Market outlook for the week of 18th – 22nd May
Monday starts off quietly, with no major scheduled economic events for the FX market.
Data releases pick up Tuesday with the U.K. claimant count change, average earnings index 3m/y and the unemployment rate. The focus then shifts to the Canadian inflation data.
On Wednesday, we’ll also get inflation figures for the U.K. followed by the FOMC meeting minutes in the U.S.
On Thursday, Australia will release the flash manufacturing and services PMIs, along with its employment change data and unemployment rate. The eurozone, the U.K., and the U.S. will also get their respective manufacturing and services PMI releases, along with the Philly Fed manufacturing index, unemployment claims, building permits and housing starts in the U.S.
Finally, on Friday, the U.K. and Canada will publish the retail sales m/m data, while the U.S. will get the revised UoM consumer sentiment and inflation expectations figures.
In the U.K., the consensus for the claimant count change is 25.9K, compared to the prior 26.8K. The average earnings index 3m/y is expected to remain unchanged at 3.8%, while the unemployment rate is projected to also stay steady at 4.9%.
Overall, the labor market in the U.K. continues to soften and this week’s data should provide further insight into whether wage pressures are beginning to ease. Average weekly earnings for the three months to February slowed to 3.8% compared to the previous year, the first time since 2020 when it fell below 4%.
There are also increasing signs of cooling labor demand with job vacancies declining to 711K, the lowest they’ve been since 2021. The preliminary March estimate also showed that the number of payrolled employees fell by 65K compared with a year earlier.
Although wage growth is expected to ease further, Wells Fargo analysts remain alert to potential distortions from base effects and the recent increase in the National Living Wage.
In Canada, the consensus for CPI m/m is an increase of 0.6%, compared to the prior 0.9%. The common CPI y/y is expected to remain unchanged at 2.6%, while median CPI y/y is forecast to ease to 2.2% from 2.3%. Trimmed CPI y/y is expected to stay at 2.2%.
Analysts from RBC forecast a sharp pickup in headline CPI with the annual figure rising to 3.1% from 2.4% due a surge in energy prices, particularly the gas price spikes from March and April caused by the conflict in the Middle East.
This is also the first annual reading that’s no longer influenced by the removal of the consumer carbon tax in April 2025. However, the government also removed the federal fuel excise tax late last month until September, but this will have a bigger impact in next month’s data.
Despite the jump in headline inflation, other underlying price pressures are viewed as relatively contained. Food inflation remains elevated but stable, while broader core measures tracked by the BoC are expected to edge lower on an annual basis as earlier strong readings fall out of the comparison period.
In terms of monetary policy, the Bank will closely monitor whether higher energy prices begin feeding into other inflation measures. For now, this does not appear to be the case, although much will depend on how long oil prices remain elevated. Long-term inflation expectations remain relatively well anchored, even as short-term concerns have increased.
Economic conditions remain soft and with core inflation measures showing signs of moderation, the Bank is expected to maintain a cautious stance. Supporting this view is the unemployment rate, which remains near 6.9%. For now, the BoC is expected to keep rates on hold through the end of the year.
In the U.K., the consensus for CPI y/y is 3.0% versus the prior 3.3%, while core CPI y/y is expected to ease to 2.6% from 3.1%.
The inflation decline despite rising energy prices is largely due to temporary factors, including the timing of Easter and the fact that many of last year’s administrative and regulated price increases were either not repeated this year or implemented on a smaller scale, ING analysts said.
This week’s data releases will be important in assessing whether softer wage growth and increasing economic slack are beginning to translate into weaker services-sector inflation. If that proves to be the case, the BoE may become less concerned about inflation effects caused by the current energy shock.
In Australia, the consensus for employment change is 15.7K, compared to the prior 17.9K, while the unemployment rate is expected to remain unchanged at 4.3%.
This week’s report is expected to show modest job gains. Recent data suggests the labor market remains broadly resilient with employment continuing to expand at a steady pace on a three-month average basis. However, Westpac analysts warn that April’s figures will be partly distorted by seasonal factors, particularly the overlap of the survey period with the Easter holiday, which may temporarily weigh on hiring trends.
Underlying labor market conditions have not shown clear signs of deterioration related to the Middle East conflict or to recent rate hikes, and the softer April outlook appears to reflect caution around short-term volatility.
From a monetary policy perspective inflation remains the RBA’s primary focus, meaning this release is unlikely to materially influence the Bank’s near-term outlook unless there is a significant surprise.
In the U.S., the consensus for housing starts is 1.4M compared to the prior 1.5M, but building permits are expected to slightly rise from 1.37M to 1.38M. Despite a strong reading in March, Wells Fargo analysts believe that residential construction is downshifting overall and the apparent March gains were an effect of the weather-related slowdown in February.
While this week’s data is likely to show residential construction activity cooling, analysts suggest this may be driven more by weather-related weakness than by a sustained demand deterioration.
Building permits have continued to trend lower year-to-date, down 2.6% as of March, with the weakness most pronounced in the single-family segment. Builders are responding to affordability pressures, softer demand and elevated inventories. In contrast, multifamily activity has been relatively more resilient, supported by steadier rental market conditions and slightly improved financing costs.
In Canada, the consensus for core retail sales m/m is 0.9% compared to 0.5% previously, while retail sales m/m are expected at 0.7% vs 0.7% prior. Household spending has remained steady, with RBC card transaction data showing resilience into Q1 2026 despite the new oil price shock.
This article was written by Gina Constantin at investinglive.com.