil inventories, a 10-year Treasury auction in the US and some German industrial production numbers are due up. More AI-themed news comes in the shape of the latest earnings from ARM Holdings. Again, we can expect some volatility in the stock – three months ago, ARM shares surged 50% in a single session after earnings beat forecasts. The company also issued an upbeat forecast. Management guided earnings per share of between 28 cents and 32 cents on sales of $850 million to $900 million. Volatility in the stock may be exaggerated as it is relatively thinly traded due to SoftBank’s overwhelmingly large controlling stake. Analysts are split — Mizuho Securities raised its price target to $160 and expects revenues to grow 25% annually for three years. Morningstar takes a more negative view, setting a price target of $57 and saying the stock has benefitted from an “exaggerated artificial intelligence narrative”

Earnings: Shopify (SHOP), ARM Holdings (ARM), Uber (UBER)

Thursday, May 9th: Bank of England Interest Rate Decision

Will the Bank of England cut UK interest rates? Most think it’s too early, but the Monetary Policy Committee is not speaking as one. Dave Ramsden, the BoE’s deputy governor, suggested last month that he did not need to see much more evidence of falling inflation to vote for a rate cut. He emphasised the “downside risks” to the BoE’s February inflation forecast, which predicted CPI inflation would fall back to 2% before rising later in the year.

Huw Pill, the Bank of England’s chief economist, sounded more hawkish in April, saying that he felt “relatively cautious” about starting rate cuts. inflation fell from 3.4 per cent to 3.2 per cent between February and March, whilst core inflation fell to 4.2% from 4.5%, but it’s likely the BoE will want to see the April data before making a decision. Markets think the Bank of England will cut by August, but the BoE might signal it’s ready to move in June, in tandem with an expected move by the European Central Bank.

Earnings: Roblox (RBLX)

Friday, May 10th: China Inflation Data, UK Growth Figures

Asian markets may have half an eye on the forthcoming Chinese inflation data due on Saturday, whilst there is a batch of lending and spending data due out of Japan in the early hours. UK growth figures will be looked at in the wake of the Bank of England’s decision the day before. MPC members will surely have advanced sight of this.

The ECB’s latest monetary policy meeting accounts will be parsed for how much fervour there is among policymakers for a rate cut in June and any more after that. In the U.S., the focus will be on the UoM consumer sentiment and inflation expectations surveys.

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