Global Highlights This Week: The Fed's Decision Takes Center Stage. Will the Clash Between Trump and Powell Escalate?

Thanks to the signs of easing in the trade war and the strong non-farm payrolls report, the S&P 500 index closed higher for the ninth consecutive trading day on Friday, setting the longest winning streak since 2004 and recouping all the losses since Trump announced the full-scale tariff hikes in early April.

 

Next, part of the market's attention will shift to the Federal Reserve. The central bank is scheduled to announce its interest rate decision on Tuesday (May 7, Eastern Time), and the rebound momentum of U.S. stocks will face a test. Investors hope that the Fed will cut interest rates as soon as possible. In Europe, the Bank of England is expected to cut interest rates by 25 basis points this week, and the central banks of Sweden and Norway will also make interest rate decisions.

 

Currently, the market generally expects the Fed to keep interest rates unchanged this week, but there is an expectation of a rate cut in June. However, after the strong non-farm payrolls report was released on Friday, the likelihood of a rate cut has decreased.

 

Trump's tariff policy has been a headache for Fed officials, who are weighing the impact of tariffs on economic slowdown and rising inflation. Data released this week shows that the U.S. economy experienced its first contraction since 2022 in the first quarter.

 

The White House has repeatedly exerted pressure on the Fed to cut interest rates. Trump has severely criticized Federal Reserve Chairman Jerome Powell and hinted that he has the power to remove Powell from his position before the end of his term. Powell has stated that the Fed must ensure that tariffs do not trigger a more sustained rise in inflation before considering a rate cut.

 

Last month, Trump raised the possibility of seeking to fire Powell, which triggered concerns about the impairment of the Fed's independence in the market. After causing significant volatility in the financial markets, Trump later seemed to back down, but he still keeps demanding that the Fed cut interest rates quickly.

 

Angelo Kourkafas, Senior Investment Strategist at Edward Jones, said that at this week's meeting, Powell is likely to continue to refute the claim that the Fed will be influenced by the White House in a hawkish stance, which may lead to a further escalation of the conflict between Trump and Powell.

 

Tim Mahedy, Chief Economist at Access/Macro and a former senior advisor at the Federal Reserve Bank of San Francisco, previously said that if Trump successfully forces the Fed chairman out of office, the market's reaction "will be catastrophic." He predicted, "The pain will be so rapid and severe that the president will have to immediately reverse his decision, or else he will face a systemic financial incident."

 

In terms of earnings reports, the corporate performance in the past few weeks has mostly exceeded expectations. Data from LSEG IBES shows that about two-thirds of the companies in the S&P 500 index have already released their earnings reports. Overall, these companies' earnings are 7% higher than expected, while the long-term average is 4.3% higher than expected.

The share prices of large-cap stocks Microsoft and Meta Platforms rose after they released their earnings reports on Thursday, boosting the stock index. Companies that will release earnings reports in the coming week include Uber, Novo Nordisk, The Walt Disney Company, and ConocoPhillips, among others.

 

The trade war will still be the focus of investors' attention. One of the major factors behind the recent market rebound is that the tension is easing, and progress is being made in the agreements between the United States and other countries.

 

Scott Wren, Senior Global Market Strategist at Wells Fargo, said, "The market hopes to see and is looking forward to seeing the United States sign some tangible agreements with its trading partners. It's time for these plans to be truly implemented."

 

In terms of the geopolitical situation, the tension between India and Pakistan is still escalating, but the possibility of a large-scale war remains low. India announced another series of sanctions against Pakistan on Saturday, including stopping the import of all goods, suspending mail services, and refusing to allow Pakistani ships to enter its ports. The Indian military said that the two countries have exchanged fire for nine consecutive nights near the Line of Control in Kashmir.

Overview of Important Events This Week:

• Monday: Eurozone May Sentix Investor Confidence Index, U.S. April S&P Global Services PMI Final Value, U.S. April ISM Non-Manufacturing PMI, Saudi Aramco usually announces its official crude oil selling price around the 5th of each month.
• Tuesday : China April Caixin Services PMI, Eurozone April Services PMI Final Value, Eurozone March PPI Monthly Rate, U.S. March Trade Balance, U.S. April Global Supply Chain Pressure Index, The European Central Bank holds a Central Bank Forum.
• Wednesday : U.S. 10-year Treasury Bond Auction as of May 6, U.S. API Crude Oil Inventories for the Week Ended May 2, U.S. EIA Crude Oil Inventories for the Week Ended May 2, U.S. EIA Crude Oil Inventories at Cushing, Oklahoma for the Week Ended May 2, EIA releases the Monthly Short-Term Energy Outlook Report.
• Thursday : The Fed's FOMC announces the interest rate decision, UK April Halifax Seasonally Adjusted House Price Index Monthly Rate, Bank of England's interest rate decision as of May 8, U.S. Initial Jobless Claims for the Week Ended May 3, U.S. April New York Fed 1-year Inflation Expectation, Federal Reserve Chairman Jerome Powell holds a monetary policy press conference, The Bank of Japan releases the minutes of the March monetary policy meeting, The Swedish central bank announces the interest rate decision.
• Friday : China April M2 Money Supply Annual Growth Rate, China April Trade Balance, New York Fed President John Williams delivers a keynote speech at the 2025 Reykjavik Economic Conference, Federal Reserve Governor Lisa D. Cook gives a speech, Federal Reserve Governor Michael S. Barr gives a speech.