Global markets enter the 3^rd week of May against the backdrop of rising market concern regarding the ongoing US debt ceiling impasse as well as ongoing risks in the US banking system, both of which dampening risk sentiment and seeing markets rangebound as they await a solid catalyst to get moving.

US 1 year Credit Default Swap price spiking on debt ceiling fears.

RBA MINUTES (TUE): The RBA minutes will largely focus on the reasoning behind the Board blindsiding markets when it delivered a surprise 25bps hike at their May meeting. The Board noted inflation in Australia has passed its peak but is still too high at 7% and it will be some time yet before it is back within the target range. Judging by comments from Governor Lowe shortly after the May meeting, the RBA seems deadly serious about fulfilling its aim to lower inflation in a timely manner, expect the minutes to reflect this and give some possible support to the AUD.

UK LABOUR MARKET REPORT (TUE): Expectations are for the unemployment rate to hold steady at 3.8%, employment change to fall to 50k and headline earnings growth to slow to 5.1% from 5.9%. The previous report showed a sharp rise in pay growth which was cited as being a major factor in the BoE’s decision to deliver another 25bps hike at their May meeting.  Markets are currently showing a  25bps hike in June from the BoE is priced at around 62%, a hot labour market report could prompt a further increase in pricing for an additional hike and putting a tailwind under the GBP which saw a sharp drop late last week.

GBPUSD approaching May lows

US RETAIL SALES (TUE): Headline retail sales are seen rising 0.7% M/M in April, offsetting some of the 1.0% M/M decline in March. Retail sales data will be an important indicator of how the US consumer is tracking in the face of an aggressive Fed rate hiking cycle, and with the Fed in “data dependent” mode we could see some repricing of June Fed rate hike odds if there is a big miss , seeing volatility in USD FX and equity markets.

Currently the market is pricing in a 14% chance of a hike, 85% hold at the FOMC June meeting.

AUSTRALIAN LABOUR MARKET REPORT (THU): The employment change is expected to show the addition of 25k jobs in April, with the unemployment rate seen steady at 3.5% .The most recent RBA meeting, which saw a surprise 25bp hike ,  suggested “The recent Australian data also confirmed that the labour market remains very tight, with the unemployment rate at a near 50-year low.”  The RBA is again expected to hold rates at their June 6^th meeting, but with this month’s surprise hike and their obvious determination to rein in inflation, a big beat on this figure could see market participants start to price in a surprise hike form the RBA, which would be AUD positive.

Implied future yield on official Australian cash rate

Full weekly calendar of the main risk events below: