UK Employment Figures Give the Pound an Early Boost

It was a busy start to the day for the UK market. Employment numbers were in focus ahead of the market open.

According to the Office for National Statistics,

  • Employment surged by 83k in the three months to March, compared with the previous three months to December.
  • As a result, the unemployment rate fell from 3.8% to 3.7% versus a forecasted 3.8%.
  • Also positive was a jump in wage growth. The Average Earnings Index + Bonus increased 7.0% in March compared with 5.4% in February.

For April, claimant counts also painted a rosier picture, with claim counts falling by 56.9k versus a forecasted 42.5k decline. In March, claimant counts fell by 46.9k.

The stats delivered a much-needed boost to the Pound and supported more BoE rate hikes to curb inflation.

Market Impact

Ahead of today’s stats, the Pound fell to a pre-stat and a current-day low of $1.23168 before rising to a pre-stat high of $1.23491.

In response to today’s numbers, the Pound slipped to a post-stat low of $1.23465 before jumping to a post-stat and a current-day high of $1.23650.

At the time of writing, the Pound was up 0.30S% to $1.23564.

Stats give the Pound a boost.
Cable 170522 Hourly Chart

Ahead of the European open, the futures market point to a bullish open for the major indexes.

At the time of writing, the FTSE100 was up 40 points, with the DAX 30 risings by 129 points.

Up Next

Later today, second estimate GDP numbers for the Eurozone are due out ahead of retail sales figures from the US.

With market jitters over the threat of a recession lingering, weak US retail sales numbers could test support for riskier assets.

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%.

Forex, Gold and Indices – Usual Friday Correction

Major Financial Markets Technical Analysis

USDJPY overnight corrects the 50% of the most recent downswing.

GBPJPY also slightly corrects the recent slide and tests the major horizontal resistance.

It’s also correction day for the SP500 and Nasdaq.

DAX, German Index is doing much better than its American peers. The weak Euro is to blame, which is helping German exporters.

EURUSD joins the correction party as well. 1.05 on the horizon.

Gold breaks a major, long-term up trendline.

AUDUSD breaks the long-term, horizontal support on the 0.7. That’s pretty negative.

EURCHF drops to test a combination of three crucial supports, the down trendline, a horizontal one and the upper line of the symmetric triangle.

GBPAUD with a massive double bottom formation. The price is close to a neckline, so a breakout here would be a major buy signal.

Traders Edge: Market Briefing Video 13.05.22

For a look at all of today’s economic events, check out our economic calendar.

E.ON shares rise after CFO says confident about 2022 guidance

FRANKFURT (Reuters) – Shares in German utility E.ON on Wednesday rose from a fall to their lowest level in over a year after Chief Executive Marc Spieker told analysts that he was confident that a drop in first quarter core profit could be overcome.

The company was fully hedged and would gradually pass on vast energy price increases to customers, he said in an earnings call after presenting the January-March results.

E.ON shares were up 1.7% at 1002 GMT with the DAX up 1.04%.

(Reporting by Vera Eckert and Christoph Steitz, editing by Kirsti Knolle)

Allianz sets aside another $2 billion over fund debacle

By Tom Sims and Alexander Hübner

FRANKFURT (Reuters) -Germany’s Allianz said on Wednesday it would set aside another 1.9 billion euros ($2 billion) as it braces for the outcome of U.S. regulatory investigations into a multibillion-dollar trading debacle at its funds arm.

The collapse of a $15 billion set of investment funds during the pandemic market turmoil in early 2020 has cast a long shadow over Germany’s most valuable financial firm and one of the world’s largest asset managers.

The new provision comes on top of 3.7 billion euros the company set aside in February to cover litigation and U.S. regulatory investigations into the funds’ demise. It brings the total to 5.6 billion euros.

Allianz said Wednesday’s booking hit its first-quarter net profit, which was 600 million euros, less than the 1.9 billion euros analysts had expected.

The collapse of the funds has been under investigation by the U.S. Justice Department and the Securities and Exchange Commission, Allianz has disclosed, as well as the subject of numerous investor lawsuits.

“The fresh charge clearly shows the enormous damage that has been done,” said Ingo Speich, head of sustainability and corporate governance at Deka, a top Allianz investor.

Allianz said the additional provision should cover the remaining costs it could incur. The sense of certainty suggests a settlement with the U.S. government could be in the offing.

“This provision booked is a fair estimate of its remaining financial exposure in relation to compensation payments to investors and to payments under any resolution of the governmental proceedings,” Allianz said.

Allianz said it was seeking a “timely” resolution to its talks with the DOJ and SEC.

Its shares traded 3% higher in late Frankfurt trade, outperforming a 1% gain in the DAX index of blue-chips stocks.

“Allianz seems to have come a significant step closer to a conclusion on the risk from the…funds,” said Steffen Weyl, a fund manager with Union Investment, which is an Allianz shareholder.

Analysts with Jefferies said the provision, coming earlier and smaller than expected, removes “a substantial overhang on the shares”.

CEO Oliver Baete has apologised to investors and shareholders for the matter, conceding “not everything was perfect in the fund management”.

Baete and other top managers took a cut in last year’s bonuses as a result, though Baete earned 9% more in 2021 than a year earlier.

The issue has worried Allianz’s top shareholders and harmed its reputation with pension funds that provide a source of business for one of Germany’s best known brands.

The issue centres around Allianz funds that used complex options strategies to generate returns but racked up massive losses when the spread of COVID-19 triggered wild stock market swings in February and March 2020.

For Allianz, which has 2.6 trillion euros of assets under management, the issue has already dented earnings. Its 2021 profit was the lowest since 2013.

Investors in the so-called Structured Alpha set of funds have claimed some $6 billion in damages from the losses in cases filed in the United States.

The set of funds catered in particular to normally conservative U.S. pension funds, from those for labourers in Alaska to teachers in Arkansas to subway workers in New York.

The Arkansas Teacher Retirement System was the first of at least two dozen lawsuits lodged against Allianz in the aftermath of the collapse.

The Arkansas pension fund, which had $1.6 billion in three Structured Alpha funds at the end of 2019, said in its July 2020 lawsuit that it had lost at least $774 million due to “negligent mismanagement” of the funds.

It secured a settlement of $642 million, according to minutes of a board meeting.

($1 = 0.9489 euros)

(Reporting by Tom Sims and Alexander Huebner; editing by Jason Neely, Mark Potter, Kim Coghill and Louise Heavens)

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

On the Macro

It’s a quieter week ahead on the economic calendar, with 47 stats in focus in the week ending May 13. In the week prior, 62 stats were in focus.

For the Dollar:

Inflation is back in the spotlight, with consumer and wholesale inflation figures due out on Wednesday and Thursday.

Another spike in inflation would test support for riskier assets following the Fed’s forward guidance from last week.

On Thursday, initial jobless claims will also draw interest ahead of consumer sentiment figures on Friday.

While the stats will influence, news updates on the war in Ukraine and FOMC member chatter will also need monitoring.

In the week ending 6th May, the Dollar Spot Index rose by 0.68% to 103.660.

For the EUR:

ZEW Economic Sentiment figures for Germany and the Eurozone will be in focus on Tuesday.

On Friday, Eurozone industrial production numbers will influence.

Other stats in the week include finalized member state inflation figures for May that should have a muted impact on the EUR.

ECB President Lagarde will also draw interest on Wednesday, with the markets looking for any forward guidance on monetary policy.

For the week, the EUR rose by 0.06% to $1.0551.

For the Pound:

It is a busy week, with key stats including Q1 GDP and March industrial and manufacturing production figures.

Trade data and BRC retail sales figures are also due out but should have a muted impact on the Pound.

The Pound slid by 1.79% to end the week at $1.2348.

For the Loonie:

It’s a quiet week ahead on the economic calendar. There are no material stats due out of Canada to provide the Loonie with direction.

A lack of stats will leave the Loonie in the hands of Geopolitics, OPEC, and crude oil prices.

The Loonie ended the week down 0.21% to C$1.2875 against the U.S Dollar.

From the Asia Pacific

For the Aussie Dollar:

Business and consumer confidence will be in focus in the week ahead.

On Tuesday, NAB Business Confidence figures are due out ahead of Westpac Consumer Sentiment numbers on Wednesday.

The RBA will be eyeing the numbers, with the need to curb inflationary pressures amidst heightened economic uncertainty could test sentiment.

The Aussie Dollar rose by 0.21% to $0.7076.

For the Kiwi Dollar:

Electronic card retail sales and business PMI numbers are due out in the week ahead.

While the numbers will influence, data and news updates from China will remain key.

The Kiwi Dollar ended the week down by 0.74% to $0.6410.

For the Japanese Yen:

It’s a relatively quiet week ahead. Finalized service sector PMI numbers for April and household spending figures are due out early in the week. Expect both sets of numbers to draw plenty of interest following the BoJ’s most recent dovish signals.

The Japanese Yen declined by 0.66% to ¥130.560 against the US dollar.

Out of China

On Monday, trade data will draw interest, with the markets looking to assess the impact of China’s COVID-19 lockdown measures and the war in Ukraine on demand.

Inflation figures, due out on Wednesday, will influence.

The markets will also be looking for updates from Beijing on COVID-19 lockdown measures.

The Chinese Yuan ended the week down by 0.88% to CNY6.6667 against the US dollar.

Geo-Politics

News updates on the war in Ukraine and chatter from Russia will need continued monitoring.

European Equities: A Week in Review – 06/05/22

The Majors

It was a bearish week for the European majors in the week ending May-06, 2022.

The DAX fell by 3.00%, with the EuroStoxx600 and the CAC40 seeing losses of 4.55% and 4.21%, respectively.

Disappointing economic data coupled with market angst over inflation and Fed monetary policy left the majors deep in the red.

The global financial markets brushed aside Fed Chair Powell’s attempts to ease concerns of more aggressive policy moves. Lockdown measures in China and the ongoing war in Ukraine continue to disrupt supply chains, pushing oil prices northwards.

The upward trend in crude oil prices and supply chain woes were market negative.

The Stats

The German economy and private sector PMIs were the areas of focus.

It was a mixed set of numbers, with economic data from Germany disappointing.

In March, German retail sales unexpectedly fell by 0.1% versus a forecasted 0.3% increase. Unemployment also fell more slowly, leaving the German unemployment rate at 5.0%.

Trade, factory orders, and industrial production figures also sounded the alarm bells.

Germany’s trade surplus narrowed from €11.1bn to €3.2bn, with factory orders tumbling by 4.7%.

Industrial production was not much better, sliding by 3.9%, to reflect the impact of the war in Ukraine and lockdown measures in China.

Private sector PMIs were also negative, with the Eurozone’s manufacturing PMI falling to a 15-month low of 55.5. Easing lockdown measures provided some relief, with the Eurozone services PMI rising from 55.6 to 57.7 in April.

From the US

Private sector PMIs were the key stats in the week ahead of nonfarm payroll numbers on Friday.

The numbers were mixed, with private sector PMI figures disappointing.

In April, the ISM Manufacturing PMI fell from 57.1 to 55.4, with the Non-Manufacturing PMI down from 58.3 to 57.1.

Labor market numbers were also dollar negative ahead of the NFP numbers. The ADP reported a 247k increase in nonfarm payrolls for April, falling short of forecasts, and a 479k rise in March.

For the week ending April 29, initial jobless claims increased from 181k to 200k.

On Friday, the stats were market neutral. Nonfarm payrolls increased by 428k in April, following a 428k rise in March. As a result, the US unemployment rate held steady at 3.6%.

While the stats were of interest, the Fed monetary policy decision and forward guidance were the key drivers in the week.

On Wednesday, the Fed delivered a 50 basis point rate hike, which was in line with forecasts. Fed Chair Powell also looked to calm the markets by assuring that 75 basis point hikes would not be on the table.

Relief was brief, with jitters over inflation and Fed policy returning in the second half of the week.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Daimler and Continental tumbled by 7.48% and 7.12%, respectively, with Volkswagen falling by 2.00%. BMW bucked the trend with a 0.70% gain.

It was a bearish week for the banking sector. Deutsche Bank and Commerzbank saw losses of 3.23% and 2.55%, respectively.

From the CAC, it was a mixed week for the banks. BNP Paribas rose by 1.77%, while Credit Agricole and Soc Gen ended the week down by 3.95% and 2.59%, respectively.

It was another mixed week for the French auto sector. Stellantis NV rose by 1.25%, while Renault fell by 1.74%.

Air France-KLM slipped by 0.08%, while Airbus ended the week up 1.86%.

On the VIX Index

A run of four consecutive weeks in the green came to an end for the VIX in the week ending May-06.

Partially reversing an 18.40% jump from the previous week, the VIX fell by 9.61% to end the week at 30.19.

4-days in the red from 5 sessions, which included a 13.09% slide on Wednesday, delivered the downside.

For the week, the NASDAQ fell by 1.54%, with the Dow and the S&P500 seeing losses of 0.24% and 0.21%, respectively.

VIX 060522 Weekly Chart

The Week Ahead

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

ZEW Economic Sentiment figures for Germany and the Eurozone are due on Tuesday.

On Friday, Eurozone industrial production numbers will also influence.

Other stats in the week include finalized member state inflation figures for May that should have a muted impact on the majors.

From the US, inflation is back in the spotlight, with consumer and wholesale inflation figures due out on Wednesday and Thursday.

Another spike in inflation would test support for riskier assets following Fed forward guidance last week.

On Thursday, initial jobless claims will also draw interest ahead of consumer sentiment figures on Friday.

Economic data and updates on lockdown measures from China will also provide direction. Key stats include trade data and inflation figures.

While the stats will influence, news updates on the war in Ukraine and central bank chatter will also need monitoring.

The Weekly Wrap – Fed Monetary Policy Sinks Riskier Assets

The Stats

While it was a busy week on the economic calendar for the week ending May 6, 2022, the Fed monetary policy decision was the main event.

A total of 62 stats were monitored, following 56 stats in the week prior.

Of the 62 stats, 25 beat forecasts, with 30 economic indicators falling short of forecast. Seven stats were in line with forecasts.

Looking at the numbers, 20 of the stats reflected an upward trend. Of the remaining 42 stats, 36 stats were weaker.

Out of the US

Private sector PMIs were the key stats in the week ahead of nonfarm payroll numbers on Friday.

The numbers were mixed, with private sector PMI figures disappointing.

In April, the ISM Manufacturing PMI fell from 57.1 to 55.4, with the Non-Manufacturing PMI down from 58.3 to 57.1.

Labor market numbers were also dollar negative ahead of the NFP numbers. The ADP reported a 247k increase in nonfarm payrolls for April, falling short of forecasts, and a 479k rise in March.

For the week ending April 29, initial jobless claims increased from 181k to 200k.

On Friday, the stats were dollar neutral. Nonfarm payrolls increased by 428k in April, following a 428k rise in March. As a result, the US unemployment rate held steady at 3.6%.

While the stats were of interest, the Fed monetary policy decision and forward guidance were the key drivers in the week.

On Wednesday, the Fed delivered a 50 basis point rate hike, which was in line with forecasts. Fed Chair Powell also looked to calm the markets by assuring that 75 basis point hikes would not be on the table.

Relief was brief, with jitters over inflation and Fed policy returning in the second half of the week.

In the week ending May 6, 2022, the Dollar Spot Index rose by 0.68% to end the week at 103.660. In the week prior, the Index rallied by 1.72% to 102.959.

Out of the UK

It was a quiet week, with stats limited to finalized private sector PMIs. The numbers were GBP positive, with the all-important services PMI revised up from 58.3 to 58.9. Despite the upward revision, the PMI was still down from March 62.6.

On the monetary policy front, the Bank of England was in action. On Thursday. The BoE lifted rates by 25 basis points to 1.00%.

The rate hike came despite concerns over the economic outlook. However, risk aversion offset any monetary policy moves to leave the pound in the red.

In the week, the pound slid by 1.79% to end the week at $1.2348. The pound tumbled by 2.07% to $1.2573 in the week prior.

The FTSE100 ended the week down 2.08%, reversing a 0.30% gain from the previous week.

Out of the Eurozone

The German economy and private sector PMIs were the areas of focus.

It was a mixed set of numbers, with economic data from Germany disappointing.

In March, German retail sales unexpectedly fell by 0.1% versus a forecasted 0.3% increase. Unemployment also fell more slowly, leaving the German unemployment rate at 5.0%.

Trade, factory orders, and industrial production figures also sounded the alarm bells.

Germany’s trade surplus narrowed from €11.1bn to €3.2bn, with factory orders tumbling by 4.7%.

Industrial production was not much better, sliding by 3.9%, to reflect the impact of the war in Ukraine and lockdown measures in China.

Private sector PMIs were also negative, with the Eurozone’s manufacturing PMI falling to a 15-month low of 55.5. Easing lockdown measures provided some relief, with the Eurozone services PMI rising from 55.6 to 57.7 in April.

For the week, the EUR rose by 0.06% to $1.0551. In the previous week, the EUR tumbled by 2.27% to $1.0545.

The DAX fell by 3.00%, with the EuroStoxx600 and the CAC40 seeing losses of 4.55% and 4.21%, respectively.

For the Loonie

Key stats included trade and employment figures for March and April, respectively.

The stats were mixed. Canada’s trade surplus narrowed from C$3.08bn to C$2.49bn.

Employment figures were Loonie positive, with the unemployment rate falling from 5.3% to 5.2% in April. In the month, employment increased by 15.3k, following a 72.5k surge in March.

In the week ending May 6, the Loonie slipped by 0.21 to C$1.1.2875 against the greenback. The Loonie slid by 1.09% to C$1.2848 in the week prior.

Elsewhere

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

The Aussie Dollar rose by 0.21% to $0.7076, while the Kiwi Dollar fell by 0.74% to end the week at $0.6410.

For the Aussie Dollar

Positive stats failed to support the Aussie, with the markets also brushing aside an RBA rate hike.

Key stats included retail sales and trade data for March. Retail sales increased by 1.6%, with the trade surplus widening from A$7.457bn to A$9.314bn.

Early in the week, the RBA raised cash rates by 25 basis points to 0.35% versus a forecasted 0.25%. Monetary policy divergence remained firmly in the favor of the greenback, however.

For the Kiwi Dollar

A quiet week left the markets to consider employment change figures and the RBNZ financial stability report.

In Q1, the New Zealand unemployment rate held steady at 3.2%, with employment rising by 0.1% in the quarter.

The RBNZ provided little Kiwi dollar support in the week, however, with the RBNZ talking of a possible house price correction.

Rising prospects of a house price correction could test the RBNZ’s appetite to lift cash rates at a more aggressive pace.

Monetary policy diversion with the Fed left the Kiwi on the back foot.

For the Japanese Yen

Economic data was limited to inflation figures. There was little support for the Yen, however, despite a pickup in inflationary pressure.

In April, Tokyo’s annual core rate of inflation accelerated from 0.8% to 1.9%.

The Japanese Yen fell by 0.66% to end the week at ¥130.56 against the dollar. In the week prior, the Yen ended the week down by 0.93% to ¥129.70.

Out of China

It was a particularly quiet week, with service sector PMI numbers for April in focus.

The Caixin Services PMI slid from 42.0 to 36.2, with COVID-19 lockdown measures weighing on service sector activity.

In the week ending May 6, the Chinese Yuan declined by 0.88% to CNY6.6667. The Yuan slid by 1.65% to CNY6.6085 in the week prior.

The Hang Seng Index ended the week down 5.16%, with the CSI300 falling by 2.67%.

Daily Gold News: Thursday, May 5 – Gold Price is Close to $1,900 Again

Gold Price Recap

The gold futures contract lost 0.1% on Wednesday, May 4, as it extended a short-term consolidation following the recent declines. Gold bounced after the FOMC interest rate decision announcement but then it retraced the whole advance. This morning the yellow is trading higher again, as we can see on the daily chart (the chart includes today’s intraday data):

Precious Metals Price Action

Gold is 0.9% higher this morning, as it is trading close to the $1,900 price level. What about the other precious metals? Silver is 0.1% lower, platinum is 0.7% lower and palladium is 0.3% lower. So the main precious metals’ prices are higher this morning.

Fundamentals

Yesterday’s ADP Non-Farm Employment Change release has been lower than expected at +247,000 (vs. the expected +382,000). Today we will get the Unemployment Claims release, among others. The market will be waiting for tomorrow’s monthly jobs data announcement.

The markets will continue to react to the ongoing Russia-Ukraine war news.

Where Would the Price of Gold Go Following Yesterday’s Fed Release?

We’ve compiled the data since January of 2017, a 62-month-long period of time that contains of forty three FOMC releases. The first chart shows price paths 5 days before and 10 days after the FOMC release. The latest FOMC Statement release came out on March 16. Gold price was 1.6% higher 10 days after the release.

The following chart shows average gold price path before and after the FOMC releases for the past 43 releases. The market was usually declining ahead of the FOMC day. Then it was going up for a week-long period. We can see that on average, gold price was 0.68% higher 10 days after the FOMC Statement announcement.

Economic News Schedule

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days.

Thursday, May 5

  • 7:00 a.m. U.K. – BOE Monetary Policy Report, MPC Official Bank Rate Votes, Monetary Policy Summary, Official Bank Rate
  • 7:30 a.m. U.S. – Challenger Job Cuts y/y
  • 8:30 a.m. U.S. – Unemployment Claims, Preliminary Nonfarm Productivity q/q, Preliminary Unit Labor Costs q/q
  • 9:30 p.m. Australia – RBA Monetary Policy Statement
  • All Day – OPEC-JMMC Meetings

Friday, May 6

  • 8:30 a.m. U.S. – Non-Farm Employment Change, Unemployment Rate, Average Hourly Earnings m/m
  • 8:30 a.m. Canada – Employment Change, Unemployment Rate
  • 9:15 a.m. U.S. – FOMC Member Williams Speech
  • 3:00 p.m. U.S. – Consumer Credit m/m

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor.

By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

German and Eurozone Unemployment Disappoint the EUR

It was a relatively busy morning on the Eurozone economic calendar. German and Eurozone unemployment figures were in focus.

Germany Unemployment Rate Holds Steady

In April, the number of unemployment declined by 13,000 following an 18,000 fall in March. Economists forecast a 15,000 decrease.

As a result, the unemployment rate held steady at 5.0%.

Eurozone Unemployment Rate Disappoints

In March, the Eurozone’s unemployment rate fell from an upwardly revised 6.9% to 6.8%, versus a forecast decline to 6.7%.

According to Eurostat,

  • An estimated 11.274 million men and women were unemployed in March.
  • Compared with February 2022, the number of unemployed persons declined by 76,000.
  • When compared with March 2021, unemployment decreased by 1.931 million.
  • In March 2021, the unemployment rate stood at 8.2%.

Market Impact

Ahead of today’s stats, the EUR fell to a pre-stat low of $1.04945 before rising to a pre-stat and current day high $1.05179.

In response to today’s stats, the EUR rose to a post-stat high of $1.05258 before falling to a post-stat and current-day low of $1.04925.

At the time of writing, the EUR was down by 0.05% to $1.05034.

EURUSD030522

Looking at the European equity markets, it has been a bullish start to the session. At the time of writing, the CAC40 was up 0.88%, with the DAX gaining 0.57%.

Next Up

ECB President Lagarde is scheduled to speak later today, ahead of key stats from the US.

The markets will be looking for any commentary on ECB monetary policy and the economic outlook for the Eurozone. While sentiment towards ECB monetary policy has shifted to a more hawkish stance, monetary policy divergence remains strongly in favor of the Dollar.

From the US, economic data includes factory orders and JOLTs job openings for March,

With the FOMC monetary policy meeting starting today, job openings may draw greater market interest.

The Weekly Wrap – Monetary Policy and Economic Woes Drive Dollar Demand

The Stats

It was a busy week on the economic calendar for the week ending April-29, 2022.

A total of 56 stats were monitored, following 57 stats in the week prior.

Of the 56 stats, 26 beat forecasts, with 26 economic indicators falling short of forecasts. 4 stats were in line with forecasts.

Looking at the numbers, 30 of the stats reflected an upward trend. Of the remaining 26 stats, 25 stats were weaker.

Out of the US

Core durable goods orders and consumer sentiment drew interest on Tuesday. The stats were market positive, with core durable goods orders rising by 1.1% in March.

Consumer sentiment held steady in April, which was also market positive. The CB Consumer Confidence Index slipped from 107.6 to 107.3.

On Thursday, US GDP numbers disappointed, however, with the US economy contracting by 1.4%. In the previous quarter, the economy expanded by 6.9%.

At the end of the week, inflation and personal spending were market positive. Personal spending rose by 1.1% in March, while inflationary pressures softened. The Core PCE Price Index increased by 5.2% year on year in March, down from 5.3% in February.

In the week ending April 29, 2022, the Dollar Spot Index surged by 1.72% to end the week at 102.959. In the week prior, the Index rose by 0.72% to 101.22.

Out of the UK

It was a particularly quiet week, with stats limited to CBI Industrial Trend Orders. In April. Industrial Trend Orders fell from 26 to 14, which was Pound negative.

Risk aversion and market sentiment towards Fed monetary policy ultimately left the Pound deep in the red.

In the week, the Pound tumbled by 2.07% to end the week at $1.2573. In the week prior, the Pound slid by 1.69% to $1.2839.

The FTSE100 ended the week up 0.30%, partially reversing a 1.24% loss from the previous week.

Out of the Eurozone

Early in the week, German business and consumer sentiment diverged. While business sentiment improved, consumer sentiment weakened further.

The Ifo Business Climate Index increased from 90.8 to 91.8 in April, while the Gfk German Consumer Climate Index fell from -15.7 to -26.5.

In the second half of the week, the market focus shifted to inflation and economic growth.

The stats were market positive, with German and the Eurozone GDP numbers for the first quarter providing support.

In Q1 2022, the German economy expanded by 4.0% year on year, up from 1.8% in the previous quarter.

The Eurozone’s economy grew by 5.0% year on year, up from 4.6% in the quarter prior.

On the inflation front, inflationary pressures ticked up further, though only moderately. According to prelim figures, the Eurozone’s annual rate of inflation picked up from 7.4% to 7.5%.

For the week, the EUR slumped by 2.27% to $1.0545. In the previous week, the EUR fell by 0.19% to $1.0790.

The CAC40 fell by 0.73%, with the EuroStoxx600 and the DAX seeing losses of 0.64% and 0.31%, respectively.

For the Loonie

It was also a quiet week, with economic data limited to February GDP numbers.

While Loonie positive, the numbers had a muted impact on the Loonie following the latest Bank of Canada rate hike.

In February, the economy grew by 1.1%, accelerating from 0.2% growth in January.

In the week ending April-29, the Loonie slid by 1.09 to C$1.2848 against the Greenback. The Loonie fell by 0.79% to C$1.2710 in the week prior.

Elsewhere

It was yet another bearish week for the Aussie Dollar and the Kiwi Dollar.

The Aussie Dollar tumbled by 2.53% to $0.7061, with the Kiwi Dollar sliding by 2.73% to end the week at $0.6458.

For the Aussie Dollar

Inflation was in focus mid-week.

The stats were Aussie Dollar positive, supporting a near-term RBA move on cash rates. Monetary policy divergence remained strongly in favor of the Greenback, however.

In Q1, Australia’s annual rate of inflation accelerated from 3.5% to 5.1%. Wholesale inflationary pressure also picked up, with the annual wholesale rate of inflation accelerating from 3.7% to 4.9%.

For the Kiwi Dollar

Trade data and business confidence were in focus in the week, with the stats Kiwi dollar negative.

In March, New Zealand’s trade deficit widened from NZ$8,680m to NZ$9,110m.

The ANZ Business confidence slipped from -41.9 to -42.0 in April.

For the Japanese Yen

On the economic data front, industrial production and retail sales figures for March were in focus. The stats were Yen negative.

Industrial production increased by a modest 0.3% after rising by 2.0% in February.

Retail sales provided some relief, rising by 0.3% year on year. In February, retail sales declined by 0.9%.

On the monetary policy front, the Bank of Japan was also in action, though there were no surprises to support the Yen.

The Japanese Yen fell by 0.93% to end the week at ¥129.70 against the Dollar. In the week prior, the Yen ended the week down by 1.61% to ¥128.50.

Out of China

It was a particularly quiet week, with no economic data from China to influence market risk sentiment.

In the week ending April-29, the Chinese Yuan slid by 1.65% to CNY6.6085. The Yuan tumbled by 2.04% to CNY6.5014 in the week prior.

The Hang Seng Index ended the week up 2.18%, with the CSI300 gaining by 0.07%.

European Equities: A Week in Review – 29/04/22

The Majors

It was a bearish week for the European majors in the week ending April-29, 2022.

The CAC40 fell by 0.73%, with the EuroStoxx600 and the DAX seeing losses of 0.64% and 0.31%, respectively.

After a bearish start to the week, corporate earnings supported riskier assets in the week. The upside was modest, however, with market sentiment towards the global economy and Fed monetary policy weighing heavily on risk sentiment.

On Friday, the Financial Times reported China’s politburo “promising to strengthen macro adjustments and achieve full-year economic and social development goals.”

China’s pledge to support the economy also delivered the European majors with support.

While the weekly losses were modest, it was a bearish month, with the DAX sliding by 2.20% and the CAC and EuroStoxx600 falling by 1.90% and 1.20%, respectively.

China’s COVID-19 lockdown measures and the ongoing war in Ukraine raised further concerns over supply chain disruption. Fed Chair Powell’s talk of aggressive policy moves to curb inflation and jitters over the threat of a recession were also market negative in the month.

The Stats

Early in the week, German business and consumer sentiment diverged. While business sentiment improved, consumer sentiment weakened further.

The Ifo Business Climate Index increased from 90.8 to 91.8 in April, while the Gfk German Consumer Climate Index fell from -15.7 to -26.5.

In the second half of the week, the market focus shifted to inflation and economic growth.

The stats were market positive, with German and the Eurozone GDP numbers for the first quarter providing support.

In Q1 2022, the German economy expanded by 4.0% year on year, up from 1.8% in the previous quarter.

The Eurozone’s economy grew by 5.0% year on year, up from 4.6% in the quarter prior.

On the inflation front, inflationary pressures ticked up further, though only moderately. According to prelim figures, the Eurozone’s annual rate of inflation picked up from 7.4% to 7.5%.

From the US

Core durable goods orders and consumer sentiment drew interest on Tuesday. The stats were market positive, with core durable goods orders rising by 1.1% in March.

Consumer sentiment held steady in April, which was also market positive. The CB Consumer Confidence Index slipped from 107.6 to 107.3.

On Thursday, US GDP numbers disappointed, however, with the US economy contracting by 1.4%. In the previous quarter, the economy expanded by 6.9%.

At the end of the week, inflation and personal spending were market positive. Personal spending rose by 1.1% in March, while inflationary pressures softened. In March, the Core PCE Price Index increased by 5.2% year on year, down from 5.3% in February.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Daimler rallied by 3.66%, with Continental gaining 0.64%. Volkswagen slid by 2.43%, however, with BMW ending the week flat.

It was a bearish week for the banking sector. Deutsche Bank tumbled by 12.68%, with Commerzbank sliding by 7.65%.

From the CAC, it was a bearish week for the banks. BNP Paribas and Soc Gen saw losses of 3.90% and 3.66%, respectively, with Credit Agricole falling by 1.05%.

It was another mixed week for the French auto sector. Stellantis NV slipped by 0.37%, while Renault ended the week up 1.59%.

Air France-KLM slid by 4.24%, while Airbus ended the week with a 0.84% gain.

On the VIX Index

It was a fourth consecutive week in the green for the VIX in the week ending April-29.

Following a 24.27% surge from the previous week, the VIX jumped by 18.40% to end the week at 33.40.

2-days in the green from 5 sessions, which included a 24.06% surge on Tuesday and an 11.37% jump on Friday, delivered the upside.

In the week, the NASDAQ slumped by 3.93%, with the Dow and the S&P500 sliding by 2.47% and 3.27%, respectively.

VIX 290422 Weekly Chart

The Week Ahead

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

On Monday, manufacturing PMIs and German retail sales will draw interest ahead of German unemployment figures on Tuesday.

On Wednesday, the market attention will shift to service sector PMIs, German trade data, and Eurozone retail sales.

Over the remainder of the week, the German economy will remain in the spotlight. On Thursday, German factory orders are due out ahead of industrial production figures on Friday.

From the US, it is a big week ahead. On the economic data front, ISM survey PMIs will influence this Monday and Wednesday, with Wednesday’s ISM Non-Manufacturing PMI the main driver.

The US labor market will also be in focus, with the ADP nonfarm employment change figures and official nonfarm numbers due out on Wednesday and Friday.

The main event of the week, however, is the FED’s monetary policy decision. A larger than expected rate hike will spook the markets.

Away from the economic calendar, corporate earnings will continue to provide direction. The majors could be in for a tough time following Amazon.com’s earnings after the European close on Friday.

News updates on the war in Ukraine will also need monitoring throughout the week.

Beijing to test 20 million for COVID in bid to avert Shanghai lockdown misery

By Eduardo Baptista and Brenda Goh

BEIJING/SHANGHAI (Reuters) – Three-quarters of Beijing’s 22 million people lined up for COVID-19 tests on Tuesday as authorities in the Chinese capital raced to stamp out a nascent outbreak and avert the debilitating city-wide lockdown that has shrouded Shanghai for a month.

Having seen the struggles of China’s commercial hub to meet the basic needs of its increasingly frustrated 25 million residents, people in Beijing were stocking up on food and supplies.

Videos on social media showed people leaning out of Shanghai windows to beat pots and pans in anger, or play “Do you hear the people sing?”, a protest anthem from the musical “Les Miserables”, on flutes and trumpets.

Beijing hoped to avoid such drama by acting swiftly.

It began tests in its most populous district Chaoyang on Monday morning. By nighttime, authorities listed 10 other districts and one economic development zone for mandatory tests this week, covering a total of 20 million people of which 16 million were scheduled to be screened on Tuesday.

The orders come days after dozens of infections were found. Shanghai waited for about a month and more than 1,000 cases before launching city-wide testing in early April.

Liu Wentao, a Beijing cook, said he was concerned about the new outbreak, but was confident the capital could handle it.

“The virus controls are stronger than in other places, I don’t think it will be like Shanghai,” he said on his way to get tested.

Beijing recorded 33 new COVID cases for April 25, up from 19 the day before with no deaths reported so far in the outbreak. The total case load is miniscule compared with hundreds of thousands in Shanghai.

Shanghai reported 52 new COVID deaths on Tuesday, up from 51 the day before. That takes the official death toll to 190, all reported from April 17 onwards, although many residents have said relatives or friends died after catching COVID as early as March, casting doubt over the statistics.

ECONOMIC DAMAGE

In the capital, schools, stores and offices remained open, but the iconic Lama temple would be closed to tourists from Wednesday, while Beijing’s National Theater would close for the rest of the month.

Officials have urged residents to refrain from leaving the capital and avoid gatherings for the upcoming April 30-May 4 Labour Day holidays.

Concerns about the economy echoed among residents, businesses and financial markets, with Chinese stocks, lingering near two-year lows.

“If we can’t go to work, there will be no income,” said Dewei, 31, who worked at a small Chaoyang gym.

The economic fallout from any lockdown in Beijing is likely to be less severe than that on manufacturing powerhouse Shanghai, a key cog in national and global supply chains.

“In Beijing, I think it has less impact on businesses because most of these positions can be done from home,” Beijing-based Joerg Wuttke, president of the European Union Chamber of Commerce, told Reuters.

“There is less trucking involved, there is less packaging involved, there is less production going on.”

Hwabao Trust economist Nie Wen estimated a twin Beijing-Shanghai lockdown may trim one percentage point of China’s economic output in the second quarter.

That would add to geopolitical and property market headwinds during a key year for President Xi Jinping, widely expected to seek a third leadership term.

“The political implications of sealing off the capital of China would be profound,” said Yanzhong Huang, senior fellow with the Council on Foreign Relations, a U.S. think tank, referring to international reputation and social stability risks.

BAD WEATHER

In Shanghai, strict enforcement of measures continued, but plans for a city-wide PCR testing exercise were somewhat derailed by initial forecasts of hail and thunderstorm, later downgraded to cloudy conditions.

While authorities say they have relaxed some curbs, most people are still either confined to their homes or cannot leave their residential compounds. Even those who can go out have few options, with shops and most other venues closed.

In areas where leaving home is allowed, residents were asked to take rapid antigen tests on their own, rather than line up for PCR testing in the rain. In the rest of Shanghai, daily PCR tests remained mandatory.

The prolonged lockdown has fuelled frustration over lost wages, family separation and quarantine conditions, as well as access to medical care and food, with residents struggling to dispose of trash and make basic errands.

The Shanghai government did not immediately comment on signs of growing discontent.

Asymptomatic and symptomatic new cases dropped slightly to 15,319 and 1,661, respectively, while cases outside quarantined areas were flat at 217. Other cities that have been under lockdown began easing restrictions once such cases hit zero.

(Reporting by Eduardo Baptista, Ryan Woo, Brenda Goh, Martin Quin Pollard, Ellen Zhang and the Beijing and Shanghai bureaus; Writing by Marius Zaharia; Editing by Kenneth Maxwell)

European stocks slide to 1-month low on China slowdown fears

By Sruthi Shankar and Anisha Sircar

(Reuters) -Commodity stocks slumped 6% on Monday, leading sharp declines across European stock indexes as worries about an economic slowdown in China and rapid U.S. interest rate hikes overshadowed relief from French Presidential election results.

As investors flocked to the safety of bonds, the continent-wide STOXX 600 index dropped 1.8% to close at its lowest since mid-March. [GVD/EUR] [.L]

China-exposed sectors such as miners, oil & gas and luxury stocks were among the top decliners as fears grew that Beijing was on the verge of joining Shanghai in pandemic-related lockdowns.

“The prospect of further restrictions in China could lead to a poisonous mix of further inflationary pressure, as supply chains in the so-called ‘factory of the world’ get disrupted, and weaker economic growth,” said AJ Bell investment director Russ Mould.

“The result could be stagflation – a slowing economy accompanied by surging prices – a brew few investors would be able to stomach.”

Miners marked their worst session in two years as industrial metal prices slumped on concerns about waning demand from the top metals consumer, while oil and gas stocks dropped 4.8%. [MET/L]

HSBC and Standard Chartered which are also vulnerable to China weakness, dropped 4.1% and 3.5% respectively. The bank index lost 3%.

A gauge of eurozone stock market volatility spiked above 30 points for the first time in almost two weeks.

France’s CAC 40 dropped 2%, caught in a wider risk-off move, even as Sunday’s election results showed pro-EU centrist Emmanuel Macron beating far-right challenger Marine Le Pen with a solid margin.

French stocks have outperformed the wider STOXX 600 index over the past two weeks after polls put Macron in the lead, although his economic platform now depends on parliamentary elections in June.

“What we saw these last two weeks is the repricing of Macron victory as polls have been widening. So for the market it is good news, but the impact should be relatively limited today,” said Roland Kaloyan, head of European equity strategy at Societe Generale.

Shares of French infrastructure group Vinci gained 1.3% after a sell-off on fears of nationalisation by Le Pen.

European markets suffered last week, taking cues from Wall Street indexes as investors priced in aggressive actions by the U.S. Federal Reserve to tame inflation, knocking rate-sensitive growth shares. [.N]

In a busy week for earnings, 144 of the STOXX 600 companies are expected to report quarterly results.

Dutch health technology company Philips plunged 11.3% to its lowest since 2016 after reporting a hit to first-quarter profit.

Meanwhile, French gaming group Ubisoft jumped 9.5% after a report on Friday said the “Assassin’s Creed” maker is attracting preliminary takeover interest from buyout funds.

(Reporting by Sruthi Shankar, Anisha Sircar and Susan Mathew in Bengaluru; Editing by Shounak Dasgupta and Andrew Heavens)

China’s Weak Equity Market Reflects Poor Economic Performance. It’s The Business Cycle.

  • China is run by an autocratic political system.
  • China has shown disappointing economic growth.
  • China’s stock market reflects a system that is stifling growth and profitability.

In the article published 11/20/2020 (here) I wrote about the global business cycle, how business cycles and stock markets of the major countries are related among themselves, and how the US market responds to the changing global developments.

This article follows the same structure of the article mentioned above and updates the data reviewed at that time.

The global business cycles are perfectly synchronized

Chart, line chart

Description automatically generated

The above graph shows the leading indicator of the global business cycle as published monthly by the Organization for Economic Co-operation and Development (OECD). The arrows show the peaks and troughs of the global business cycle. The dates of these turning points are important because they will be used later.

Since 2008 the global economy experienced four business cycles: 2009-2013, 2013-2016, 2016-2020, and the current one started in 2020. The most recent global business cycle peaked in 2021 and has been in a steady decline at least since November 2021. Global growth has been declining and is likely to decline further given the leading feature of the indicator.

The global leading indicator of the OECD is also related to the business cycles of the advanced economies.

Chart

Description automatically generated

The above graph shows Germany’s business cycle. Note how the turning points coincide with those of the global business cycle.

Japan’s business cycle, with a different political structure, culture, and language than Germany’s has exactly the same turning points of Germany and of the global business cycle.

China’s business cycle

The above chart shows the performance of the general manufacturing PMI as released monthly by Caixin/Markit. The performance has been dismal at best when compared to that of other countries. Their PMI index is well below 50 when other countries are above 50, displaying growth.

The point is China’s economy, according to this indicator, has been stagnant for several years.

Graphical user interface, chart

Description automatically generated

China’s leading indicator published by the OECD maintains the same turning points as other countries. The only difference is China’s gauge shows much slower growth since 2010 and is now at a level reflecting a struggling economy.

The US business cycle

The above leading indicator of the US shows the same patterns and same dates of the turning points as for other countries. What needs to be noted is the only difference between the global business cycles is their amplitude which reflects different growth rates due to different economic policies.

While the OECD business cycles are derived from economic data collected from each single country, the above graph shows the US business cycle computed every second by The Peter Dag Portfolio Strategy and Management from market data from the NYSE.

Note how the turning points coincide with those of the global economy, Germany, Japan, and China and of many other countries not shown here.

This synchronicity of the global economies is simply astounding and shows how closely the global economies are connected despite the different cultures, and political systems. All these differences are captured in real-time by the internal market data of the NYSE and represented by the business cycle indicator which is reviewed in each issue of The Peter Dag Portfolio Strategy and Management.

This feature helps to recognize the direction of the global business cycle and the performance of global equity markets and that of China in particular.

China’s equity market

The graph in the above panel shows the performance of the Chinese market (GXC) since 2007. The lower panel shows the ratio GXC/SPY. GXC outperforms SPY when the ratio rises. GXC underperforms SPY when the ratio declines.

The Chinese market is below the levels of 2007. It has also underperformed the US market since 2010 (see lower panel).

The action of the Chinese market shows some important features.

  1. The Chinese market has struggled since the financial crisis of 2008, and it is now below the 2007 peak. This poor performance is consistent with the disappointing Chinese economic performance.
  2. The peak of each rally coincides with the peak of the business cycles of 2011, 2015, 2018, and 2021.
  3. The Chinese market has fallen sharply below its 200-dma in response to renewed economic weakness.
  4. The Chinese market has underperformed the US market, reflecting the superior performance of the US economy as reflected by the decline of the ratio GXC/SPY since 2010.

This cyclical performance of the Chinese market is not unique.

The above chart shows the performance of the German equity market (EWG). The lower panel shows the ratio EWG/SPY. The German market outperforms the US market when the ratio rises. The German market underperforms the US market when the ratio declines (see lower panel).

What has been said about China applies to the German market

1. The German market has struggled since the crisis of 2008, and it is now close to the 2007 peak.

2. The peak of each rally coincides with the peak of the business cycles of 2011, 2015, 2018, and 2021,

3.The German market is sagging below its 200-dma in response to renewed economic weakness.

4. The German market has underperformed the US market, reflecting the superior performance of the US economy.

Many other equity markets show the same features, and they are reviewed in each issue of The Peter Dag Portfolio Strategy and Management with their buy/sell signals. The point is the global equity markets, and the global business cycle are perfectly synchronized.

Key takeaways

  1. The turning points of the business cycle of the major economies take place at the same time.
  2. The turning points of the global business cycle coincide with the turning points of the business cycle indicator computed in real time from the NYSE market data and reviewed in The Peter Dag portfolio Strategy and Management.
  3. The global equity markets have the same turning points which coincide with the turning points of the business cycle.
  4. China’s equity market follows the pattern of other foreign equity markets.
  5. China’s equity market has been performing poorly since 2007, reflecting poor economic conditions. It is likely to continue to show disappointing performance given the weakness and downtrend of the US and global business cycle.
  6. Rising commodities, inflation, interest rates, and declining purchasing power will force the Chinese and other equity markets to decline.
  7. Chinese and other major equity market will rise following a decline in commodities, inflation, and interest rates.

For a look at all of today’s economic events, check out our economic calendar.

The Week Ahead – Geopolitics, Economic Data, and Central Banks in Focus

On the Macro

It is a quieter week ahead on the economic calendar, with 49 stats due out through the week ending 29-April. In the week prior, 57 stats were in focus.

For the Dollar:

Core durable goods and consumer confidence figures will draw attention on Tuesday. Expect consumer confidence to have a greater influence.

On Thursday, the markets’ focus will shift to Q1 GDP and weekly jobless claims. Barring a spike in jobless claims, the GDP numbers will be key.

At the end of the week, inflation and personal spending will wrap up a busy week for the dollar.

In the week ending April-22, the Dollar Spot Index gained 0.72% to end the week at 101.22.

For the EUR:

At the start of the week, German business sentiment will provide direction. Expect another slide to test EUR support.

On Wednesday, German consumer sentiment figures will also influence ahead of Q1 GDP numbers on Friday.

GDP numbers from France, Germany, and Spain will be the main stats at the end of the week.

For the week, the EUR fell by 0.62% to $1.0810.

For the Pound:

It is a quiet week ahead, with economic data limited to CBI Industrial Trend Orders. With little else to consider, expect Pound sensitivity to the numbers.

In the week, the Pound slid by 1.69% to end the week at $1.2839.

For the Loonie:

It is also a quiet week ahead. February GDP numbers will be in focus. We don’t expect the numbers to have a material impact on BoC monetary policy and the Loonie.

In the week ending April-22, the Loonie fell by 0.79 to C$1.2710 against the Greenback.

From the Asia Pacific

For the Aussie Dollar:

Inflation and retail sales will be in focus during the week.

On Wednesday, Q1 consumer prices are out ahead of retail sales on Thursday. The numbers will be key considerations for the RBA and the policy outlook.

Wholesale inflation figures on Friday will also draw interest.

Other stats include private sector credit figures for March, which will have a muted impact on the Aussie Dollar.

The Aussie Dollar tumbled by 2.04% to $0.7244.

For the Kiwi Dollar:

Trade data and business confidence figures will be in focus on Thursday. Weak numbers would further test Kiwi Dollar support after last week’s sell-off.

From China, expect private sector PMIs and news updates on lockdown measures to also influence.

The Kiwi Dollar ended the week down 1.85% to end the week at $0.6639.

For the Japanese Yen:

It is a quiet week ahead, with stats limited to retail sales and finalized industrial production numbers.

Expect the retail sales figures to draw greater interest.

This week, the Bank of Japan will also deliver its policy decision on Thursday. The markets are not expecting any shift in policy outlook, which should leave the Yen on the defensive.

The Japanese Yen slid by 1.61% to end the week at ¥128.50 against the Dollar.

Out of China

It is a quieter week ahead, with manufacturing PMI numbers for April due out on Friday. The markets will be looking to assess the damage to manufacturing sector activity following the latest lockdown measures and the war in Ukraine.

In the week ending April-22, the Chinese Yuan tumbled by 2.04% to CNY6.5014 against the Dollar.

Geo-Politics

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

European Equities: A Week in Review – 22/04/22

The Majors

It was a mixed week for the European majors in the week ending April-22, 2022.

The EuroStoxx600 slid by 1.42%, with the CAC40 and the DAX seeing losses of 0.12% and 0.15%, respectively.

Stats from China at the start of the week set the tone, leaving the majors in the red after the Monday holidays.

In Q1, the economy grew by 1.3%, which was softer than 1.5% in Q2. Year-on-year, the economy grew by 4.8%, picking up from 4.0% in the quarter prior.

The downward trend in industrial production continued with production up by 5.0% year-on-year. In February, industrial production increased by 7.5%.

Fed Chair Powell chatter drove Treasury yields northwards to leave the majors searching for support on Friday.

Economic data from the Eurozone was relatively upbeat but not good enough to offset concerns over supply chain disruption.

The ongoing war in Ukraine and China’s introduction of new COVID-19 restrictions added to the market angst.

The Stats

Early in the week, the Eurozone economy was in the spotlight.

The stats were market positive, though not good enough to counter hawkish Fed Chair Powell chatter from later in the week.

In February, industrial production rose by 0.7%, reversing a 0.7% decline from January. Trade data was also positive, with the trade deficit narrowing from €27.3bn to €7.6bn.

Consumer confidence was also on the rise, despite the ongoing war in Ukraine.

At the end of the week, prelim private sector PMIs for April disappointed. Germany’s manufacturing PMI declined from 56.9 to 54.1, leaving the Eurozone Manufacturing PMI down from 56.5 to a 15-month low of 55.3.

Service sector activity accelerated due to easing COVID-19 restrictions, supporting a rise in the composite PMI from 54.9 to 55.8.

From the U.S

It was a quiet start to the week, with the markets needing to wait until Thursday for the key numbers.

It was a mixed set of numbers. Jobless claims fell from 186k to 184k in the week ending April 15. The Philly Fed Manufacturing Index disappointed, however, falling from 27.4 to 17.6.

On Friday, prelim private sector PMIs for April also drew interest.

The Manufacturing PMI increased from 58.8 to 59.7, while the Services PMI declined from 58.0 to 54.7.

The mixed set of numbers came amidst some hawkish Fed Chair Powell chatter.

On Thursday, Fed Chair Powell spoke at the Annual Economic Policy Conference National Association for Business Economics.

There were two key takeaways from the Powell speech. Firstly, the prospect of a fifty-basis point rate hike.

Discussing restoring price stability, Powell said,

“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or in meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”

Secondly, Powell talked of the challenges of bringing down inflation without bringing down the economy.

Concerning growth, Powell said,

“I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context – very little is straightforward in the current context. My colleagues and I will do our very best to succeed in this challenging task.”

The combination of a more rapid move to policy-neutral and possible beyond and the threat of recession weighed on riskier assets.

The Market Movers

From the DAX, it was a bullish week for the auto sector. BMW and Continental rallied by 2.99% and 3.31%, respectively. Daimler and Volkswagen ended the week with gains of 2.23% and 2.39%, respectively.

It was also a bullish week for the banking sector. Deutsche Bank rose by 0.44%, with Commerzbank rallying by 5.10%.

From the CAC, it was another bullish week for the banks. BNP Paribas rose by 4.48%, with Credit Agricole and Soc Gen seeing gains of 5.11% and 5.21%, respectively.

It was a mixed week for the French auto sector. Stellantis NV slid by 6.54%, while Renault ended the week up 4.41%.

Air France-KLM gained 0.49%, while Airbus ended the week with a 1.38% loss.

On the VIX Index

It was a third consecutive week in the green for the VIX in the week ending April-22.

Following a 7.28% gain from the previous week, the VIX jumped by 24.27% to end the week at 22.70.

2-days in the green from 5 sessions, which included an 11.61% rise on Thursday and a 24.38% surge on Friday delivered the upside.

In the week, the NASDAQ slumped by 3.83%, with the Dow and the S&P500 falling by 1.86% and 2.75%, respectively.

The Week Ahead

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

At the start of the week, German business sentiment will provide direction. Expect another slide to test support for the majors.

On Wednesday, German consumer sentiment figures will also influence ahead of Q1 GDP numbers on Friday.

GDP numbers from France, Germany, and Spain will be key at the end of the week.

From the U.S, Core durable goods and consumer confidence figures will draw attention on Tuesday. Expect consumer confidence to have a greater influence.

On Thursday, the market focus will shift to Q1 GDP and weekly jobless claims. Barring a spike in jobless claims, the GDP numbers will be key.

At the end of the week, inflation and personal spending will wrap up the week.

From China, expect private sector PMIs to also influence at the end of the week.

Away from the economic calendar, corporate earnings and the war in Ukraine will continue to provide direction.

The Weekly Wrap – FED Chair Powell Drives the Dollar Spot Index to 101

The Stats

It was a busy week on the economic calendar for the week ending April-22, 2022.

A total of 57 stats were monitored, following 59 stats in the week prior.

Of the 57 stats, 31 beat forecasts, with 25 economic indicators falling short of forecasts. One stat was in line with forecasts.

Looking at the numbers, 33 of the stats reflected an upward trend. Of the remaining 24 stats, all 24 stats were weaker.

Out of the U.S

It was a quiet start to the week, with the markets needing to wait until Thursday for the key numbers.

It was a mixed set of numbers. Jobless claims fell from 186k to 184k in the week ending April 15. The Philly Fed Manufacturing Index disappointed, however, falling from 27.4 to 17.6.

On Friday, prelim private sector PMIs for April also drew interest.

The Manufacturing PMI increased from 58.8 to 59.7, while the Services PMI declined from 58.0 to 54.7.

The mixed set of numbers came amidst some hawkish Fed Chair Powell chatter.

On Thursday, Fed Chair Powell spoke at the Annual Economic Policy Conference National Association for Business Economics.

There were two key takeaways from the Powell speech. Firstly, the prospect of a fifty-basis point rate hike.

Discussing restoring price stability, Powell said,

“If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or in meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”

Secondly, Powell talked of the challenges of bringing down inflation without bringing down the economy.

Concerning growth, Powell said,

“I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context – very little is straightforward in the current context. My colleagues and I will do our very best to succeed in this challenging task.”

The combination of a more rapid move to policy-neutral and possible beyond and the threat of recession weighed on riskier assets.

In the week ending April 22, 2022, the Dollar Spot Index gained 0.72% to end the week at 101.22. In the week prior, the Index rose by 0.71% to 100.50.

Out of the UK

Retail sales and private sector PMIs for April were the key stats of the week. The stats were Pound negative.

Core retail sales slid by 1.1% in March, with retail sales tumbling by 1.4%.

According to prelim April figures, the services PMI declined from 62.6 to 58.3, while the manufacturing PMI rose from 55.2 to 55.3.

In the week, the Pound slid by 1.69% to end the week at $1.2839. In the week prior, the Pound rose by 0.27% to $1.3060.

The FTSE100 ended the week down 1.24%, reversing a 0.68% loss from the previous week.

Out of the Eurozone

Early in the week, the Eurozone economy was in the spotlight.

The stats were EUR positive, though not good enough to counter hawkish Fed Chair Powell chatter from later in  the week.

In February, industrial production rose by 0.7%, reversing a 0.7% decline from January. Trade data was also EUR positive, with the trade deficit narrowing from €27.3bn to €7.6bn.

Consumer confidence was also on the rise, despite the ongoing war in Ukraine.

At the end of the week, prelim private sector PMIs for April disappointed, however. Germany’s manufacturing PMI declined from 56.9 to 54.1, leaving the Eurozone Manufacturing PMI down from 56.5 to a 15-month low of 55.3.

Service sector activity accelerated due to easing COVID-19 restrictions, supporting a rise in the composite PMI from 54.9 to 55.8.

For the week, the EUR fell by 0.62% to $1.0810. In the previous week, the EUR fell by 0.62% to $1.0810.

In the week, the EuroStoxx600 slid by 1.42%, with the CAC40 and the DAX seeing losses of 0.12% and 0.15%, respectively.

For the Loonie

The market focus was on inflation and retail sales during the week.

The stats were Loonie positive, with Canada’s annual rate of core inflation accelerating from 4.8% to 5.5%. The jump supported the market expectation of more BoC rate hikes in the months ahead.

Retail sales rose by a further 0.10% in February, with core retail sales increasing by 2.10%.

In the week ending April-22, the Loonie fell by 0.79 to C$1.2710 against the Greenback. In the week prior, the Loonie fell by 0.30% to C$1.2610.

Elsewhere

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

The Aussie Dollar tumbled by 2.04% to $0.7244, with the Kiwi Dollar sliding by 1.85% to end the week at $0.6639.

For the Aussie Dollar

There were no material stats to provide the Aussie Dollar with direction.

The RBA meeting minutes failed to deliver support despite a shift in sentiment towards interest rates. Monetary policy divergence remained firmly in favor of the Greenback.

For the Kiwi Dollar

It was a quiet week, with economic data limited to Q1 inflation figures. The stats were Kiwi Dollar positive, with consumer prices rising by a further 1.8% in the quarter. Year-on-year, the annual rate of inflation held steady at 6.9%, which was also Kiwi Dollar positive.

The numbers were not enough to prevent a slide, however, with the Fed likely to take a far more aggressive rate path.

For the Japanese Yen

Economic data included industrial production, trade, and private sector PMI numbers.

Positive stats were not enough to prevent a Yen return to ¥128 against the Dollar.

In February, industrial production rose by 2%, with Japan’s trade deficit narrowing from ¥669.7bn to ¥412.4bn.

According to April prelim figures, the manufacturing PMI slipped from 54.1 to 53.4, while the services PMI increased from 49.4 to 50.5.

The Japanese Yen slid by 1.61% to end the week at ¥128.50 against the Dollar. In the week prior, the Yen ended the week down by 1.71% to ¥126.46.

Out of China

It was a particularly busy week, with Q1 GDP, industrial production, and fixed asset investment figures in focus.

In Q1, the economy grew by 1.3%, which was softer than 1.5% in Q2. Year-on-year, the economy grew by 4.8%, picking up from 4.0% in the quarter prior.

The downward trend in industrial production continued, with production up by 5.0% year-on-year. In February, industrial production increased by 7.5%.

Also negative for the markets were more stringent lockdown measures to curb the spread of the coronavirus.

In the week ending April-22, the Chinese Yuan tumbled by 2.04% to CNY6.5014. The Yuan fell by 0.10% to CNY6.3715 in the week prior.

The Hang Seng Index ended the week down 4.09%, with the CSI300 sliding by 4.19%.