Five Fundamentals for the week: Fast-moving trade war and FOMC Meeting Minutes stand out

Will US President Donald Trump reach deals or slap tariffs this week? Various economic releases will compete with headlines coming from the White House.

1) Trade war with the EU temporarily averted, deals with Asian countries eyed

President Trump hit markets on Friday by threatening the European Union (EU) with 50% tariffs as he aired his frustration with the old continent. Over the weekend, he pushed back these duties from June 1 to July 9 after speaking with Ursula von der Leyen, the EU Commission President. We can expect more buzzing headlines.

In the background, the US is in talks with India, Japan and other Asian countries, which all want to maintain good trade relations with both the US and China. It is a delicate dance. Investors prefer lower duties and freer trade.

Apart from countries, the Commander-in-Chief also has his eye on consumer electronics – suggesting a 25% levy on iPhones, as well as pharmaceuticals.

Tariff headlines can come at any moment and shake sentiment. The current market instinct is to buy the dip – especially after Trump's abrupt U-turn on the EU.

2) FOMC Meeting Minutes may reveal which Fed mandate is more feared

Wednesday, 18:00 GMT. What does the Federal Reserve (Fed) fear more, inflation or unemployment? The bank's meeting minutes from its early May decision may provide some clues. Concerns about price rises imply higher interest rates, while worries about joblessness suggest slashing borrowing costs.

I expect a hawkish tone warning of inflation. Why?

It is essential to note that the minutes are revised until the very last moment and have markets in mind. Since the May 7 meeting, the US and China agreed to substantially reduce tariffs, lowering the chance of a recession. Nevertheless, most Chinese imports are still taxed at 30%, which means higher inflation.

Moreover, the meeting minutes tend to be more hawkish than the Fed statement, which is usually more balanced.

3) US GDP is set to confirm first-quarter contraction

Thursday, 12:30 GMT. Front-loading the tariffs boosted imports and pushed Gross Domestic Product (GDP) down in the first quarter, despite strong consumption. That was the narrative from the first release of GDP data. An updated estimate is set to confirm the 0.3% contraction.

A surprising upgrade of data to growth instead of contraction would boost sentiment, while a deeper squeeze would hurt it.

The Personal Consumption Expenditures component will be watched for any downgrade. In addition, changes to inventory data, which flip from weighing on growth to boosting it, are also of importance.

4) Core PCE may drop, providing hopes for a rate cut

Friday, 12:30 GMT. The Personal Consumer Expenditures (PCE) report is the Fed's preferred gauge of inflation, as it adjusts faster to consumer preferences. That makes it significant, despite its late release, after the Consumer Price Index (CPI) data is already out.

The world's most powerful central bank focuses on core PCE, which excludes volatile energy and food data. Core PCE remained flat in March, pointing to a decline. This time, a 0.1% MoM increase is on the cards, potentially pushing April's year-over-year increase closer to the Fed's goal of 2%. Core prices rose 2.6% yearly in March.

5) Revised consumer confidence will further gauge reactions to tariffs

Friday, 14:00 GMT. How are Americans feeling about recent developments in tariffs? On the one hand, lower levies on Chinese imports may have decreased angst, but these duties are still elevated and may already be inflicting pain.

The University of Michigan's revised Consumer Sentiment Index for April is projected to confirm the initial 50.8 reading, which is a low score. In addition to the headline figure, investors will also watch the inflation components, which have shot up. The first release showed growing worries, sending five-year inflation expectations to 4.6% and one-year projections to a whopping 7.3%

Final thoughts

Sell in May and go away? The last week of the month has begun with a positive market mood in the wake of Trump's tariff reversal. Robust price action comes despite UK and US bank holidays on Monday, and implies a volatile week.