The New Zealand dollar took the crown this week after an expected rate hike from the Reserve Bank of New Zealand, and arguably on a potential shift in broad risk sentiment.
Notable News & Economic Updates:
The Chinese government announced on Monday that it is preparing 140B yuan ($21B) in tax relief to support the economy
Russia launched an all-out assault on Tuesday to trap Ukraine troops in Donetsk and Lunansk in the Donbas region
The Reserve Bank of New Zealand raised the official cash rate to 2.0% from 1.50% and expects the rate to peak near 4.0% in 2023
Russia said on Wednesday that it will open sea corridors to Ukrainian ports amid growing global food crisis
Chinese Premier Li Keqiang said that the economy may be worse off in some ways than in 2020 during the pandemic; urged local governments to take action to lower unemployment rate
The latest FOMC meeting minutes showed that most members agreed on 50 bps hikes over the next couple of meetings
Ether’s price falls below $1800 after Ethereum Beacon Chain briefly forked
China’s industrial Profits: -8.5% y/y in April vs. +12.2% y/y in March
U.S. Core PCE (the Fed’s favorite inflation metric) came in at +0.3% m/m; annualized read continued the trend lower at +4.9% vs. the 5.2% read in March
Intermarket Weekly Recap
Dollar, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay 1-Hour
Broad market price action was a little bit calmer this week despite a fresh round of economic data pointing to a souring global economy.
Most notable from the bunch was a deeper dip in the preliminary U.S. GDP read for Q1 to -1.5% q/q vs. -1.3% q/q forecast, and falling retail sales numbers across the globe. It looks like we’re finally seeing signals that high prices and interest rates are finally destroying consumer demand and slowing down the global economy.
We also got a round of business and consumer sentiment data, signaling further slowdown in economic activity may be ahead, coupled with expectations from those surveys that prices will remain high looking forward.
But also did get signals that high inflation rates may be topping out as core consumer reads seem to be stabilizing, most notable was a read from the U.S. as core PCE continued its trend lower to 4.9% y/y.
All put together, these developments may be changing the outlook on future monetary policy moves, lowering the odds of the aggressive stance that seems to have been priced in over the better part of 2022. This could be characterized by the rally in equities this week (S&P 500 Futures up +5.60% & Nasdaq 100 Futures up +6.25%) and weakness in U.S. bond yields (U.S. 10-yr Treasury yield back below 2.75%) and the U.S. dollar (which ended up being the worst major currency performer this week).
In the forex space, the New Zealand dollar was the big gainer of the week, lifted by both an expected 50 basis points hike from the Reserve Bank of New Zealand on Wednesday and a change in expectations of how high interest rates could go. The RBNZ shifted their OCR target from 3.35% to 3.90% in 2023, and Governor Orr stated that a recession is not likely at this point.
USD Pairs
U.S. New Home Sales fall sharply to 591K in April, below forecast & the lowest read in 2 years
Richmond Fed Manufacturing Index fell to -9 in April from 14 in March
S&P Global Flash US Composite PMI: Manufacturing PMI dipped to 57.5 in May vs. 59.2 previous; services at 53.5 vs. 55.6 in April, a 4-month low
Federal Reserve Bank of Atlanta President Raphael Bostic suggests a possible September pause if inflation falls more than expected
FOMC meeting minutes showed most members agreed on 50 bps hikes over the next couple of meetings
U.S. Durable Goods Orders in April: +0.4% vs. a downwardly revised +0.6% in March
US MBA mortgage applications for the week ending May 20: -1.2% vs -11.0% previous
First-quarter GDP declined 1.5%, worse than thought; jobless claims edge lower 8K to 210K vs. previous week
U.S. Pending home sales fell 4% m/m in April; supply of homes for sale rose 9% y/y last week
U.S. Core PCE rose +4.9% y/y in April vs. 5.2% y/y in March
U.S. Consumer spending for April came in at +0.9% m/m, above forecast 0.7%, but below March read of +1.4%
University of Michigan Consumer sentiment read for May was revised lower to 58.4 VS. 59.1 in April
GBP Pairs
Overlay of GBP Pairs: 1-Hour Forex Chart
Rightmove: U.K. house prices have soared by a ‘record-breaking’ £55,000 since the pandemic began
U.K. to start legislating against Brexit deal within three weeks
Flash U.K. Manufacturing PMI slipped to 54.6 in May vs. 55.8 in April; flash services PMI fell to a 15-month low at 51.8
Bank of England faces fine balance when setting rates -Tenreyro
EUR Pairs
Germany Ifo Business Confidence Index rose to 93.0 in May vs. 91.9 in April.
ECB rate hikes in July and September are likely a done deal, France’s Villeroy says
ECB President Lagarde said “liftoff possible” from negative rates starting in July and likely to exit negative rates by September
French flash manufacturing PMI down from 55.7 to 54.5 vs. 55.3 forecast; flash services PMI dipped from 58.9 to 58.4 as expected
German flash manufacturing PMI up from 54.6 to 54.7 vs. 54.1 forecast; flash services PMI fell from 57.6 to 56.3 vs. 57.2 consensus
Germany GfK consumer confidence -26.0 vs -25.5 expected in June
European Central Bank member Knot says a 50 basis point hike in July is not off the table
CHF Pairs
Swiss National Bank Chairman Thomas Jordan says monetary policy is in an unpleasant situation of high inflation and falling economic activity
CAD Pairs
Canadian housing starts was 257,846 units in April, up from 253,226 units in March – CMHC
Statistics Canada says higher prices lifted manufacturing (+2.5%) and wholesale sales (+0.3%) in March
Canada Industrial Product Price Index (IPPI) rose 0.8% m/m in April; Raw Materials Price Index (RMPI) slipped by -2.0% m/m
Canada retail sales in March was virtually unchanged at C$60.1B vs. a +1.4% forecast
NZD Pairs
Overlay of NZD Pairs: 1-Hour Forex Chart
The Reserve Bank of New Zealand raised the official cash rate by 50 bps to 2.0% and revised the terminal rate from 3.35% to 3.90%
RBNZ governor Adrian Orr said on Thursday that an aggressive path is best for achieving their inflation goals; RBNZ doesn’t see a recession at the moment
AUD Pairs
Overlay of AUD Pairs: 1-Hour Forex Chart
Australia Labor party voted into power during the weekend with the election of Anthony Albanese during the weekend
RBA Assistant Governor Chris Kent said on Monday that there was no plans to sell bonds
Australian flash manufacturing PMI down from 58.8 to 55.3 in May; flash services PMI fell from 56.1 to 53.0 in May
AU quarterly construction work falls by 0.9% in Q1 2022 vs. 0.9% increase expected
Australia Private Capital Expenditure: -0.3% q/q vs. +2.3% previous
JPY Pairs
Japanese flash manufacturing PMI dipped from 53.5 to 53.2 vs. 53.8 forecast
BOJ core CPI climbed from 1.1% to 1.4% y/y in April
BOJ’s Kuroda says surging global inflation among challenges for central banks; commits to ultra-loose policy as inflation still viewed as transitory
Japan Services PPI: +1.7% y/y; +0.0% m/m
