Navigating a Pivotal Week: Inflation Data, Central Bank Clues, and Geopolitical Shifts

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Alright team, Samuel Leach here, and welcome to your essential market briefing for the week commencing May 12th, 2025. We stand at a fascinating juncture. Last week saw markets attempt to digest a mixed bag of signals – the aftermath of the US jobs report, the FOMC’s carefully worded pronouncements, and the continued resilience of certain equity markets despite underlying currents of uncertainty. This week, the spotlight intensifies, with critical inflation data from the US and UK set to dominate headlines and potentially dictate market direction for weeks to come. Add to this a backdrop of significant geopolitical shifts – the historic election of the first American Pope, Leo XIV, ongoing complexities surrounding US tariff policies, and the cautiously optimistic signals from the new US-UK trade agreement – and we have a potent cocktail for volatility and opportunity.

As I always say, in markets, change is the only constant, and the ability to anticipate, adapt, and act decisively is what separates the profitable from the perplexed. This week demands our sharpest focus. Let’s cut through the noise and identify where the real opportunities lie.

• US Indices:

  • S&P 500: ~5,659.91 (largely flat, showing some consolidation after recent moves)

  • Nasdaq Composite: ~ 20,065 (also flat, tech holding its breath ahead of inflation data)

  • Dow Jones Industrial Average: ~41,249.38 (a slight dip, reflecting some caution in blue-chips)

• UK Indices:

  • FTSE 100: ~8,554.80 (demonstrating remarkable continued strength, buoyed by domestic factors and the US-UK trade deal)

• Commodities & Volatility:

  • Gold: ~$3,326.30/oz (maintaining its altitude, a clear beneficiary of uncertainty and inflation hedging)

  • WTI Crude Oil (June Contract): ~$61.29/barrel (languishing near recent lows, demand concerns and supply dynamics weighing)

  • VIX (CBOE Volatility Index): ~21.90 (elevated, indicating underlying market anxiety, though off its recent peaks)

• Major FX Pairs:

  • EUR/USD: ~1.1250 (trading in a range, awaiting US CPI for a decisive break)

  • GBP/USD: ~1.3300 (strengthened, reacting positively to the US-UK trade agreement)

  • USD/JPY: ~145.35 (showing a pullback from recent highs, sensitive to US rate expectations)

The Political and Economic Cauldron: Key Themes for the Week

This isn’t just a numbers game; the narrative driving the markets is equally crucial. Three major themes demand our attention:

1. The New Pontiff – Pope Leo XIV: The election of Cardinal Robert Prevost as the first American Pope is a historic moment. While the direct financial market impact of a new Pope is typically muted, it’s a significant event on the global stage. Pope Leo XIV’s initial pronouncements on social justice, global economic policy, and international relations will be closely watched. Any unexpected or strong stances could subtly influence sentiment, particularly in sectors with strong ethical considerations or in regions where the Vatican holds significant sway. For now, it’s a background factor, but one that adds to the complex tapestry of global events.

2. US Tariff Policy – The Never-Ending Saga: The focus on US tariffs remains intense. While the recent US-UK trade agreement, which includes a rollback of some tariffs, offers a glimmer of hope for more targeted and perhaps less disruptive trade policies, the broader landscape is still fraught with uncertainty. Discussions around potential new tariffs, or adjustments to existing ones, particularly concerning major economies like China and the EU, continue to be a significant source of potential market volatility. Any concrete news or even strong rhetoric on this front can send ripples across equity, commodity, and currency markets. We must remain vigilant for any new developments, as they can shift sentiment rapidly.

3. International Agreements & Geopolitics: The aforementioned US-UK trade deal is a case in point. Such agreements can provide specific sectoral boosts and improve bilateral economic ties. However, the broader geopolitical environment remains tense. We must monitor not just formal agreements but also the underlying diplomatic currents. Any escalation or de-escalation in existing global hotspots will, as always, have an immediate impact on risk assets, safe havens like gold, and energy prices.

The Week Ahead: Economic Calendar Highlights (May 12th – May 16th, 2025)

This is where the rubber meets the road for market direction this week:

• Monday, May 12th: A relatively quiet start. Expect markets to position themselves ahead of the key data releases later in the week. Focus will be on digesting weekend news and any early central bank commentary.

• Tuesday, May 13th: US Producer Price Index (PPI). This will give us the first significant insight into the inflation pipeline. A hotter-than-expected PPI could raise concerns about sticky inflation and a more hawkish Fed.

• Wednesday, May 14th: THE MAIN EVENT: US Consumer Price Index (CPI). This is the number everyone will be watching. Core CPI will be particularly scrutinised. A significant deviation from consensus forecasts will almost certainly trigger a major market reaction across all asset classes. Also on Wednesday, we have UK GDP q/q, providing a health check on the UK economy.

• Thursday, May 15th: A busy day for US data with Retail Sales (a key indicator of consumer strength), the Philadelphia Fed Manufacturing Index, and, importantly, a speech from Fed Chair Jerome Powell. His interpretation of the CPI data and any hints about future policy will be dissected word by word.

• Friday, May 16th: Eurozone CPI (Final) and the University of Michigan Consumer Sentiment report from the US. While the Eurozone CPI is a final reading, any revisions could still move the EUR. The UMich sentiment will give a timely read on US consumer confidence.

Navigating US Inflation Data with Index Plays (S&P 500 / Nasdaq)

The US CPI data on Wednesday is the pivotal event. A hotter-than-expected number could reignite inflation fears and hit equities, while a softer print could fuel a relief rally.

FTSE 100: Riding the Momentum or Bracing for a Pullback?

The FTSE 100 has been on an incredible run. The question is, how much further can it go? Day traders should look for signs of exhaustion on intraday charts or buy dips towards key short-term moving averages if momentum remains. Resistance is likely at psychological levels above 8550 (e.g., 8600, 8650), with support around 8450-8500. IFAs should review profit-taking strategies with clients if overweight, while noting the positive sentiment from the trade deal. Bank of England commentary will be key for GBP and the FTSE.

Gold: Bullish Consolidation or Topping Pattern?

Gold remains elevated, with $3300 as a key level. US CPI will be a major driver. If CPI is hot, gold could see another leg up; look for breaks above $3340-3350 for long entries, targeting $3380-$3400. If CPI is soft, gold might pull back; look for shorts if it breaks below $3280, targeting $3250.

Oil: Range Trading with an Eye on Geopolitics and Inventories

Oil prices are under pressure. WTI is range-trading. Day traders can look to sell rallies towards $60-$61 and buy dips towards $57-$58. Weekly inventory data will provide short-term volatility. The current environment might favour range-trading or cautious accumulation on dips for longer-term bulls.

FX Majors: CPI and Central Bank Divergence in Focus

• EUR/USD: Heavily influenced by US CPI. Strong CPI could test support around 1.1200; weak CPI could rally towards 1.1300-1.1350.

• GBP/USD: Boosted by the US-UK trade deal. Watch for follow-through—resistance near 1.3322-1.3345, support at 1.3220. UK GDP is a domestic catalyst.

• USD/JPY: Pulled back. Strong CPI and hawkish Powell could rally it back towards 146.50-147.00. Soft CPI could extend the pullback towards 145.00. Day traders should focus on volatility around US CPI. IFAs should discuss currency hedging and how central bank policy divergence will impact valuations.

Concluding Thoughts: A Week for Agility

This week is not for the faint-hearted, but it’s precisely these kinds of weeks that can define a trader’s month or even quarter. The confluence of major economic data, ongoing political narratives, and shifting central bank expectations means that agility, discipline, and a clear head will be paramount. Don’t get caught in the hype; trade the levels, manage your risk meticulously, and be prepared to react to new information swiftly.

For IFAs, the key is to guide clients through this potential volatility, reinforcing long-term strategies while identifying any tactical adjustments that align with their risk profiles and objectives. The discussions around inflation and interest rate trajectories will be crucial.

I’ll be watching these markets like a hawk, as always. Stay sharp, stay focused, and let’s navigate these opportunities together.

Trade well,

Samuel Leach

Disclaimer: This newsletter is for informational and educational purposes only. Trading and investing involve substantial risk of loss and are not suitable for every investor. The information provided is not a recommendation to buy or sell any financial instrument. Always conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions.