Sentiment Positive Ahead of US Inflation Report

In Europe, stock futures point to a mixed open along with US markets, despite the recent positive market sentiment. Easing oil prices have injected financial markets with a sense of optimism that inflation may slow in the United States, resulting in less aggressive rate hikes from the Federal Reserve.

In the currency space, the dollar stumbled into the week despite the recent hawkish comments from Fed officials including Jerome Powell. Oil prices remained gripped by global demand concerns while gold drew inspiration from a weaker dollar but still found upside capped by rate hike bets.

Time for USD Bulls to Rest?

After kicking off the week in a depressed fashion, the dollar could find itself exposed to further losses.

Fed hawks are clearly in the building and strong US economic data continues to stimulate expectations around the Fed not slowing the pace of hikes anytime soon. However, US benchmark inflation likely slowed for a second month in August thanks to falling gas prices. Markets are forecasting headline CPI to have cooled in August to 8% compared with the 8.5% witnessed in July. The core reading may give a truer picture of where price pressures are heading and the risks ahead.

This is expected to move higher with the annual rate rising to 6.1% from 5.9%. While the drop in the headline may not be enough to derail the Fed from raising rates by 75 basis points for the third time in 2022, it may impact future policy meetings. The peak in the Fed funds rate has hit 4% in early 2023, a cycle high.

Other key US reports that may influence the dollar this week will be the initial jobless claims, August retail sales, and industrial production figures among others. A strong set of figures may reinforce aggressive rate hike bets which could support the dollar, while a negative set of reports could dampen expectations around more super-sized hikes, dragging the greenback lower.

Currency Spotlight – GBP/USD

The path ahead remains rocky and uncertain for the British Pound.

Uncertainty over the UK’s economic outlook, the Bank of England’s game plan, and direction from the Conservative government will most likely influence the currency’s outlook. Yesterday, there was a barrage of UK data including GDP and industrial production, which offered some insight into the UK economy.

The British economy expanded by 0.2% in July month-on-month, rebounding from a 0.6% fall in June, but this was still below the market forecast of 0.4%. Year-on-year, GDP grew by 2.3% in July which was higher than the 1.9% seen in June but still below the market forecast of 2.6%.

Today, jobs data released was largely in line with analyst estimates and continued to confirm that the UK jobs market remains tight. Unemployment fell to its lowest rate since the early 1970s this summer even as the economy stalled. Importantly, wage growth was buoyant pointing to more aggressive tightening by the Bank of England. Money markets are currently predicting a 73% probability of a 75-basis point rate hike by the bank at next week’s rearranged meeting.

Prices in GBPUSD remain under pressure on the daily charts despite the current bounce. Should 1.1750 prove to be reliable resistance, the major could resume its downtrend ahead of the bank’s policy meeting on Thursday 22 September.

Commodity Spotlight – Gold

Gold’s near-term outlook will most likely be heavily influenced by the US inflation report this afternoon.

As highlighted earlier, US inflation is expected to cool for a second consecutive month. If such an outcome results in a weaker dollar and reduced hike bets, zero-yielding gold could shine back towards $1740 where the 50-day SMA resides. Alternatively, an upside surprise in US inflation could see gold tanking like a house of cards as aggressive rate hike expectations beyond September mount. There is strong support around $1700.

For more information visit FXTM.

Strong results lift Europe’s STOXX 600 to near seven-week highs

By Susan Mathew and Devik Jain

(Reuters) -European shares scaled near seven-week highs on Wednesday as a string of strong results from companies including Russia-exposed lender UniCredit and Britain’s Smurfit Kappa provided some comfort in an otherwise gloomy environment.

The STOXX 600 index closed 0.5% higher, with shares of French IT consulting firm Atos surging 16.2% to top the index on securing financing for a turnaround plan.

UniCredit gained 8.6% after it raised its 2022 outlook and moved ahead with a proposed share buyback it had put on hold, helping Italy’s MIB index outperform its peers with a 1.5% climb.

Sentiment also got a lift after an upbeat outlook from Microsoft Corp and strong ad sales growth by Google parent Alphabet Inc overnight, with analysts also pointing out that a lot of disappointment in terms of earnings were already baked into valuations.

“You can argue that much of it was, because through the second quarter we have had a big de-rating pretty much across all markets, there was some degree of disappointment priced in,” said Ian Williams, economist and strategist at Peel Hunt.

“It feels maybe now investors are assessing the company updates more on stock by stock basis against the background of concerns about growth, European gas supply and how much tightening the central banks are going to do to try and check off inflationary pressures.”

Second-quarter earnings for companies that are part of the STOXX 600 are expected to increase 23.1% from a year earlier, according to Refinitiv. Of the 35% that have reported so far, nearly 60% have topped estimates.

Russia delivered less gas to Europe in a further escalation of an energy stand-off between Moscow and the European Union that will make it harder, and costlier, for the bloc to fill up storage ahead of the winter heating season.

A focus was also on the U.S. Federal Reserve’s interest rate hike plans, with markets widely expecting a 75 basis points increase. A statement from the U.S. central bank is due at 1800 GMT, followed by Fed Chair Jerome Powell’s news conference.

The travel and leisure sector rose 3%, getting a boost from positive comments from Wizz Air.

The low-cost airline’s shares jumped 10.4% after its quarterly revenue more than quadrupled and it said demand for travel was underpinning higher ticket prices.

French payment company Worldline climbed 13.8% on upbeat first-half results.

Smurfit Kappa added 5.5% after Europe’s largest paper packaging producer posted a 50% jump in first-half core profit and raised its interim dividend.

Miner Rio Tinto slipped 0.7% after a drop in first-half profit, while Adidas slid 5.1% after cutting its 2022 earnings target, blaming a slower-than-expected recovery in China from pandemic restrictions.

(Reporting by Susan Mathew and Devik Jain in Bengaluru; Editing by Shounak Dasgupta and Jonathan Oatis)

European shares suffer worst quarter since pandemic hit of early 2020

By Devik Jain

(Reuters) -European shares on Thursday marked their worst quarter since the pandemic-led selling of early 2020, as investors became increasingly wary of a global recession given hawkish central bank actions to try to tame inflation.

All the major sectors were in the red. Banks weighed the most, with a gauge of euro zone lenders sliding 3.3% to March lows after the ECB’s top supervisor asked lenders to calculate recession risks.

The continent-wide STOXX 600 index dropped 1.5%, chalking up quarterly losses of 10.7%. Miners were among the biggest drags in the quarter, down more than 20%.

With euro zone inflation at record highs, data on Thursday showed France’s inflation in June climbed further from the previous month to a record 6.5%, and weighed on the local stock index which slid 1.8%.

“What we’re seeing at the moment is more evidence that inflation is serious, entrenched and investors are having to now reappraise the valuations they are putting on equities,” said Azad Zangana­, senior European economist and strategist at Schroders.

“The attitude in Europe was that a lot of the inflation is external. That’s changing now and over the next few months, the European Central Bank will have to step up its efforts to curb inflation.”

UBS trimmed its 2022 economic growth forecast for the euro zone and said the region is heading towards “stagflation” as efforts to stamp out inflation will bring growth to a near halt in the second half of the year.

All eyes are on the first estimate of June inflation for the euro zone due on Friday, which the ECB should scrutinise ahead of its July 21 policy meeting when it has said it will hike rates for the first time since 2011.

The STOXX 600 has shed more than 16% this year so far, as worries from soaring inflation to China’s slowing economy and Russia’s invasion of Ukraine curb risk appetite.

Among single stocks, Uniper SE tumbled 14.4% after the German utility withdrew its outlook for the 2022 financial year due to gas supply restrictions from Gazprom.

Shares of its Finnish parent Fortum dropped 6.1%.

Electrode maker Industrie De Nora slipped 4.4% on its debut on Italy’s main market.

BioNTech rose 5.6% after the German drugmaker along with Pfizer signed a $3.2 billion deal with the U.S. government for the delivery of 105 million doses of their COVID-19 vaccine.

(Reporting by Devik Jain in Bengaluru; Editing by Subhranshu Sahu, Sherry Jacob-Phillips and Barbara Lewis)

European shares extend gains on China COVID relief, rising oil prices

By Devik Jain and Susan Mathew

(Reuters) -European shares rose on Tuesday as risk appetite improved after China eased its COVID-19 quarantine mandate, while rising oil prices provided an additional boost to energy stocks.

The continent-wide STOXX 600 index was up 0.3%, rising for a third straight session. The benchmark index’s gains were tempered following a drop in June U.S. consumer confidence that pushed Wall Street lower. [.N]

Europe’s oil & gas sector gained 2% as major producers Saudi Arabia and the United Arab Emirates looked unlikely to be able to boost output significantly. [O/R]

London’s FTSE 100 index, which has heavyweight oil producers, rose 0.9% to lead gains among regional peers.

In China, health authorities said the country would halve to seven days its COVID-19 quarantine period for visitors from overseas, with a further three days spent at home.

This was the latest move in a series of gradual easing of COVID-19 curbs that had started to hit the country’s economy and bolstered hopes of a resurgence in demand from China, the world’s second-biggest economy and top metals consumer.

The basic materials index rose 1.2% as iron ore and base metals rallied. [MET/L] [IRONORE/]

Asia-exposed banks such as HSBC and Standard Chartered were among the top boosts to the STOXX 600, while shares of luxury retailers LVMH and Richemont, which rely on China for a major part of their revenue, rose 0.8% and 1.5%, respectively.

“The shock in China is starting to basically improve, but we’re still probably four to six months away from understanding if the various economies from U.S., Europe to China are heading for a recession,” said Sebastien Galy, a senior macro strategist at Nordea Asset Management.

Equity markets have seen a sharp sell-off this year as investors scrambled to adjust their expectations for economic growth and corporate profits in the wake of soaring inflation and interest rate hikes.

European equities could see a drop between 6.4% and 8.5% in earnings per share this year compared with consensus estimates of a rise of more than 11%, HSBC said on Tuesday.

With the European Central Bank set to raise rates for the first time in a decade next month, its President Christine Lagarde said it will move gradually, but with the option to act decisively on any deterioration in medium-term inflation.

France’s Valeo gained 4% after it won a major contract with BMW to equip the German carmaker’s upcoming electric-vehicle platform with advanced driving assistance systems.

(Reporting by Devik Jain and Susan Mathew in Bengaluru; Editing by Subhranshu Sahu, Uttaresh.V and Shounak Dasgupta)

France Faces a Hung Parliament: What Does It Mean for the CAC 40 and the Euro?

Investors were unable to take advantage of discounted prices at the beginning of the week after the CAC 40 dropped 4.92% last week (and more than 8% since the beginning of the month) due to the upcoming turmoil in the French National Assembly, as the party of the recently re-elected French President, Emmanuel Macron, lost the absolute majority in the weekend vote of the National Assembly, gaining just 245 of the required 289 seats to get an absolute majority.

The euro strengthened as Christine Lagarde, president of the European Central Bank (ECB), reiterated the ECB’s readiness to increase interest rates twice this summer to fight inflation and stop yield spreads from widening between eurozone members.

Daily EUR/USD Chart – Source: ActivTrader Trading Platform from ActivTrades

France faces a Hung Parliament

Newly re-elected French President Emmanuel Macron has suffered a huge blow after the second round of the Legislative Election was held on Sunday. The outcome suggests anything but unification and stability, despite Macron’s promises for a strong mandate amid increasing inflation, and the war in eastern Europe.

Signaling a major political division and uncertainty in the country, Macron and his allies, a group of parties called Ensemble!, lost their clear majority in the National Assembly following an unexpected swell of support for a broad left-wing alliance and the largest far-right group that has ever been elected.

Of the 577 seats available, Ensemble! “only” took 245 seats in the final round of the legislative ballot, where 289 are required to rule in a majority.
The next largest party is the far-left Nouvelle Union Populaire Écologique et Sociale (Nupes), a coalition led by far left veteran Jean-Luc Melenchon, with 131 seats.

Melenchon’s left-wing bloc, which brings together the La France Insoumise, The Socialist Party, the Greens, and the Communists for the first time in 20 years, campaigned on lowering the retirement age from 62 to 60, increasing the minimum wage, and putting a cap on the cost of essential products.

Within the party itself, though, there are many differences of opinion on major issues that were set aside during the campaign, and Macron may try to drive a wedge between the factions to his advantage.

Marine Le Pen’s Rassemblement National won another 89 seats, which is a historic win that cements the party’s status as mainstream opposition. Since the last election in 2017, the party’s number of lawmakers has grown by almost ten times.

Les Républicains UDI also won 64 seats.

This hung parliament situation will make it very difficult for Macron to enact his second-term legislative agenda and will require a level of power-sharing among political parties not seen for many years. It may even create the need for repeat elections if the government becomes overly paralyzed with indecision.

So, where to go from here?

A Coalition Government?…

There is still some outside chance for an alliance – and an absolute majority – to be created between Macron’s Ensemble! and Les Républicains. This would be the most likely collaboration with regards to their shared economic policies, as they’re both interested in increasing the retirement age and pushing nuclear energy, for example. This has yet to be confirmed, though.

France doesn’t have much in the way of recent history or experience with running coalition governments under the Fifth Republic. In the past, when it was the norm during the Third and Fourth Republics, such government was seen as too unstable, and as a result, when Charles de Gaulle was in power after WW2, he drafted the new constitution, which gave the president wide-ranging powers.

If France has to form a coalition, it will be a challenging situation for everyone.

Government spokeswoman Olivia Gregoire told France Inter radio, “It’s going to be complicated, we’re going to have to be creative.” Meanwhile, Prime Minister Elizabeth Borne commented that her government would get to work immediately to reach out to potential partners in order to rally a majority behind it. “I have trust in all of us and in our sense of responsibility,” she said, “We want to continue to protect you and ensure your security.”

…Or constant negotiation on upcoming bills?

The other option is to negotiate on policy and lawmaking with the other parties on a case-by-case basis.

This type of situation has only happened once before in the Fifth Republic, during the five-year leadership of President Francois Mitterrand, beginning in 1988, when he was forced to cut deals with the center-right and occasionally even the communist party after also failing to win the majority of the French National Assembly.

However, the situation was so unstable that the government of that time often used Article 49 paragraph 3 (49.3) of the French Constitution, which allows for the passage of law without a vote – this article was used 39 times in 5 years!

When parliament sits for the first time later this month, it will face its first hurdle, which might impact the markets.

How did the markets respond? What should investors expect?

The French benchmark, the CAC 40 index, edged slightly higher on Monday in relatively thin trading volumes due to the absence of Wall Street traders and is just leaving a bear market situation (a 20% fall from a recent peak). On Tuesday, the French market accelerated but closed below the 6,000 mark.

Daily CAC40 Chart – Source: ActivTrader Trading Platform from ActivTrades

Still, traders are worried about rising inflation and tightening financial conditions in the most developed economies in the world, as central banks in Western countries are increasing interest rates more rapidly and more aggressively than expected.

Investors are also uncertain about how the French President and his administration will manage the relative majority to be able to implement their program. The movements in the French indexes and the euro (EUR) will reflect how the situation is managed and the impact on European economic and fiscal policies.

Higher upcoming volatility should be expected on both assets. Remember to always protect your trading capital by following strict money management tools and using all available features from your broker to help better control your risk. For instance, ActivTrades offers innovative and unique trading tools for traders to take advantage of market conditions, like with pull-back trading orders, while protecting their investments, like with progressing trailing stops.

Banks, energy stocks fuel rebound in European shares

By Sruthi Shankar

(Reuters) -European stocks rose strongly on Monday after a sharp selloff last week on recession worries, while gains in French shares were capped after President Emmanuel Macron lost an absolute majority in the country’s parliamentary election.

The pan-European STOXX 600 index closed up 1.0%, with battered banking, travel and energy stocks leading the gains, but volumes were crimped with U.S. markets closed for a holiday.

The benchmark shed 4.6% and hit over one-year lows last week in a global sell-off that was fuelled by worries about aggressive interest rate hikes by the U.S. Federal Reserve and other major central banks sparking a recession.

“Friday’s options expiry and the lack of big central bank decisions might help equity bulls to wrench back control this week, even if only for a short while,” said Chris Beauchamp, chief market analyst at online trading platform IG.

European Central Bank Chief Christine Lagarde on Monday reaffirmed plans to raise interest rates twice this summer, while fighting widening spreads in the borrowing costs of different euro zone countries.

France’s blue-chip CAC 40 rose 0.6%, the least among major regional indexes, after Emmanuel Macron’s centrist Ensemble coalition secured the most seats in the National Assembly over the weekend but fell well short of securing an absolute majority needed to control parliament.

“It will mean that there will probably be less structural reforms but we’re already underweight Europe and it does not significantly change our stance,” said Willem Sels, global chief investment officer, private banking and wealth management at HSBC.

The STOXX 600 has shed almost 17% this year so far, as a cocktail of worries from soaring inflation to China’s slowing economy and cost-of-living crisis in the UK dampen risk appetite.

“We’ll continue to see some volatility because inflation, in our view, is not going to start to come down until the end of this year,” Sels added.

Data showed German producer prices surged by a more-than-expected 33.6% in May, on a year-on-year basis.

Europe’s construction and materials index dropped 1.8% after Irish building insulation specialist Kingspan said the mood in most end markets deteriorated resulting in a dip in orders over the last two months.

Kingspan’s shares tumbled 11.4%, while Danish peer Rockwool and France’s Saint-Gobain fell around 4% each.

French carmaker Renault jumped 9.7% after Jefferies upgraded the stock to “Buy”.

Valneva surged 29.3% after U.S. healthcare giant Pfizer agreed to invest 90.5 million euros ($95.24 million) for an 8.1% stake in the French vaccine company.

(Reporting by Sruthi Shankar and Susan Mathew in Bengaluru; Editing by Bernadette Baum)

The Week Ahead – Central Banks and US Inflation in Focus

On the Macro

It is a quiet week ahead on the economic calendar, with stats 39 due out through the week ending June 10. In the week prior, 77 stats were in focus.

For the Dollar:

While it is a quiet week ahead, it is an important one.

On Thursday, jobless claims will draw interest ahead of inflation figures on Friday.

With plenty of market sensitivity to inflation and Fed monetary policy, Friday’s numbers will be key.

In the week ending June 3, 2022, the Dollar Spot Index rose by 0.46% to end the week at 102.140. In the week prior, the Index slid by 1.44% to 101.668.

For the EUR:

German factory orders and industrial production figures will draw market interest on Tuesday and Wednesday.

The markets will also look for any revisions to Eurozone GDP numbers on Wednesday ahead of the ECB interest rate decision on Thursday.

With the markets expecting the ECB to leave rates unchanged, the focus will be on ECB President Christine Lagarde and the press conference.

For the week, the EUR fell by 0.15% to $1.0719. In the previous week, the EUR rallied by 1.62% to $1.0735.

For the Pound:

BRC Retail Sales Monitor numbers for May are due out on Tuesday along with finalized private sector PMIs. Any revisions to the services PMI will have the greatest impact on the Pound.

Other stats include house price data and construction PMI numbers that should have a muted impact on the Pound.

In the week, the Pound slid by 1.13% to end the week at $1.2488. The Pound rose by 1.21% to $1.2631 in the week prior.

For the Loonie:

Trade data and the Ivey PMI will be in focus on Tuesday. Expect the trade data to draw the most interest.

On Friday, employment figures for May will be the key stats of the week, however.

In the week ending June 3, the Loonie rose by 1.02 to C$1.2594 against the greenback. The Loonie rose by 0.90% to C$1.27240in the week prior.

From the Asia Pacific

For the Aussie Dollar:

It’s a particularly quiet week ahead on the economic data front, with stats limited to business confidence figures.

The NAB Business Confidence numbers for May are due out on Wednesday.

The main event, however, will be the RBA’s June monetary policy decision on Tuesday. The markets are expecting a 25-basis point hike. Anything more and a hawkish rate statement would support an Aussie Dollar breakout.

In the week, the Aussie Dollar rose by 0.63% to $0.7207. In the week prior, the Aussie Dollar increased by 1.73% to $0.7162.

For the Kiwi Dollar:

It’s also a quiet week ahead, with electronic card retail sales the only stat to consider. The markets will need to wait until Friday for the May figures, leaving the Kiwi Dollar in the hands of market risk sentiment early in the week.

The Kiwi Dollar slipped by 0.34% to end the week at $0.6510. In the previous week, the Kiwi Dollar rallied by 2.16% to $0.6532.

For the Japanese Yen:

On Tuesday, household spending will draw interest ahead of first quarter GDP numbers due out on Wednesday.

The numbers are unlikely to have a material impact on the Yen, however, with monetary policy divergence Yen negative.

The Japanese Yen slid by 2.96% to end the week at ¥130.88 against the dollar. In the week prior, the Yen ended the week up 0.59% to ¥127.12.

Out of China

Trade data will draw plenty of interest on Thursday ahead of inflation numbers on Friday.

Early in the week, the Caixin Services PMI for May will set the tone.

On Monday, the Chinese Yuan rose by 0.58% to CNY6.6603. The Yuan slipped by 0.10% to CNY6.6994 in the week prior.

Geo-Politics

Russia and Ukraine will remain the area of focus in the week ahead, along with chatter from China.

European Equities: A Week in Review – 03/06/22

The Majors

It was a bearish week for the European majors in the week ending June 3, 2022.

The EuroStoxx600 fell by 0.87%, with the CAC40 and the DAX seeing losses of 0.47% and 0.01%, respectively.

A pickup in inflationary pressure and disappointing private sector PMI figures weighed on the European majors. The pickup in inflationary pressure supported the ECB’s planned shift in monetary policy.

From the US, hawkish FOMC member chatter and nonfarm payrolls added pressure, with the pickup in hiring supporting a more aggressive Fed interest rate path trajectory.

Economic data from China reflected the impact of the prolonged COVID-19 lockdown measures on the economy.

The services and manufacturing sectors continued to contract, albeit at a slower pace. In May, the NBS manufacturing PMI increased from 47.4 to 49.6, with the services PMI up from 41.9 to 47.8.

The all-important Caixin manufacturing PMI rose from 46.0 to 48.1.

The Stats

It was a particularly busy week on the Eurozone economic calendar.

Key stats included private sector PMI and inflation figures for member states and the Eurozone.

A pickup in inflationary pressure, according to prelim figures for May, pressured the majors.

The Eurozone’s annual rate of inflation accelerated from 7.4% to 8.1%.

Private sector PMIs disappointed, however.

In May, the Eurozone’s manufacturing PMI fell from 55.5 to 54.6, with the services PMI down from 57.7 to 56.1. As a result, the composite PMI slipped from 55.8 to 54.9.

On the monetary policy front, bets of a move away from negative rates also tested support.

From the US

In the first half of the week, consumer confidence and manufacturing PMI numbers delivered Dollar support.

The CB Consumer Confidence Index fell from 108.6 to 106.4, while the ISM Manufacturing PMI rose from 55.4 to 56.1. Economists forecast the CB Consumer Confidence Index to fall to 103.9.

On Thursday, ADP nonfarm employment change figures disappointed ahead of the all-important NFP numbers on Friday.

Nonfarm payrolls increased by 390k in May, following a 436k jump in April. Despite the increase, the unemployment rate held steady at 3.6% due to a pickup in the participation rate from 62.2% to 62.3%.

The Market Movers

From the DAX, it was a bullish week for the auto sector. BMW and Volkswagen rose by 2.67% and by 2.92%, respectively. Continental and Daimler saw gains of 1.53% and 2.01%, respectively.

It was a mixed week for the banking sector. Deutsche Bank fell by 1.85%, while Commerzbank rose by 0.99%.

From the CAC, it was also a mixed week for the French banks. Soc Gen gained 0.40%, while Credit Agricole slid by 11.20%. BNP Paribas ended the week down by 1.85%.

The French auto sector had a mixed week. Stellantis NV slipped by 0.03%, while Renault rose by 2.34%.

Air France-KLM slid by 4.74%, with Airbus ending the week down 2.84%.

On the VIX Index

In the week ending June 3, the VIX fell for a fourth week in five.

Following a 12.61% loss from the previous week, the VIX fell by 3.62% to end the week at 24.79.

2-days in the red from 4 sessions, which included a 1.91% decline on Wednesday did the damage.

For the week, the S&P500 fell by 1.20%, with the Dow and the NASDAQ seeing losses of 0.94% and 1.20%, respectively.

VIX
VIX 030622 Weekly Chart

The Week Ahead

It is another busy week on the Eurozone economic calendar.

German factory orders and industrial production figures will draw market interest on Tuesday and Wednesday.

The markets will also look for any revisions to Eurozone GDP numbers on Wednesday ahead of the ECB interest rate decision on Thursday.

With the markets expecting the ECB to leave rates unchanged, the focus will be on ECB President Christine Lagarde and the press conference.

From the US, jobless claims and inflation figures for May will draw plenty of interest. Another spike in inflation would test support for riskier assets.

Economic data from China will also influence. Trade and inflation numbers are due out on Thursday and Friday.

The Weekly Wrap – Nonfarm Payrolls Delivers Dollar Strength

The Stats

It was a busy week on the economic calendar for the week ending June 3, 2022.

A total of 77 stats were monitored, following 46 stats in the week prior.

Of the 77 stats, 39 beat forecasts, with 29 economic indicators falling short of forecast. Nine stats were in line with forecasts.

Looking at the numbers, 34 of the stats reflected an upward trend. Of the remaining 43 stats, 39 stats were weaker.

Out of the US

In the first half of the week, consumer confidence and manufacturing PMI numbers delivered Dollar support.

The CB Consumer Confidence Index fell from 108.6 to 106.4, while the ISM Manufacturing PMI rose from 55.4 to 56.1. Economists forecast the CB Consumer Confidence Index to fall to 103.9.

On Thursday, ADP nonfarm employment change figures disappointed ahead of the all-important NFP numbers on Friday.

Nonfarm payrolls increased by 390k in May, following a 436k jump in April. Despite the increase, the unemployment rate held steady at 3.6% due to a pickup in the participation rate from 62.2% to 62.3%.

In the week ending June 3, 2022, the Dollar Spot Index rose by 0.46% to end the week at 102.140. In the week prior, the Index slid by 1.44% to 101.668.

Out of the UK

Economic data was limited to finalized manufacturing PMI numbers for May, which had a muted impact on the Pound.

In line with prelim, the manufacturing PMI fell from 55.8 to 54.6.

In the week, the Pound slid by 1.13% to end the week at $1.2488. The Pound rose by 1.21% to $1.2631 in the week prior.

The FTSE100 ended the week down 0.69%, partially reversing a 2.65% rally from the previous week.

Out of the Eurozone

It was a particularly busy week on the Eurozone economic calendar.

Key stats included private sector PMI and inflation figures for member states and the Eurozone.

A pickup in inflationary pressure, according to prelim figures for May, delivered EUR support.

The Eurozone’s annual rate of inflation accelerated from 7.4% to 8.1%.

Private sector PMIs disappointed, however.

In May, the Eurozone’s manufacturing PMI fell from 55.5 to 54.6, with the services PMI down from 57.7 to 56.1. As a result, the composite PMI slipped from 55.8 to 54.9.

On the monetary policy front, bets of a move away from negative rates delivered EUR support, however.

For the week, the EUR slipped by 0.15% to $1.0719. In the previous week, the EUR rallied by 1.62% to $1.0735.

The EuroStoxx600 fell by 0.87%, with the CAC40 and the DAX seeing losses of 0.47% and 0.01%, respectively.

For the Loonie

GDP numbers for March and the first quarter were the key stats of the week. It was a mixed set of numbers, with the economy growing at a slower pace at the end of the quarter.

Quarter-on-quarter, the economy grew by 0.8% after expanding by 1.6% in the fourth quarter.

While the GDP numbers were Loonie negative, the Bank of Canada delivered the support with a 50-basis point rate hike.

In the week ending June 3, the Loonie rose by 1.02 to C$1.2594 against the greenback. The Loonie rose by 0.90% to C$1.27240in the week prior.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rose by 0.63% to $0.7207, while the Kiwi Dollar slipped by 0.34% to end the week at $0.6510.

For the Aussie Dollar

GDP, retail sales, and trade data were in focus.

It was a mixed set of numbers, with GDP and retail sales figures Aussie Dollar negative.

In the first quarter, the economy grew by 0.8%, weaker than the 3.4% growth in the fourth quarter.

Retail sales rose by 0.9% in April, following a 1.6% increase in March.

Aussie Dollar positive was a widening of the trade surplus.

In April, the trade surplus widened from A$9.314bn to A$10.459bn.

Other stats included building approvals, manufacturing sector data, company gross operating profit, and current account numbers that had a muted impact on the Aussie Dollar.

For the Kiwi Dollar

Business confidence and building consent numbers delivered little support.

In April, building consents slid by 8.5%, reversing a 6.2% rise in March.

Business confidence waned in May, with the ANZ Business Confidence Index falling from -42 to -55.

For the Japanese Yen

Industrial production and retail sales figures delivered mixed results.

According to prelim figures, industrial production fell by 1.3% in April, reversing a 0.3% increase in March. The fall affirmed the Bank of Japan’s concerns over the effect of the Ukraine war and China’s lockdown measures on the economy.

Retail sales increased by 2.9% in April year-on-year, up from 0.70% in March.

Service sector activity also improved, with the services PMI rising from 50.7 to 52.6.

The Japanese Yen slid by 2.96% to end the week at ¥130.88 against the dollar. In the week prior, the Yen ended the week up 0.59% to ¥127.12.

Out of China

Private sector PMIs drew market interest in the week.

The NBS manufacturing PMI increased from 47.4 to 49.6, with the services PMI up from 41.9 to 47.8.

The all-important Caixin manufacturing PMI rose from 46.0 to 48.1.

In the week ending June 3, the Chinese Yuan rose by 0.58% to CNY6.6603. The Yuan slipped by 0.10% to CNY6.6994 in the week prior.

The Hang Seng Index and the CSI300 ended the week up by 1.86% and by 2.21%, respectively.

The Week Ahead – Economic Data and Central Bank Chatter in Focus

On the Macro

It is a busy week ahead on the economic calendar, with stats 75 due out through the week ending May 27. In the week prior, 46 stats were in focus.

For the Dollar:

US consumer confidence will be in focus ahead of private sector PMIs on Wednesday and Friday.
Expect the consumer confidence and the market’s preferred ISM non-manufacturing PMI to draw plenty of interest.

The key stats of the week, however, will be nonfarm payrolls and the unemployment rate on Friday, which could define the Fed’s next move on interest rates.

On the monetary policy front, expect FOMC member chatter to draw plenty of attention.

In the week ending May 27, 2022, the Dollar Spot Index slid by 1.44% to end the week at 101.668. In the week prior, the Index fell by 1.35% to 103.150.

For the EUR:

Early in the week, French GDP and German unemployment figures will draw interest, as will member state and Eurozone inflation.

Mid-week finalized Eurozone manufacturing figures will also draw interest.

After a quiet Thursday, German trade data and finalized service PMI and composite PMI figures will influence.

On the monetary policy front, ECB President Christine Lagarde will also provide direction.

For the week, the EUR jumped by 1.62% to $1.0735. In the previous week, the EUR rallied by 1.46% to $1.05064.

For the Pound:

It is a quiet week ahead, with stats limited to finalized manufacturing PMI numbers for May. The stats are unlikely to have a material impact on the Pound, however.

In the week, the Pound rose by 1.21% to end the week at $1.2631. The Pound rallied by 1.78% to $1.2480 in the week prior.

For the Loonie:

On Tuesday, GDP numbers will be the key stats of the week.

The main event, however, will be the Bank of Canada monetary policy decision on Wednesday.

With the markets expecting a 50-basis point hike, it will come down to the rate statement.

In the week ending May 27, the Loonie rose by 0.90 to C$1.2724 against the greenback. The Loonie rose by 0.69% to C$1.2840 in the week prior.

From the Asia Pacific

For the Aussie Dollar:

Private sector credit and company gross operating profit figures will be in focus on Tuesday.

On Wednesday, the market attention will shift to Q1 GDP numbers ahead of finalized retail sales and trade data on Friday.

In the week, the Aussie Dollar rose by 1.73% to $0.7162.

For the Kiwi Dollar:

It’s a quiet week ahead, with building consents and business confidence numbers due out.

Expect the ANZ Business Confidence report to have the greatest impact.

The Kiwi Dollar rallied by 2.16% to end the week at $0.6532.

For the Japanese Yen:

Prelim industrial production and retail sales figures will draw market interest on Tuesday.

On Wednesday, capital spending figures for the first quarter are also due out ahead of finalized service PMI numbers on Friday.

The Japanese Yen rose by 0.59% to end the week at ¥127.12 against the dollar. In the week prior, the Yen ended the week up 1.04% to ¥127.88.

Out of China

Private sector PMIs are due out in the week ahead. While the NBS numbers will influence on Tuesday, the market’s preferred Caixin Manufacturing PMI should have a greater impact on Wednesday.

In the week ending May 20, the Chinese Yuan slipped by 0.10% to CNY6.6994. The Yuan rose by 1.42% to CNY6.7930 in the week prior.

Geo-Politics

Russia and Ukraine will remain the area of focus in the week ahead, along with chatter from China.

The Weekly Wrap – The Greenback Slides for a Second Week in a Row

The Stats

It was a quieter week on the economic calendar for the week ending May 27, 2022.

A total of 46 stats were monitored, following 60 stats in the week prior.

Of the 46 stats, 11 beat forecasts, with 28 economic indicators falling short of forecast. Seven stats were in line with forecasts.

Looking at the numbers, 12 of the stats reflected an upward trend. Of the remaining 34 stats, 32 stats were weaker.

Out of the US

In the first half of the week, private sector PMIs and core durable goods orders were the key stats.

The numbers were skewed to the negative, supporting the negative sentiment towards the economy.

In May, the services PMI fell from 55.6 to 53.5, with core durable goods orders rising by just 0.3%. Core durable goods orders had risen by 1.2% in April.

On Thursday, the stats were also Dollar negative, with the US economy contracting by more than expected.

Inflation and personal spending numbers wrapped things up on Friday.

In April, the core PCE price index increased by 4.9% year-on-year, softer than a 5.2% rise in March.

Personal spending increased by a further 0.9% in April, following a 1.4% jump in March.

While the stats influenced, the FOMC meeting minutes on Wednesday also drew plenty of interest. The minutes were hawkish, showing members’ willingness to deliver multiple 50 basis point rate hikes. Aligned with previous Fed Chair Powell’s commentary, members were also willing to move beyond neutral to curb inflation.

The minutes did talk of a shift in policy in the coming months, however, which eased investor fears of a move beyond neutral.

In the week ending May 27, 2022, the Dollar Spot Index slid by 1.44% to end the week at 101.668. In the week prior, the Index fell by 1.35% to 103.150.

Out of the UK

A quiet week left the Pound in the hands of private sector PMI numbers for May, which were Pound negative.

In May, the all-important services PMI slumped from 58.9 to 51.8 versus a forecasted fall to 56.9. With manufacturing sector activity also slowing, the Composite PMI tumbled from 58.2 to 51.8.

While the numbers were Pound negative, Dollar weakness prevailed to deliver a return to $1.26 levels.

In the week, the Pound rose by 1.21% to end the week at $1.2631. The Pound rallied by 1.78% to $1.2480 in the week prior.

The FTSE100 ended the week up 2.65%, reversing a 0.38% loss from the previous week.

Out of the Eurozone

It was a busy first half of the week, with German business and private sector PMIs in focus.

The stats were market positive, with German business sentiment and German manufacturing sector activity delivering support.

Germany’s ifo Business Climate Index increased from 91.9 to 93.0 in May, with the manufacturing sector PMI up from 54.6 to 54.7.

For France and the Eurozone, however, the private sector numbers were EUR negative.

The Eurozone manufacturing PMI fell from 55.5 to 54.4, with the composite declining from 55.8 to 54.9.

Mid-week, German GDP and consumer climate figures failed to impress, with consumer sentiment still weak in June. The second estimate GDP numbers were in line with the first estimate, with the German economy expanding by 0.2% in the first quarter.

While the stats were mixed, hawkish ECB chatter delivered EUR support, with the ECB talking of a shift from negative rates.

For the week, the EUR jumped by 1.62% to $1.0735. In the previous week, the EUR rallied by 1.46% to $1.05064.

The EuroStoxx600 rose by 2.98%, with the CAC40 and the DAX seeing gains of 3.67% and 3.44%, respectively.

For the Loonie

Economic data was limited to retail sales figures for March. It was a mixed set of numbers, with core retail sales jumping by 2.4% to deliver support. Retail sales were flat, however, falling well short of a forecasted 1.4% rise.

In the week ending May 27, the Loonie rose by 0.90 to C$1.2724 against the greenback. The Loonie rose by 0.69% to C$1.2840 in the week prior.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rose by 1.73% to $0.7162, with the Kiwi Dollar rallying by 2.16% to end the week at $0.6532.

For the Aussie Dollar

Retail sales delivered support late in the week, with sales up 0.9% in April. In March, retail sales had risen by 1.6%.

Other stats included construction work done and private new CAPEX numbers that had a muted impact on the Aussie Dollar.

For the Kiwi Dollar

Retail sales were also the key stat in the week, which disappointed. In the first quarter, retail sales fell by 0.5% quarter-on-quarter. Retail sales had jumped by 8.6% in the previous quarter.

While the stats disappointed, the RBNZ lifted the cash rate by 50 basis points with the talk of more to come delivering Kiwi Dollar support.

For the Japanese Yen

Early in the week, private sector PMI numbers were Yen positive, with inflation figures also delivering support.

According to prelim figures, Japan’s service sector PMI increased from 50.7 to 51.7.

Tokyo’s core annual rate of inflation held steady at 1.9% in May.

While the stats were Yen positive, a shift in sentiment towards Fed monetary policy delivered the upside for the Yen. The latest stats from Japan are unlikely to pressure the Bank of Japan to make a move.

The Japanese Yen rose by 0.59% to end the week at ¥127.12 against the dollar. In the week prior, the Yen ended the week up 1.04% to ¥127.88.

Out of China

There were no major stats to influence.

In the week ending May 20, the Chinese Yuan slipped by 0.10% to CNY6.6994. The Yuan rose by 1.42% to CNY6.7930 in the week prior.

The Hang Seng Index and the CSI300 ended the week down by 0.10% and by 1.87%, respectively.

European Equities: A Week in Review – 27/05/22

The Majors

It was a bullish week for the European majors in the week ending May 27, 2022.

The EuroStoxx600 rose by 2.98%, with the CAC40 and the DAX seeing gains of 3.67% and 3.44%, respectively.

Economic data and market sentiment towards Fed monetary policy delivered support in the week.

Market angst over the threat of a recession eased, with economic data from the US showing robust consumer spending in April. Adding support was softer inflation figures at the end of the week.

On Wednesday, the FOMC meeting minutes were also market-friendly, with the minutes suggesting the Fed may take its foot off the gas in the coming months.

From the ECB, ECB President Christine Lagarde talked of an end to negative rates but not much more, which was also market positive.

The Stats

It was a busy first half of the week, with German business and private sector PMIs in focus.

The stats were market positive, with German business sentiment and German manufacturing sector activity delivering support.

Germany’s ifo Business Climate Index increased from 91.9 to 93.0 in May. The manufacturing sector PMI rose from 54.6 to 54.7, according to prelim figures.

For France and the Eurozone, however, the private sector numbers were market negative.

The Eurozone manufacturing PMI fell from 55.5 to 54.4, with the composite declining from 55.8 to 54.9.

Mid-week, German GDP and consumer climate figures failed to impress, with consumer sentiment still weak in June. The second estimate GDP numbers were in line with the first estimate, with the German economy expanding by 0.2% in the first quarter.

From the US

In the first half of the week, private sector PMIs and core durable goods orders were the key stats.

The numbers were skewed to the negative, supporting the negative sentiment towards the economy.

In May, the services PMI fell from 55.6 to 53.5, with core durable goods orders rising by just 0.3%. Core durable goods orders had risen by 1.2% in April.

On Thursday, the stats were also Dollar negative, with the US economy contracting by more than expected.

Inflation and personal spending numbers wrapped things up on Friday.

In April, the core PCE price index increased by 4.9% year-on-year, which was softer than a 5.2% rise in March.

Personal spending increased by a further 0.9% in April, following a 1.4% jump in March.

While the stats influenced, the FOMC meeting minutes on Wednesday also drew plenty of interest. The minutes were hawkish, showing members’ willingness to deliver multiple 50 basis point rate hikes. Aligned with previous Fed Chair Powell’s commentary, members were also willing to move beyond neutral to curb inflation.

The minutes did talk of a shift in policy in the coming months, however, which eased investor fears of a move beyond neutral.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Continental ended the week up by 5.55%, with Volkswagen rising by 4.50%. BMW and Daimler saw gains of 4.29% and 4.30%, respectively.

It was a bullish week for the banking sector. Deutsche Bank and Commerzbank rallied by 11.00% and by 11.60%, respectively.

From the CAC, it was a mixed week for the French banks. Soc Gen and Credit Agricole rose by 1.55% and by 8.28%, respectively, while BNP Paribas slipped by 0.30%.

The French auto sector had a bullish week. Stellantis NV rose by 1.89%, with Renault up 4.18%.

Air France-KLM slumped by 58.72% on rights issue, while Airbus ended the week up 4.62%.

On the VIX Index

In the week ending May-27, the VIX fell for a third week in four, with four days in the red from five sending the VIX into the red.

Reversing a 1.94% gain from the previous week, the VIX slid by 12.61% to end the week at 25.72.

4-days in the red from 5 sessions, which included a 6.47% decline on Friday did the damage.

For the week, the NASDAQ rallied by 6.84%, with the Dow and the S&P500 seeing gains of 6.24% and 6.58%, respectively.

VIX 270522 Weekly Chart

The Week Ahead

It is a busy week on the Eurozone economic calendar.

Early in the week, French GDP and German unemployment figures will draw interest along with member state and Eurozone inflation.

Mid-week finalized Eurozone manufacturing figures will also draw interest.

After a quiet Thursday, German trade data and finalized service PMI and composite PMI figures will influence.

From the US, consumer confidence will be in focus ahead of private sector PMIs on Wednesday and Friday.

The key stats of the week, however, will be nonfarm payrolls and the unemployment rate, which could define the Fed’s next move on interest rates and give further clues on the state of the US economy.

European shares seen holding near current levels through 2022 – Reuters poll

By Samuel Indyk

LONDON (Reuters) – Central bank policy tightening, fears of a recession and the economic impact of the war in Ukraine are all expected to keep a lid on any significant advance in European stocks for the remainder of 2022, a Reuters poll found.

The poll of 21 fund managers, strategists and analysts, surveyed over the past two weeks, forecast the pan-European STOXX 600 index would reach 450 points by the end of the year, a 3.1% gain from Monday’s close.

European shares have sunk over 10% so far this year, suffering their worst start to a year since the COVID outbreak in 2020 and their second-worst start since 2008.

Graphic: STOXX 600 year to date – https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoxndkvr/Pasted%20image%201653380583417.png

4c7e9da7-d9b5-4034-89cb-c2f9a862c7701

The decline in European stocks comes despite an upbeat first-quarter reporting season that is expected to show a 41.5% jump in earnings, according to Refinitiv I/B/E/S data. Excluding the energy sector, earnings are expected to have risen 22.4%.

But the outlook remains uncertain, with regional equities facing a number of headwinds moving towards the second half that cloud the prospects for earnings growth.

The ongoing war in Ukraine, persistent inflation and increased recession risk are all factors adding to the uncertain backdrop, according to Stephane Ekolo, global equity strategist at Tradition.

“We are still wary on equities given the very difficult geopolitical and macro backdrop coupled with a risk of margins pressures,” said Ekolo, who forecast the STOXX 600 index would drop approximately 55 points to 380 by the end of the year.

One of the main risks cited by poll respondents was the speed at which central banks, including the European Central Bank (ECB), are expected to tighten policy throughout the year to rein inflation in. [ECILT/EU]

European Central Bank President Christine Lagarde said on Tuesday she saw the ECB’s deposit rate at zero or “slightly above” by the end of September, implying an increase of at least 50 basis points from its current level.

Money markets are pricing in over 100 basis points of ECB interest rate hikes by the end of the year.

“The ECB moving aggressively on monetary policy, especially when a growth slowdown is expected will weigh negatively on the region,” said Philipp Lisibach, chief global strategist at Credit Suisse.

Lisibach also highlighted prolonged higher energy prices, a spillover or escalation of the Ukraine conflict and a stronger euro as key risks to the outlook for euro zone equities.

The ECB last raised interest rates in 2011 and its deposit rate has been in negative territory since 2014.

Among country benchmarks, Germany’s DAX was seen ending the year at 14,000 points, down marginally from Monday’s closing price, according to the poll.

Britain’s FTSE 100 was seen at 7,494 at the end of the year, little changed from Monday’s close, while France’s CAC 40 was seen edging higher to 6,400.

(Other stories from the Reuters global stock markets poll package:)

(Reporting by Samuel Indyk; Additional polling by Milounee Purohit, Vijayalakshmi Srinivasan, Julien Ponthus and Danilo Masoni; Editing by Bernadette Baum)

German Business Sentiment Improves to Deliver EUR Support

It was a quiet Eurozone economic calendar, with stats limited to German ifo Business Climate Index numbers for May.

Ahead of the stats, a pickup in market risk appetite delivered support for the EUR. News of US President Joe Biden saying that China tariffs are under review, Shanghai lockdown measures easing, and reaction to hawkish ECB President Lagarde chatter delivered support for the EUR and riskier assets.

German Business Sentiment Improves in May

The ifo Business Climate Index increased from 91.9 to 93.0, beating a forecasted decline to 91.4.

According to the May report,

Manufacturing:

  • The index jumped, supported by a better assessment of the current situation and a pickup in business expectations.
  • Firms remained uncertain about the coming months, however, driven by a significant slowdown in demand and incoming orders.

Services:

  • Service providers were more satisfied with their current business, improving at the most marked rate since June 2021.
  • Expectations became pessimistic, with transport and logistics companies having material concerns.

Trade:

  • The index for trade increased for the first time in three months, supported by an improvement in the assessment of the current situation.
  • While expectations improved, sentiment towards the months ahead remained pessimistic.

At the country level, the situation index climbed from 97.3 to 99.5, with the expectations index up from 86.8 to 86.9. Economists forecast the situation index to fall to 95.8 and the expectations index to decline to 83.5.

Market Impact

Ahead of today’s numbers, the EUR fell to a pre-stat and a current-day low of $1.05566.

In response to today’s stats, the EUR rose to a post-stat and a current-day high of $1.06736.

At the time of writing, the EUR was up by 1.06% to $1.06724, with the DAX up 0.53%. The CAC40 gave up early gains, however, to sit with a modest 0.13% loss.

230522 EURUSD Hourly Chart

Next Up

There are no stats due out later in the day to provide the EUR and the European majors with direction.

The Week Ahead – Private Sector PMIs and US Inflation in Focus

On the Macro

It is a quiet week ahead on the economic calendar, with stats 41 due out through the week ending May 27. In the week prior, 59 stats were in focus.

For the Dollar:

Prelim private sector PMIs for May kick things off. With markets fretting over the risk of a recession, expect the services PMI to be the key.

On Wednesday, core durable goods orders will draw interest ahead of GDP and jobless claims figures on Thursday.

At the end of the week, core PCE price index and personal spending figures will also have a material impact on the dollar and market risk sentiment.

From the Fed, the FOMC meeting minutes should provide few surprises following recent Fed Chair Powell speeches.

In the week ending May 20, 2022, the Dollar Spot Index slid by 1.35% to end the week at 103.150. In the week prior, the Index rose by 0.87% to 104.563.

For the EUR:

On Monday, Germany’s Ifo business climate index will draw interest ahead of private sector PMI numbers on Tuesday.

While the markets may forgive a weaker business climate index, weak manufacturing PMIs will test support for the EUR.

On Wednesday, the German economy will be back in focus with GDP and consumer sentiment to wrap up the week.

For the week, the EUR rallied by 1.46% to $1.0564. In the previous week, the EUR slid by 1.32% to $1.0412.

For the Pound:

It is a quiet week ahead.

Prelim private sector PMIs for May will be in focus on Tuesday. With the markets looking to second guess the Bank of England’s interest rate trajectory, expect the Services PMI to have the greater influence.

In the week, the Pound rallied by 1.78% to end the week at $1.2480. The Pound fell by 0.70% to $1.2262 in the week prior.

For the Loonie:

On Thursday, retail sales will provide the Loonie with direction.

Away from the economic calendar, crude oil prices and market risk sentiment will remain key.

In the week ending May 20, the Loonie rose by 0.69 to C$1.2840 against the greenback. The Loonie fell by 0.42% to C$1.2929 in the week prior.

From the Asia Pacific

For the Aussie Dollar:

Private new CAPEX numbers for Q1 will set the tone ahead of all-important retail sales figures on Friday.

Expect the retail sales numbers to be the key driver.

In the week, the Aussie Dollar rose by 1.44% to $0.7040.

For the Kiwi Dollar:

On Tuesday, retail sales will be in focus ahead of the RBNZ monetary policy decision on Wednesday. The markets are expecting a 50-basis point rate hike. Impressive retail sales figures could support a bigger move.

The Kiwi Dollar rallied by 1.88% to end the week at $0.6394.

For the Japanese Yen:

It’s a quiet week, with economic data limited to private sector PMIs and Tokyo inflation figures due out on Friday.

The PMIs will provide the markets with a look at how the Japanese economy is affected by the war in Ukraine and COVID-19 in China.

While inflation is key for the BoJ, May figures are unlikely to shift the Bank of Japan’s stance on interest rates. Concerns over China’s lockdown measures and the war in Ukraine remain the central bank’s main consideration near-term.

The Japanese Yen rose by 1.04% to end the week at ¥127.88 against the dollar. In the week prior, the Yen ended the week up 1.03% to ¥129.22.

Out of China

There are no material stats due out of China to provide the markets with direction.

The lack of stats will leave the markets in the hands of COVID-19 news updates and chatter from Beijing.

In the week ending May 20, the Chinese Yuan rose by 1.42% to CNY6.6930. The Yuan slid by 1.84% to CNY6.7893 in the week prior.

Geo-Politics

Russia and Ukraine will remain the area of focus in the week ahead.

European Equities: A Week in Review – 20/05/22

The Majors

It was a bearish week for the European majors in the week ending May 20, 2022.

The CAC40 slid by 1.22%, with the EuroStoxx600 and the DAX seeing losses of 0.55% and 0.33%, respectively.

A bullish end to the week was not enough for the major bourses, with sentiment towards monetary policy and recession fears leaving the majors in the red.

Economic data from China set a bearish tone from the start of the week, as lockdown measures took their toll.

Rising inflationary pressures, the ongoing war in Ukraine, and a shift in sentiment towards Fed and ECB monetary policy did the damage.

The Stats

Early in the week, trade data and GDP numbers delivered mixed results.

In March, the Eurozone’s trade deficit widened from €7.6bn to €16.4bn, with the war in Ukraine continuing to hit crude oil prices.

Second estimate GDP numbers for the Eurozone were market positive, however. In Q1, the economy grew by 0.3%, up from a first estimate of 0.2%. Year on year, the economy expanded by 5.1%, up from a first estimate of 5.0%.

Finalized inflation figures for the Eurozone had a muted impact mid-week, with the annual rate of inflation easing from 7.5% to 7.4%.

At the end of the week, however, German producer prices for industrial goods surged by 33.5% compared with April 2021, the highest increase on record.

From the EU, downward revisions to economic forecasts weighed on the European equity markets.

For 2022, the European Commission forecasts growth of 2.7% and 2.3% for 2023. While the Commission revised both downwards, the 2022 revision was most marked.

In February, the European Commission forecast growth of 4.0% for 2022 and 2.7% for 2023.

From the ECB, the monetary policy meeting minutes provided few surprises, with the talk of summer rate hikes in line with market expectations.

From the US

Early in the week, retail sales and industrial production figures eased fears of an economic meltdown.

In April, retail sales jumped 2.5%, with industrial production rising by 1.1%.

On Thursday, jobless claims and Philly Fed Manufacturing numbers disappointed, however.

Initial jobless claims rose from 197k to 218k, in the week ending May 13, with the Philly Fed Manufacturing Index falling from 17.6 to 2.6 in May.

While the stats were mixed, Fed Chair Powell tested investor sentiment on Tuesday.

After providing the markets with assurances about larger rate hikes in the week prior, the Fed Chair talked of a willingness to move policy beyond neutral to curb inflation. Powell also discussed some possible pain ahead for the labor market while acknowledging that the Fed should have lifted rates sooner.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Volkswagen and Continental rose by 1.03% and by 0.51%, respectively, while Daimler and BMW saw losses of 1.25% and 0.27%, respectively.

It was a bullish week for the banking sector. Deutsche Bank rose by 0.16%. with Commerzbank ending the week up by 12.60%.

From the CAC, it was also a bullish week for the French banks. Soc Gen rallied by 4.97%, with Credit Agricole and BNP Paribas rising by 0.97% and 2.54%, respectively.

The French auto sector had a mixed week. Stellantis NV slid by 4.97%, while Renault rose by 2.42%.

Air France-KLM jumped by 10.52%, with Airbus ending the week up 0.53%.

On the VIX Index

In the week ending May-20, the VIX ended a two-week losing streak to mark a fifth weekly rise in 7-weeks.

Partially reversing a 4.37% decline from the previous week, the VIX rose by 1.94% to end the week at 29.43.

2-days in the green from 5 sessions, which included an 18.62% jump on Wednesday, delivered the upside.

For the week, the NASDAQ slid by 3.82%, with the Dow and the S&P500 seeing losses of 2.90% and 3.05%, respectively.

VIX 200522 Weekly Chart

The Week Ahead

It is a busier week ahead on the Eurozone economic calendar.

On Monday, Germany’s Ifo business climate index will draw interest ahead of private sector PMI numbers on Tuesday.

While the markets may forgive a weaker business climate index, weak manufacturing PMIs will test support for the majors.

On Wednesday, the German economy will be back in focus with GDP and consumer sentiment to wrap up the week.

From the US, prelim private sector PMIs for May kick things off. With the markets fretting over the risk of a recession, expect the services PMI to be the key.

On Wednesday, core durable goods orders will draw interest ahead of GDP and jobless claims figures on Thursday.

At the end of the week, core PCE price index and personal spending figures will also have a material impact on market risk sentiment.

From the Fed, the FOMC meeting minutes should provide few surprises following recent Fed Chair Powell speeches.

Away from the economic calendar, updates from China on lockdown measures and stimulus and the war in Ukraine will also influence.

The Weekly Wrap – A Six Week Winning Streak Ends for the Dollar

The Stats

It was a busy week on the economic calendar for the week ending May 20, 2022.

A total of 60 stats were monitored, following 45 stats in the week prior.

Of the 60 stats, 32 beat forecasts, with 20 economic indicators falling short of forecast. Eight stats were in line with forecasts.

Looking at the numbers, 25 of the stats reflected an upward trend. Of the remaining 35 stats, 34 stats were weaker.

Out of the US

Early in the week, retail sales and industrial production figures eased fears of an economic meltdown.

In April, retail sales jumped 2.5%, with industrial production rising by 1.1%.

On Thursday, jobless claims and Philly Fed Manufacturing numbers disappointed, however.

Initial jobless claims rose from 197k to 218k, in the week ending May 13, with the Philly Fed Manufacturing Index falling from 17.6 to 2.6 in May.

While the stats were mixed, Fed Chair Powell tested investor sentiment on Tuesday.

After providing the markets with assurances about larger rate hikes in the week prior, the Fed Chair talked of a willingness to move policy beyond neutral to curb inflation. Powell also discussed some possible pain ahead for the labor market while acknowledging that the Fed should have lifted rates sooner.

In the week ending May 20, 2022, the Dollar Spot Index slid by 1.35% to end the week at 103.150. In the week prior, the Index rose by 0.87% to 104.563.

Out of the UK

Employment and wage growth figures impressed, with average earnings + bonus up 7% in March versus a forecasted 5.4%.

The unemployment rate slipped from 3.8% to 3.7%, with claimant counts supporting a positive outlook for April. In April, claimant counts fell by 56.9k, following a 46.9k decline in March.

Inflation figures tested support for the Pound mid-week, however, with another spike raising concerns over the economic outlook.

The annual rate of inflation accelerated from 7.0% to 9.0% in April, falling just shy of a forecasted 9.1%.

On Friday, retail sales beat forecasts to deliver Pound support following a Dollar sell-off on Thursday.

In April, retail sales jumped by 1.4%, reversing a 1.2% slide from March.

In the week, the Pound rallied by 1.78% to end the week at $1.2480. The Pound fell by 0.70% to $1.2262 in the week prior.

The FTSE100 ended the week down 0.38%, reversing a 0.48% gain from the previous week.

Out of the Eurozone

Early in the week, trade data and GDP numbers delivered mixed results.

In March, the Eurozone’s trade deficit widened from €7.6bn to €16.4bn, with the war in Ukraine continuing to hit crude oil prices.

Second estimate GDP numbers for the Eurozone were EUR positive, however. In Q1, the economy grew by 0.3%, up from a first estimate of 0.2%. Year on year, the economy expanded by 5.1%, up from a first estimate of 5.0%.

Finalized inflation figures for the Eurozone had a muted impact mid-week, with the annual rate of inflation easing from 7.5% to 7.4%.

At the end of the week, however, German producer prices for industrial goods surged by 33.5% compared with April 2021, the highest increase on record.

From the EU, downward revisions to economic forecasts failed to sink the EUR while weighing on the European equity markets.

For 2022, the European Commission forecasts growth of 2.7% and 2.3% for 2023. While the Commission revised both downwards, the 2022 revision was most marked.

In February, the European Commission forecast growth of 4.0% for 2022 and 2.7% for 2023.

From the ECB, the monetary policy meeting minutes provided few surprises, with the talk of summer rate hikes in line with market expectations.

For the week, the EUR rallied by 1.46% to $1.0564. In the previous week, the EUR slid by 1.32% to $1.0412.

The CAC40 slid by 1.22%, with the EuroStoxx600 and the DAX seeing losses of 0.55% and 0.33%, respectively.

For the Loonie

The key stats of the week were inflation figures for April, which were Loonie positive.

In April, Canada’s annual rate of core inflation picked up from 5.5% to 5.7% versus a forecasted 5.4%.

Other stats in the week included manufacturing and wholesale sales and RMPI numbers that had a muted impact on the Loonie.

A pickup in crude oil prices also delivered support.

In the week ending May 20, the Loonie rose by 0.69 to C$1.2840 against the greenback. The Loonie fell by 0.42% to C$1.2929 in the week prior.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar rose by 1.44% to $0.7040, with the Kiwi Dollar rallying by 1.88% to end the week at $0.6394.

For the Aussie Dollar

Wage growth and employment numbers drew interest in the week, with the stats Aussie dollar positive.

In Q1, wages grew by 0.8%, following a 0.7% rise in Q4.

Full employment jumped by 92.4k in April to leave the unemployment rate at 3.9%. Employment increased by just 4.0k, with part-time employment a drag.

For the Kiwi Dollar

A quiet week on the data front left wholesale inflation and trade data in focus.

The stats were Kiwi dollar positive. In Q1, the PPI Input Index jumped by 3.6%, following a 1.2% rise in the quarter prior.

In April, New Zealand’s trade balance rose from a NZ$581 million deficit to a NZ$584 million surplus, with exports to Japan leading the way.

For the Japanese Yen

It was a busy week on the economic front, with GDP, trade, and inflation figures drawing interest.

The stats were skewed to the negative, with weaker GDP and trade data confirming the Bank of Japan’s concerns.

In Q1, the economy contracted by 0.2% and shrank by 1.0%, year on year.

The trade deficit widened from ¥414.1bn to ¥839.2bn in April, while the annual rate of inflation jumped from 0.8% to 2.1%.

With economic uncertainty likely to linger, the pickup in inflation is unlikely to force the BoJ’s hand just yet.

The Japanese Yen rose by 1.04% to end the week at ¥127.88 against the dollar. In the week prior, the Yen ended the week up 1.03% to ¥129.22.

Out of China

Economic data disappointed in the week and raised market fears of a global economic recession.

In April, industrial production fell by 2.9% year on year versus a forecasted 0.4% rise. Production had risen by 5.0% in March.

Fixed asset investments also continued a downward trend.

Assurances of government support, however, limited the damage.

In the week ending May 20, the Chinese Yuan rose by 1.42% to CNY6.6930. The Yuan slid by 1.84% to CNY6.7893 in the week prior.

The Hang Seng Index ended the week up 4.11%, with the CSI300 rising by 2.23%.

The Week Ahead – Central Banks Back in Focus Amidst Recession Fears

On the Macro

It is a busy week ahead on the economic calendar, with stats 59 due out through the week ending May 20. In the week prior, 45 stats were in focus.

For the Dollar:

It is a relatively busy week ahead.

On Tuesday, retail sales will be the area of focus ahead of jobless claims and Philly Fed manufacturing numbers on Thursday.

While the numbers will influence, Fed Chair Powell and FOMC member chatter will be the key in the week. The markets will be looking for Fed Chair Powell to back up comments from Friday and for members to align with his assurances.

On Friday, the Fed Chair assured the markets that larger rate hikes were off the table.

In the week ending May 13, 2022, the Dollar Spot Index rose by 0.87% to end the week at 104.563. In the week prior, the Index rose by 0.68% to 103.660.

For the EUR:

It is a quiet week ahead.

Eurozone trade and GDP numbers are due out ahead of finalized inflation figures on Wednesday.

Expect any revisions from the first estimate GDP and any upward revisions to prelim inflation figures to draw interest.

On Friday, flash consumer confidence figures for the Eurozone will wrap things up.

From the EU, the Economic Forecasts are due out on Monday and will likely have a greater impact than the numbers, however.

On the monetary policy front, ECB President Lagarde is due to speak on Tuesday, with the policy meeting minutes due out on Thursday.

For the week, the EUR slid by 1.32% to $1.0412. In the previous week, the EUR rose by 0.06% to $1.0551.

For the Pound:

It is a busy week ahead.

On Tuesday, claimant counts and the UK unemployment rate will draw interest ahead of inflation figures on Wednesday.

On Friday, retail sales numbers wrap things up. The stats will give the markets an idea of the impact of inflation on spending and whether the Bank of England needs to take a more hawkish stance to curb inflation.

From the BoE, the monetary policy report hearings will influence on Monday.

In the week, the Pound fell by 0.70% to end the week at $1.2262. The Pound tumbled by 1.79% to $1.2348 in the week prior.

For the Loonie:

Inflation will be the area of focus. On Wednesday, April’s figures are due out and will provide the Loonie with direction.

Other stats in the week include wholesale sales and RMPI numbers that will have less impact.

From the Asia Pacific

For the Aussie Dollar:

Wage growth will be in the spotlight on Wednesday ahead of employment numbers on Thursday.

While wage growth is an RBA consideration, employment figures will need to be positive to support a more hawkish RBA.

From the RBA, the meeting minutes are due out on Tuesday and will provide direction.

In the week, the Aussie Dollar slid by 1.92% to $0.6940.

For the Kiwi Dollar:

Wholesale inflation figures for the first quarter are out ahead of trade data on Friday.

With little else to consider, both sets of numbers will influence. However, China and sentiment towards the global economic outlook will remain the key drivers.

The Kiwi Dollar tumbled by 2.09% to end the week at $0.6276.

For the Japanese Yen:

First quarter GDP numbers will draw plenty of interest on Wednesday ahead of trade data on Thursday.

The Bank of Japan painted a grim picture at the last policy meeting, highlighting downside risks stemming from China and the war in Ukraine.

This week’s stats will give a sense of how bad it could be.

At the end of the week, April inflation figures are also due out. Barring a spike, however, we don’t expect too much influence on the Yen.

The Japanese Yen rose by 1.03% to end the week at ¥129.22 against the dollar. In the week prior, the Yen ended the week down by 0.66% to ¥130.56.

Out of China

Fixed asset investments, industrial production, and retail sales figures are out on Monday.

Expect plenty of interest in the numbers as the markets look to assess the impact of lockdown measures on economic activity.

While the government has promised support, we can expect market sensitivity to the numbers.

On the policy front, the PBoC will set loan prime rates on Friday, with any cuts to support riskier assets. Forecasts are for the PBoC to leave the LPRs unchanged.

Away from the economic calendar, COVID-19 news updates and chatter from Beijing will also influence.

In the week ending May 13, the Chinese Yuan slid by 1.84% to CNY6.7893. The Yuan declined by 0.88% to CNY6.6667 in the week prior.

Geo-Politics

Russia and Ukraine will remain the area of focus in the week ahead.

European Equities: A Week in Review – 13/05/22

The Majors

It was a bullish week for the European majors in the week ending May-13, 2022.

The DAX rallied by 2.59%, with the EuroStoxx600 and the CAC40 seeing gains of 0.83% and 1.67%, respectively. A Friday Fed Chair Powell induced rally pulled the CAC40 and the EuroStoxx600 into positive territory for the week.

A quiet economic calendar left the markets to consider the impact of persistent inflationary pressure, China’s lockdown measures, and the war in Ukraine on the economic outlook.

While US inflationary pressures softened in April, fears of a global recession spiked in the week. Adding to the market angst were concerns about a more aggressive Fed rate path to policy normalization.

The negative sentiment hit the global financial markets, with the European majors unable to avoid the fallout.

With the war in Ukraine showing no signs of ending and China grappling with the latest COVID-19 breakout, conditions could worsen.

Amidst recession fears, Fed Chair Powell delivered much-needed market support on Friday, however. The Fed Chair assured the markets that larger rate hikes remained off the table despite the latest US inflation numbers. For the DAX, it was the first weekly rise in six weeks.

The Stats

ZEW Economic Sentiment figures for Germany and the Eurozone and Eurozone industrial production figures were the key stats.

In May, economic sentiment improved, with Germany’s ZEW Economic Sentiment Index up from -41.0 to -34.3. The Eurozone’s ZEW Economic Sentiment Index climbed from -43.0 to -29.5.

At the end of the week, industrial production disappointed, however.

In March, industrial production fell by 1.8%. Production rose by a modest 0.5% in February.

From the US

Inflation was back in focus, which caused market turbulence mid-week.

In April, the annual rate of inflation softened from 8.5% to 8.3% versus a forecasted 8.1%. The core annual rate of inflation softened from 6.5% to 6.2%. While softer, inflation was stronger than anticipated, supporting the more hawkish sentiment towards Fed monetary policy.

On Thursday, wholesale inflation also drew attention. In the month of April, the core producer price index increased by 0.4% after a 1.2% rise in March.

Initial jobless claims had a muted impact despite a rise from 202k to 203k in the week ending May-06.

On the monetary policy front, Fed Chair Powell calmed the markets on Friday, assuring that larger rate hikes would remain off the table.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Continental rallied by 8.22%, with Daimler gaining 3.25%. BMW and Volkswagen saw losses of 1.77% and 1.14%, respectively.

It was a bullish week for the banking sector. Deutsche Bank rose by 0.34%. with Commerzbank ending the week up by 5.07%.

From the CAC, it was also a bullish week for the French banks. BNP Paribas rallied by 3.54%, with Credit Agricole and Soc Gen rising by 3.21% and 3.41%, respectively.

The French auto sector had a bullish week. Stellantis NV rallied by 4.88%, with Renault up 1.86%.

Air France-KLM fell by 1.62%, with Airbus ending the week down 1.06%.

On the VIX Index

In the week ending May-13, the VIX fell for a second consecutive week. The VIX had risen for four consecutive weeks ahead of the current downtrend.

Following a 9.61% decline from the previous week, the VIX fell by 4.37% to end the week at 28.87.

4-days in the red from 5 sessions, which included a 9.13% slide on Friday, delivered the downside.

For the week, the NASDAQ slid by 2.80%, with the Dow and the S&P500 seeing losses of 2.14% and 2.41%, respectively.

VIX 130522 Weekly Chart

The Week Ahead

It is a quiet week ahead on the Eurozone economic calendar.

Eurozone trade, GDP, and inflation figures are due out. Expect any revisions from the first estimate GDP and any upward revisions to prelim inflation figures to draw interest.

It is a busy week ahead on the US economic calendar.

On Tuesday, retail sales figures will be key ahead of jobless claims and Philly Fed Manufacturing Index numbers on Thursday.

While stats from the Eurozone and the US will influence, economic data and news updates from China will also need considering.

On Monday, industrial production figures for April set the tone. The markets will be looking out for updates on new lockdown measures.

Away from the economic calendar, updates on the war in Ukraine and crude oil prices will also influence.

The Weekly Wrap – Fed Chair Powell Delivered Friday Comfort

The Stats

It was a quiet week on the economic calendar for the week ending May 13, 2022.

A total of 45 stats were monitored, following 62 stats in the week prior.

Of the 45 stats, 20 beat forecasts, with 22 economic indicators falling short of forecast. Three stats were in line with forecasts.

Looking at the numbers, 13 of the stats reflected an upward trend. Of the remaining 32 stats, 30 stats were weaker.

Out of the US

Inflation was back in focus, which caused market turbulence mid-week.

In April, the annual rate of inflation softened from 8.5% to 8.3% versus a forecasted 8.1%. The core annual rate of inflation softened from 6.5% to 6.2%. While softer, inflation was stronger than anticipated, supporting the more hawkish sentiment towards Fed monetary policy.

On Thursday, wholesale inflation also drew attention. In the month of April, the core producer price index increased by 0.4% after a 1.2% rise in March.

Initial jobless claims had a muted impact despite a rise from 202k to 203k in the week ending May-06.

On the monetary policy front, Fed Chair Powell calmed the markets on Friday, assuring that larger rate hikes remained off the table.

In the week ending May 13, 2022, the Dollar Spot Index rose by 0.87% to end the week at 104.563. In the week prior, the Index rose by 0.68% to 103.660.

Out of the UK

GDP and production figures were the main areas of focus in the week.

The stats were Pound negative, with the UK economy contracting in March and production hitting reverse.

In the first quarter, the UK economy grew by 0.8% quarter-on-quarter versus a forecasted 1.00%. The economy expanded by 1.3% in the previous quarter.

Year-on-year, the economy grew by 8.7% versus a forecasted 9.0%. The economy expanded by 6.6% in the fourth quarter of last year. More significantly, the economy contracted by 0.1% in March, after no growth in February.

Production figures also provided little comfort.

 

Production fell by 0.2%, partially offset by construction (+1.7%), with manufacturing production declining by 0.2%.

In the week, the Pound fell by 0.70% to end the week at $1.2262. The Pound tumbled by 1.79% to $1.2348 in the week prior.

The FTSE100 ended the week up 0.41%, partially reversing a 2.08% loss from the previous week.

Out of the Eurozone

ZEW Economic Sentiment figures for Germany and the Eurozone and Eurozone industrial production figures were the key stats.

In May, economic sentiment improved, with Germany’s ZEW Economic Sentiment Index up from -41.0 to -34.3. The Eurozone’s ZEW Economic Sentiment Index climbed from -43.0 to -29.5.

At the end of the week, industrial production disappointed, however.

In March, industrial production fell by 1.8% to test EUR support. Production rose by a modest 0.5% in February.

For the week, the EUR slid by 1.32% to $1.0412. In the previous week, the EUR rose by 0.06% to $1.0551.

The DAX rallied by 2.59%, with the EuroStoxx600 and the CAC40 seeing gains of 0.83% and 1.67%, respectively.

 

For the Loonie

It was a quiet week on the economic data front, leaving the Loonie in the hands of market risk sentiment.

In the week ending May 13, the Loonie fell by 0.42 to C$1.2929 against the greenback. The Loonie slipped by 0.21% to C$1.2875 in the week prior.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar slid by 1.92% to $0.6940, with the Kiwi Dollar tumbling by 2.09% to end the week at $0.6276.

For the Aussie Dollar

Business and consumer confidence numbers disappointed.

In April, the NAB Business Confidence Index fell from 16 to 10. The Westpac Consumer Sentiment Index fell by 5.6% in May, following a 0.90% decline in April.

For the Kiwi Dollar

Electronic card retail sales reversed a 1.3% decline with a 7.0% jump in April. The Business PMI disappointed, however, falling from 53.8 to 51.2.

For the Japanese Yen

Service sector PMI and household spending drew market interest in a quiet week on the data front.

In April, Japan’s services PMI rose from 49.4 to 50.7, up from a prelim 50.5. Service sector activity picked up in response to the government removing remaining COVID-19 restrictions.

Household spending figures disappointed, however. In March, spending slid by 4.1%, following a 2.8% decline in February.

The Japanese Yen rose by 1.03% to end the week at ¥129.22 against the dollar. In the week prior, the Yen ended the week down by 0.66% to ¥130.56.

Out of China

Trade and inflation tested investor appetite for riskier assets.

In April, exports increased by 3.9%, year-on-year, versus a forecasted 3.2% rise. Exports were up 14.7% in March.

The US dollar trade surplus widened from $47.38bn to $51.12bn as imports stalled.

Inflationary pressures picked up in April, with the annual rate of inflation accelerating from 1.5% to 2.1%.

In the week ending May 13, the Chinese Yuan slid by 1.84% to CNY6.7893. The Yuan declined by 0.88% to CNY6.6667 in the week prior.

The Hang Seng Index ended the week down 0.52%, while the CSI300 rose by 2.04%.