Macro Week Ahead: Will Stocks Get a Helping Hand from Central Banks?

The S&P 500 and Nasdaq 100 have recovered nearly 65% of the losses they suffered since mid-February

• U.S. stock markets are rebounding, but bonds and the dollar still wobble.
• PMI data boils down to a U.S. slowdown, threatening global growth.
• Interest rate moves at the Federal Reserve and Bank of England are now in focus.

Stock markets continued to recover last week. The bellwether S&P 500 rose 2.9% while the tech-tilted Nasdaq 100 added 3.4%. Both benchmarks have now recovered nearly 65% of the losses suffered since mid-February, the last time either one traded in close proximity to major highs. Gold prices fell back 1.7%, echoing a calmer mood across markets.

However, the bond market wobbled with interest rates creeping higher across the Treasury yield curve. The 10-year rate ticked up 1.3% while the two-year advanced 1.8%. The U.S. dollar continued to struggle, slipping 0.7% against the euro. It managed a narrow rise against the yen, but the Bank of Japan (BOJ) was at work as it cast doubt on rate hike plans.

PMI data says the U.S. economy is slowing

U.S. economic data has painted a somewhat confounding picture as the new week gets underway. Competing purchasing managers’ index (PMI) data from S&P Global (SPGI) and the Institute of Supply Management (ISM) offered somewhat different perspectives on the state of the service sector, the most important engine of U.S. growth.

SPGI suggested growth of economic activity ground to near-standstill in April—the weakest performance since September 2023—as services expanded at the slowest pace in 17 months. A forward sentiment gauge fell to its lowest in 2.5 years and prices rose. The bottom line is “a heightened risk of … stagflation,” the report concluded.

The ISM version of the figures was a bit rosier, at least at the headline. It showed service sector activity picked up a bit in April after posting its weakest reading in nine months in March. A look under the surface offered a less forgiving view, however. Employment shrank for a second month straight as prices rose at the fastest rate in 26 months.

Will central banks ride to the rescue?

Last week, manufacturing PMI updates diverged in the opposite direction: The SPGI version reflected weak but positive growth in April, while ISM said activity contracted for a second consecutive month and at the fastest pace since November 2024. On balance, both data providers reveal a U.S. economy that has worryingly slowed this year.

That’s a glaring problem for global growth, which has relied on the U.S. to offset anemic performances in Europe and China since the middle of last year.

Against this backdrop, all eyes turn to monetary policy announcements from the Federal Reserve and the Bank of England (BOE) amid hope for a monetary uplift.

For its part, the U.S. central bank is widely expected to sit on its hands this month as it waits for “hard data” to show it whether to prioritize employment or inflation. The markets price in 69 basis points (bps) in cuts this year, implying at least two standard 25bps reductions and a 24% probability of a third one. The first move is expected to appear in July.

Across the Atlantic, the BOE is penciled in for a 25bps cut. That is slated to be the first of four cuts that markets have priced in for 2025. If markets walk away from these announcements with the sense that policymakers have not dialed up their sense of urgency even as growth trends turn more ominous, stocks may decline as bonds rise in “risk-off” trade.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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