The Week Ahead: Record-breaking stock market rally hinges on Nvidia earnings and Fed outlook, while pound and gilts face key inflation and labour market tests

After a monster rip higher for stocks, led by semis and memory stocks, it feels as though everything is once again hanging on Nvidia earnings, which are out this week. Walmart headlines a busy week for retail names in the US which provide insight on the US economy.

We are also paying close attention to Fed speakers as new chair Kevin Warsh takes charge and markets continue to reassess the path for US interest rates, which have just started to break higher and price in a higher chance of the next move by the Fed being a hike. Note that the 30-year Treasury yield breached 5.00% on 13 May, following a $25 billion auction that priced the long bond at a 5% handle for the first time since 2007 owing to weak demand. At first slowly and not quickly the market is telling the Fed to drop its easing bias and move to a hawkish stance.

Over in the Middle East, the Israel-Lebanon ceasefire is due to expire before the trading weeks kicks off, setting the stage for fresh volatility in energy markets after last week’s Trump-Xi meeting delivered little in terms of concrete steps to resolving the conflict with Iran or reopening the Strait of Hormuz.

The UK’s political drama will continue as gilt markets respond to the evolving leadership crisis in the Labour party. On the stock exchange, investors are looking to results from a number of FTSE 100 companies, including BT, Marks & Spencer, Autotrader and Sage Group.

Here’s the key events to watch over the next week.

Monday, 18 May

The trading week kicks off with a focus as ever on any developments in the Middle East over the weekend. G-7 finance ministers and central bank governors meet in Paris for the start of a two-day summit, with the focus on global imbalances, trade tensions and FX policy. Meanwhile Bank of England rate setters Greene and Mann speak at a couple of other events.

China property prices, retail sales, industrial production, fixed-asset investment figures make up the major economic data releases.

Ryanair earnings are due up with a focus on fuel costs and forward bookings for the summer with signs consumers are hesitant to book flights until later than usual. Chinese group Baidu also reports earnings.

Meanwhile this is the first day on which Parliament can move the writ to formally organise a by-election in Makersfield, where incumbent MP Josh Simons is standing down in order for Manchester Mayor Andy Burnham to return to the House of Commons and almost certainly challenge Keir Starmer for the leadership of the Labour party. 

Tuesday, 19 May

There’s a slew of central bank speakers on the tape who will no doubt be addressing inflation risks and how policy might or might not respond. But the key focus for traders in London will be the latest UK jobless claims and unemployment numbers, which will be important for setting market expectations for how the Bank of England will address inflation concerns. In short is the trade-off between jobs and inflation balance right now and would a hike be worth further depressing the labour market? The last quarterly updated indicate progress as unemployment fell from 5.2% to 4.9%; however this was down to a decline in the participation rate as payrolls actually declined by 11k. The other thing to watch is wages, with pay growth showing a noticeable slowdown – an important consideration for whether the BoE believes this energy price shock will lead to the second order effects of a wage price spiral.

Elsewhere there is the Canada CPI inflation and US pending home sales reports, as well as the Australia Westpac consumer sentiment report. Japanese GDP figures will be important for driving yen crosses and broader FX markets early on as the Bank of Japan is expected to hike soon.

On the corporate front there are first half results from DCC, which come after the UK-listed Irish energy group rejected a £5bn takeover from KKR and Energy Capital. On Wall Street The Home Depot reports earnings.

Wednesday, 20 May

The major highlight is Nvidia’s earnings report, which will be crucial for market sentiment after a rip higher across the tech, semiconductor and memory stocks sectors on AI optimism. Earnings season has so far proved the AI trade remains a powerful driver for returns with soaring demand across the sector, which is expected to show up in another bumper earnings report from Nvidia. The focus will be on AI infrastructure demand durability and broadening, the Blackwell ramp and Rubin rollout, plus guidance around supply chains and lead times. Revenues are expected at $78.5bn, driven by the Data Centre segment, which is seen growing at +35% on last year on insatiable GPU demand.

In London, investors will look to earnings scorecards from Severn Trent, British Land, Experian and Marks & Spencer. MKS posted group sales growth of +24.2% in Q3 with LFL food revenues +5.6%, however the impact of the Iran war on the consumer willlikely start to show up in the Q4 and full-year results. Q1 sales from Intertek may take a back seat after management said it was minded to accept the £10.6bn final offer from EQT. In the US retail Target reports earnings.

On the economic calendar the major focus is on the inflation story in Britain with the latest CPI inflation report expected to show another rise in prices. CPI rose to 3.3% in March from 3.0% in February as the impact of the Iran war was only just starting to be felt. Expectations indicate the rate could jump to 3.7% in April as elevated energy prices feed through the economy. Meanwhile, market participants will watch the any changes to China loan prime rates plus there is the final reading for Eurozone inflation and minutes from the last FOMC meeting to go over. Repricing in rates markets are sending the Fed a clear signal to drop its easing bias - something four FOMC members wanted at the last meeting. the minutes will give a bit colour around how quickly the Fed might move - albeit this was under previous chair Powell.

Thursday, 21 May

It’s a busy day on the economic calendar with flash manufacturing and services PMIs for most major developed markets. These reports will provide a clear indication of how activity is being affected by the ongoing conflict in the Middle East and closure of the Strait of Hormuz, as well as the impact on prices. S&P Global’s UK composite PMI for April pointed to the biggest month-on-month rise in input prices since records began 28 years ago, hitting the highest level since double-digit inflation in 2022. 

After a tumultuous week due to the Labour leadership crisis, gilt markets will be in focus with a 10yr bond auction slated, following the record sale of 10yr paper last month, when the Debt Management Office sold a record £15bn of 10-year gilts at a yield of 4.9158% - the highest since 2008. 

On the FTSE we have earnings from easyJet, Sage, ICG and Autotrader, while BT provides full-year results after shares recently broke out to 7-year highs. Meanwhile Bunzl, Whitbread, Shell and Tritax Big Box REIT go ex-dividend today, which will shave a few points of the index. Walmart headlines the earnings on Wall Street. Shares were hit a bit after the last earnings update as new CEO John Furner reset expectations by trimming guidance despite some very healthy progress on ecommerce sales which rose +24% globally and +27% in the US. 

Friday, 22 May

Gut check time for the UK consumer with retail sales figures due up alongside the GfK Consumer Confidence survey. The hit from the Iran war saw the April reading decline 4 points to –25, the lowest reading in 2 years.

Elsewhere, Japan’s national core CPI numbers will be another guide what the Bank of Japan is likely to do at its next meeting in June. Germany IFO business climate and GDP figures provide a look at Europe’s largest economy. Canada retail sales is one to watch before the University of Michigan’s consumer sentiment and inflation expectations reports round out the trading week.