The Week Ahead for the Global Economy and Markets
The Context
It was another week where many felt like they were trying to drink from a firehose. This was one of those stretches for the global economy and markets in which the velocity of change outpaced the capacity of some frameworks to contain it. Several market indicators flirted with key levels, only to retrace endogenously or with the help of aggressive official “verbal intervention.”
With negotiations to end the Middle East war essentially stalled for now, the economic fallout reached further, both within and across countries. This was illustrated by macro data, including inflation measures such as the PCE (the Federal Reserve’s favorite indicator), jumping by 0.7% in one month—the largest gain since the inflation peak of June 2022.
Meanwhile, indicative of the challenges facing policy response functions, a heavy week of central bank meetings illustrated the dilemmas raised by the threat of stagflation. The central bank news was compounded by Fed Chair Powell’s dramatic and rare announcement—at what is highly likely to be his last FOMC press conference—that he intends to remain on the Board once his Chair tenure ends and Kevin Warsh takes over.
Markets’ expectations of Federal Reserve interest rate actions have continued to evolve. Traders have now priced in no cuts for all of 2026, a significant shift from the three cuts priced in at the start of the year. Recognizing the higher inflationary environment, markets now also price in rate hikes for other systemically important central banks, such as the Bank of England, the Bank of Japan, and the ECB.
For now, all of these central banks left interest rates unchanged last week. The Fed’s widely expected decision was accompanied by dissent that was highly unusual in its magnitude (three dissenters) and its two-sided nature. Again, uncertainty about the impact of “higher-for-longer” oil prices played a major role.
The news regarding the oil market went well beyond price levels. Volatility was extraordinary, including a 48-hour period in which the price fluctuated wildly between $110 and $126. This volatility highlights the challenges that energy-intensive businesses face in hedging, planning capital expenditure, and pricing products against a market swinging massively in either direction within hours.
The oil market will also have to deal with the effects of the UAE’s surprise announcement that it will leave OPEC. The longer-term effects will be substantive, extending beyond energy. In the short term, with the Strait of Hormuz shut, the immediate impact was limited. The same applies to OPEC’s decision on Sunday to hike production.
Once again, stock markets sidelined these factors in favor of strong corporate earnings and the AI promise of higher productivity growth. During the week, the S&P and Nasdaq both ended April with their biggest monthly gains since 2020 (10% and 15%, respectively). The buoyant tone continued into the start of May, albeit facing greater questioning.
Government bond yields rose across the advanced world, led by a 7-basis-point move in the US 10-year. The dollar ended the week slightly weaker overall, partly due to Yen appreciation in response to the authorities’ “final warning” to a market that had depreciated the currency past 160 yen to the dollar. Gold ended the week relatively unchanged.
While the corporate narrative was dominated by upside earnings surprises, the Spirit Airlines announcement of a shutdown did not go unnoticed. Democratized travel, where Spirit played a key role, is among the first high-visibility casualties of sustained energy price shocks. Low-cost carriers operate on the thinnest fuel margins; when jet fuel surges, they cannot absorb the cost without fare increases that undermine their entire value proposition. Meanwhile, other airlines are scrambling to handle not just higher costs but also the possibility of shortages in parts of Asia and Europe.
The Week Ahead
Geo-economics
The Middle East war remains front and center. The US is intensifying efforts to restore the flow of ships through the Strait of Hormuz. It is not yet clear how Iran will react. Also, this is not the only maritime chokepoint to watch; the Red Sea is attracting renewed attention, especially with unconfirmed reports that the Houthis and Somali pirates may collude to disrupt traffic.
Behind the blockade of the Strait of Hormuz is the broader tug-of-war between the US attempting to strangle the Iranian economy and Iran undermining the global economy. Expect negotiations to continue—some visible, others less so. The return to military action by the US and Israel remains a possibility, especially as Israel continues its attacks on Lebanon.
Central Bank Aftermath
With the policy meetings of the four systemically important central banks in the rearview mirror, expect plenty of remarks—not just on the economic outlook, but on policy implications. This weekend, a well-placed media article sought to provide an “insider view” on why Jerome Powell has decided to stay on the Fed Board after his term as Chair ends.
Key Data Releases
US Jobs Report (Friday):
The consensus forecast is for a moderation from March’s blockbuster report, with monthly job creation of 62,000 (vs. March’s 178,000).
The unemployment rate is expected to remain at 4.3%, with labor force participation edging up to 62.0%.
Average hourly earnings are expected to have grown by 0.3% in April, bringing annual growth to 3.8% (up from 3.5% in March).
Other US Indicators: Look for ISM Services, UMich Consumer Confidence, external trade, and factory orders. We are also scheduled to receive the Challenger job cut numbers, the JOLTS report (vacancies and quits), and New York Fed inflationary expectations.
UK/Eurozone: UK PMIs; Eurozone PPI inflation, retail sales, and factory orders.
Asia: China’s trade data and India’s PMI.
Latin America: Argentina’s tax and industrial production; Brazil’s trade and PMI; Mexico’s CPI inflation.
Earnings to Watch
Broad signaling will come from Airbnb, AMD, Arm, BMW, Disney, HSBC, McDonald’s, Palantir, Shell, and Uber.
Recent publications include this just-published Financial Times article on the economic/market disconnect: https://www.ft.com/content/1930dd42-8058-46f4-beaf-52562e07a49c
Image generated by Google’s Gemini AI.
So thankful to follow along
Thanks for the great analysis.
The 48-hour swing between $110 and $126 is the detail i keep returning to because it breaks something fundamental about how energy-intensive businesses operate. You cant hedge against a range that wide in a window that short. The airlines, the chemical companies, the manufacturers running tight margins on fuel inputs arent being hurt by the price level. Theyre being hurt by the inability to plan against it. Alaska Air didnt pull its forecast because oil was too expensive. It pulled it because the act of forecasting became impossible. Thats a different kind of damage.
The three FOMC dissenters and the two-sided nature of the dissent is genuinely remarkable and i think it deserves more attention than it got this week. Three dissenters is institutional disagreement at a level that signals the committee itself doesnt have a framework for whats happening. Inflation says hold. Labour says cut. Energy says both are wrong. When the internal model breaks down the policy response becomes reactive rather than strategic, and reactive central banking in a stagflationary environment is how you get the mistakes that show up in textbooks twenty years later.
The Spirit shutdown is the canary. Democratised travel was built on the assumption that fuel would stay within a range narrow enough for thin-margin carriers to survive. That assumption expired in February and Spirit is the first visible casualty. But the others are doing the same math quietly. If Brent stays above $120 through the summer the question isnt which low-cost carrier fails next. Its whether the entire category survives in its current form.