The Week Ahead: Fed, BoE interest rate decisions; Arm earnings

After a significant week in which Microsoft emerged as the winner of the Big Tech earnings battle and president Donald Trump blamed a 0.3% decrease in US real GDP on the previous administration, the coming week sees attention turn to central bank interest rate decisions.

Analysts expect the US Federal Reserve to hold rates steady and the Bank of England to cut rates. With Trump seemingly intent on pushing rates lower, the market will pay close attention to how the president and his team respond to the Fed’s rate decision. While Trump has said he has no plans to fire Fed chair Jay Powell, that doesn’t mean he won’t express his opinion, potentially making the chairman’s job that much harder.

Federal Reserve interest rate decision

Wednesday 7 May 
The market does not expect the Fed to cut rates at the end of its two-day meeting on Wednesday. A rate cut at the 17-18 June meeting also appears unlikely at this stage. Instead, the market sees the next potential rate cut coming out of the 29-30 July meeting. In normal times, a two- or three-month wait might not significantly impact market sentiment, but these are not normal times. Patience is not a virtue that the president has displayed on a regular basis, suggesting that market volatility around the May rate meeting could exceed typical levels. Additionally, given the heightened uncertainty, the Fed may push back against hopes of imminent rate cuts, even over the next two months, amid rising consumer inflation expectations. 

The last time Fed chair Powell spoke, he emphasised the need for patience – a message that the market did not receive particularly well. It's plausible that a similar scenario could play out again this time around. If so, US stock markets may experience some turbulence. The S&P 500, which rose 0.6% on Thursday to close at 5,604, has limited room to advance, especially with earnings estimates tumbling and valuations already elevated. The benchmark US index has surpassed its 50-day moving average and is approaching a resistance  zone between 5,650 and 5,780, and the upper Bollinger band at 5,712. This area could signal a market top, particularly if investors perceive Powell's comments to be more hawkish (pro-higher rates) than they had anticipated.

Arm Q4 results

Wednesday 7 May 
Analysts estimate that Arm Holdings’ fiscal fourth-quarter earnings grew 45.8% to $0.52 a share, with revenue up an estimated 32.7% at $1.2bn. Looking ahead to the fiscal first quarter, earnings are expected to rise 5% to $0.42 a share on revenue growth of 16.9% to $1.1bn. The options market is pricing in a potential post-earnings move higher or lower of 9.6%.

Shares of the Nasdaq-listed British semiconductor and software design company have dropped 10% this year to $115.40, as of Thursday’s close. The shares face resistance at $125, as indicated by the upper dotted line on the chart below, which may limit their upside potential. Moreover, an uptrend (the diagonal red line) established from the April lows may become vulnerable if the Q4 results disappoint investors. If the stock drops below this trend line following the Q4 results, it could fill a gap near $100, particularly if the results fall well short of expectations.

Bank of England interest rate decision

Thursday 8 May
Markets anticipate the Bank of England cutting interest rates by 25 basis points to 4.25% on Thursday. With two more rate cuts expected later this year, traders will be monitoring the vote split and the Bank’s press conferences closely for signals about the appetite for further cuts.

A dovish (pro-lower rates) Bank of England combined with a hawkish Fed, alongside concerns over the impact of US tariffs, make it difficult to predict potential forex moves. However, in the case of GBP/USD, which was trading at around $1.331 on Friday, it seems clear that $1.345 is likely to continue to provide robust resistance. The pound has not exceeded this level against the dollar since 2022. If the pound fails to surpass this level in the near term, it may come under downward pressure, potentially sending it back towards $1.30. However, if the pound can finally breach the $1.345 level, it could advance towards $1.365.

Key economic and company events

The coming week’s major economic announcements and scheduled US and UK company reports include:

Saturday 3 May

• Results: Berkshire Hathaway (Q1)

Sunday 4 May

• Australia: April Judo Bank purchasing managers’ index (PMI)

Monday 5 May

• Switzerland: April consumer price index (CPI)
• UK: Early May bank holiday – markets closed
• US: April ISM services PMI
• Results: Palantir (Q1), Vertex Pharmaceuticals (Q1) 

Tuesday 6 May

• China: April Caixin services PMI
• New Zealand: Q1 unemployment rate and employment change
• Results: AMD (Q1), Arista Networks (Q1), Brookfield Asset Management (Q1), Duke Energy (Q1)

Wednesday 7 May

• Eurozone: March retail sales
• Japan: Bank of Japan monetary policy meeting minutes
• US: Federal Reserve interest rate decision
• Results: Applovin (Q1), Arm (Q4), DoorDash (Q1), Flutter Entertainment (Q1), MercadoLibre (Q1), Smiths News (HY), Uber (Q1), Walt Disney (Q2)

Thursday 8 May

• UK: Bank of England interest rate decision 
• US: Weekly initial jobless claims 
• Results: ConocoPhillips (Q1), McKesson (Q4), Shopify (Q1) 

Friday 9 May

• Canada: April unemployment rate and net change in employment
•  China: April imports, exports and trade balance
• Results: International Consolidated Airlines (Q1), Plains All American Pipeline (Q1)

Note: While we check all dates carefully to ensure that they are correct at the time of writing, the above announcements are subject to change.

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