JFD-Market Outlook: Week of May 5th

Market Outlook: Week of May 5th–9th
FOMC and BoE in focus – Canadian labor market data to wrap up the week

The upcoming week looks relatively quiet in terms of economic data, but there are still a few key events that could drive market volatility. All eyes will be on monetary policy decisions from the U.S. Federal Reserve (FOMC) and the Bank of England (BoE), along with Canada’s latest labor market report.

Monday & Tuesday: A Calm Start Focused on U.S. Data
The week kicks off with the U.S. ISM Services PMI on Monday, expected to ease to 50.2 from the previous 50.8. While the services sector remains in expansion territory, momentum appears to be fading. Analysts note that slowing orders and weaker hiring are cause for concern.
On Tuesday, the U.S. trade balance will be released. Normally not a market-moving figure, it could gain more attention amid rising global trade tensions and tariffs.

Wednesday: All Eyes on the Fed
Wednesday will be the most eventful day of the week. New Zealand will publish its employment and unemployment figures early in the day, while the Federal Reserve’s interest rate decision takes center stage later.
Despite recent soft U.S. economic data—especially Q1 GDP growth—the Fed is widely expected to keep rates unchanged. The labor market remains healthy, and consumer spending is supported by solid income growth.
However, warning signs are emerging: equity markets have pulled back, credit spreads have widened, and both business and consumer sentiment have weakened—especially in light of rising costs and growing investment hesitation.

The Fed will likely maintain its "wait and see" approach. Analysts at Wells Fargo suggest that if tariffs continue to negatively impact the economy, the first rate cut could come as early as June.

Thursday: BoE Decision & U.S. Jobless Claims
On Thursday, the Bank of England is expected to cut its key interest rate by 25 basis points, bringing it down to 4.25%. This would mark another step in the bank’s gradual easing cycle that began in mid-2024.
Investors will be closely watching the BoE’s updated Monetary Policy Report for clues on how current global developments—particularly U.S. trade tariffs—are shaping the central bank’s outlook.
Any meaningful downward revision in growth or inflation could shift expectations toward a more aggressive rate-cut path.

Friday: Canada’s Labor Market in the Spotlight
Friday brings fresh labor data out of Canada. Analysts are forecasting a job gain of 24.5K, following last month’s sharp decline of -32.6K. The unemployment rate is expected to hold steady at 6.7%.
While the Canadian labor market hasn’t collapsed, it’s showing signs of softening—especially after the imposition of U.S. tariffs in March.
Participation is falling, job vacancies are declining, and RBC economists expect a gradual rise in unemployment throughout the second half of 2025.

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