UK factory orders contracted once again, with the monthly reading unchanged from March – which was a more than two-year low. The positive news is that quarterly business optimism improved to -2 from -5 previously and while still in negative territory, is at least the highest reading since October 2021.
This article was written by Justin Low at www.forexlive.com.
Markets:
It was a relatively slow session to kick start the new week, as markets are still treading with caution after the more mixed showing last week.
Major currencies didn’t do much, though the yen is seen weaker while the dollar trades more mixed across the board. USD/JPY climbed from 134.10 to 134.60 on the session despite the fact that Treasury yields are a little heavier.
Meanwhile, EUR/USD is up around 0.1% now and testing waters back above 1.1000 while AUD/USD is marked down by 0.2% to 0.6680. The changes are relatively light, as traders don’t really have much to work with for now.
European equities started off a little softer, matching the mood in US futures. However, that all switched up after the cash open as stocks gradually pared losses to keep lightly changed at the moment.
After the back and forth action from last week, we might be in store for more of that in early stages of this week before getting to month-end trading, the BOJ policy decision, and some key economic data on Friday.
This article was written by Justin Low at www.forexlive.com.
Jacques
Attali’s dire future is fast becoming a reality: the imperial dominance of the
United States is fading, and the dollar might soon turn into a pumpkin.
Oddly
enough, the blame for this tectonic shift lies with the country itself. The
decision to freeze Russian currency reserves consecutively prompted other
countries hostile to the US to reduce the share of „greenbacks“ in
both portfolios.
According
to the IMF, the dollar’s share in central bank accounts fell by 0.44% to 58.36%
by the end of 2022, the lowest level in 27 years. In absolute terms, the fall
was 8.7% over the year to $6.471 trillion and in euros, 8.5% to $2.27 trillion.
Given
that in the last month Russia, India, Brazil, Kenya, Saudi Arabia, UAE, ASEAN
countries, and China announced their intention to increase the proportion of
national currencies in their export payments, the situation could get even
worse.
The idea
of independence is also gaining prominence in Europe. Just this week, the
French president suggested that the bloc should strengthen its autonomy
vis-à-vis its big brother by reducing dependence on the
„extraterritoriality of the U.S. dollar.“ What a turn of events…
What do
the French propose? Among other things, to sign an agreement similar to the US
Inflation Reduction Act (IRA). Macron also claims that Europe won the
ideological battle to develop the continent’s strategic autonomy.
Further
impetus to de-dollarization could be given by inflation or, rather, by the Fed
itself. The new round of money printing will cause the supply of dollars to
increase and thus lower the price of the dollar. The regulator’s change in tone
could also negatively affect the US
dollar index.
So what
can we do with this information? Although the situation does not look good for
the US currency, this does not mean that it will disappear tomorrow. However,
if the US economic situation worsens, one should think about possible safe
havens such as gold (XAUUSD).
This article was written by ForexLive at www.forexlive.com.
It started off with a bit of a softer mood but we are seeing things improve in European morning trade. Here’s a snapshot of the equities space at the moment:
The push and pull mood continues from last week and with the Fed only coming up next week, it might be tough to build much conviction in the days ahead as well. Don’t forget, there’s also month-end trading to contend with in the latter stages this week.
For European indices, the DAX and CAC 40 are continuing to hang at the highs for the year.
This article was written by Justin Low at www.forexlive.com.
Just a couple of token remarks but the long story short is that the German, and euro area, economy has held up better than expected to start the new year. Inflation is still a problem but the situation and outlook should gradually improve in the months ahead, even if core prices are estimated to hold higher for now. At least, that is what they are believing.
This article was written by Justin Low at www.forexlive.com.
The market moves so far today have been generally light but the euro is seeing a decent advance from around 1.0970 to 1.1020 in European trading today. There’s not much of a catalyst but it comes off the back of more mixed trading among major currencies, with Treasury yields keeping lower while equities have trimmed losses somewhat.
EUR/USD is testing waters just above 1.1000 for the first time since in over a week after having consolidating around 1.0930 to 1.0990 for the most part last week.
Buyers are back in near-term control and they are keeping a hold above the 100-week moving average of 1.0923 but will have to work through weekly resistance around 1.1033 and last week’s high of 1.1075 to really solidify any further upside momentum.
This article was written by Justin Low at www.forexlive.com.
NOTE: Previews are listed in day-order
New Zealand Trade Balance (Tue):
There are currently no expectations for the
March Kiwi trade balance. The February Trade Balance printed at a deficit of
USD 714mln, with the desk at Westpac expecting the March Trade Balance at a
deeper deficit of USD 850mln. The desk suggests imports are starting to lose
steam on softer domestic demand.
BoC Minutes (Wed):
At its meeting, the Bank of Canada left rates
unchanged at 4.50%, as expected, and maintained language that it was prepared
to do more on rates if needed to bring inflation back to target. The average
GDP forecasts were revised higher for 2023, but down for 2024, while growth is
seen picking up again in 2025. On inflation, the 2023 average CPI forecast was
revised lower, while 2024 was left unchanged. The statement noted that getting
inflation to 2% could be more difficult as expectations are coming down only
slowly, while service price inflation and wage growth remain elevated, and
corporate pricing behaviour has yet to normalise. The central bank also lowered
its output gap estimate, though left its neutral rate view unchanged. At his
post meeting press conference, Governor Macklem revealed that the Governing
Council discussed whether it had raised rates enough, but said that the full
work through of prior hikes was not yet done. Officials also considered the
likelihood that rates may need to remain restrictive for longer to return
inflation to target. The Governor also pushed back on market pricing for rate
cuts, saying that does not look like the most likely scenario. Analysts at
Oxford Economics now expect rates to be left unchanged throughout 2023, noting
their CPI forecasts are aligned with the BoC, but they see much weaker GDP
growth in 2023 than the BoC expects.
Australia CPI (Wed):
Q/Q Q1 CPI is seen cooling to 1.3% from 1.9%
in Q4 last year, but the Y/Y rate is expected to have ticked higher to 6.9%
from 6.8%. Meanwhile, the Trimmed Mean CPI is forecast at 1.4% Q/Q (prev.
1.7%), and Y/Y at 6.7% (prev. 6.9%). Weighted Mean CPI is seen at 1.3% Q/Q
(prev. 1.6%) and Y/Y at 1.3% (prev. 1.6%). Last quarter, the largest upward
contributions came from domestic and international holiday travel alongside
energy prices. Analysts at Westpac suggest the expected downticks in Q/Q
metrics “is due to an ongoing moderation in inflation for food, a seasonal
decline in clothing & footwear, a further moderation in dwellings and
household contents & services inflation, as well as falling prices for auto
fuel and audio visual & computing equipment.” Regarding the RBA, the
minutes released this month stated that the Board considered a rate hike at the
April policy meeting before deciding to pause, as it agreed on a stronger case
to pause and reassess the need for further tightening at future meetings,
whilst highlighting that Inflation is still too high and the labour market has
loosened a little, but remains very tight. As a reminder, the RBA held rates at
3.60%, as expected and heavily priced in the money markets, although analysts
were near-evenly split between expectations for a 25bps hike and a pause.
Riksbank Announcement (Wed):
Expected to hike the Key Policy Rate by 50bp
to 3.50%, 96% of respondents to SEB’s survey expect such a magnitude while the
remainder look for 25bp. The 50bp increment is merited by CPIF-XE remaining
above target and stubbornly elevated in tandem with the domestic economy
generally faring relatively well. Such a move would follow the 50bp hike in
February, which was accompanied by guidance for another hike of either 25bp or
50bp in April. While inflation remains above-target, the March release was
cooler-than-expected for the core measure and was accompanied by a marked
easing in the headline rate to 8.3% from 9.4%. A dynamic which could be used to
justify a discussion, or perhaps even a vote for, a more modest 25bp rate rise
by the more dovish members. On this, the domestic Trade and Enterprise unions
have called for rates to be left unchanged, citing the recent prudent wage
agreement and non-expansionary government budget. Overall, expected to hike by
50bp, though a discussion around and/or vote(s) for other magnitudes cannot be
ruled out; albeit, the likes of SEB and Nordea expect another hike in June to a
3.75% peak given inflation. Additionally, the statement will likely keep emphasis
on SEK appreciation as being “desirable”.
CBRT Announcement (Thu):
The consensus is for the CBRT to leave its
One-Week Repo Rate unchanged, at 8.50% in April. At its previous meeting, the
central bank noted stronger economic activity and caveated its views with
concerns of recession in developed economies. The CBRT reiterated it is to use
all instruments decisively for price stability and the medium-term 5% inflation
target, whilst suggesting the transparent, predictable, and data-driven
decision-making framework is to continue. Traders will continue to frame the
CBRT meeting in the context of the upcoming May 14th elections. Ahead of the
confab, and the elections, SocGen notes traders‘ chatter that the central bank
has tightened its grip on the currency ahead of the election, is now tracking
and vetting TRY exchange rates and has requested detailed reports on FX
valuations. Analysts have suggested that the CBRT may return to more
conventional monetary policy strategies after the election is out of the way, and
will be forced to lift rates. The most recent central bank poll found the Repo
Rate is seen at 13.75% in 12-months time; previously, the view was for 12.8%.
BoC Minutes (Wed):
At its meeting, the Bank of Canada left rates
unchanged at 4.50%, as expected, and maintained language that it was prepared
to do more on rates if needed to bring inflation back to target. The average
GDP forecasts were revised higher for 2023, but down for 2024, while growth is
seen picking up again in 2025. On inflation, the 2023 average CPI forecast was
revised lower, while 2024 was left unchanged. The statement noted that getting
inflation to 2% could be more difficult as expectations are coming down only
slowly, while service price inflation and wage growth remain elevated, and
corporate pricing behaviour has yet to normalise. The central bank also lowered
its output gap estimate, though left its neutral rate view unchanged. At his
post meeting press conference, Governor Macklem revealed that the Governing
Council discussed whether it had raised rates enough, but said that the full
work through of prior hikes was not yet done. Officials also considered the
likelihood that rates may need to remain restrictive for longer to return
inflation to target. The Governor also pushed back on market pricing for rate
cuts, saying that does not look like the most likely scenario. Analysts at
Oxford Economics now expect rates to be left unchanged throughout 2023, noting
their CPI forecasts are aligned with the BoC, but they see much weaker GDP
growth in 2023 than the BoC expects
US Advanced GDP (Thu):
The rate of US GDP growth is expected to cool
in Q1, with the consensus looking for the first estimate of 2023 output to show
growth of 2.0% Q/Q (prev. +2.6%). At the time of writing, the Atlanta Fed’s
forecasting model is tracking growth of 2.5% in Q1. However, in recent weeks,
many sell-side nowcasting models have been moving lower. And ahead, the rate of
growth is expected to cool further. At its March meeting, the Federal Reserve
trimmed its growth view for 2023 as a whole, and now projects GDP at 0.4% from
its prior view of 0.5%. For now, the Fed continues to prioritise inflation in
its policymaking, so while traditionally traders might expect weak growth data
to generate a dovish response, that may not be seen until prices have come back
down further towards target. Nevertheless, money markets are still pricing at
least one full 25bps rate cut, and around 50% chance of another later this
year, after a 25bps rate rise in May.
BoJ Announcement And Outlook Report (Fri):
The Bank of Japan will conduct its first
policy meeting under the leadership of newly appointed Governor Ueda next week,
which will also be the first meeting for Deputy Governors Uchida and Himino,
with the central bank expected to maintain current monetary policy settings of
rates at -0.10% and QQE with YCC to flexibly target 10yr JGB yields at 0%
within a +/- 50bps tolerance range, according to 24 out of 27 economists
surveyed by Reuters. Comments from the new officials have suggested no hurry to
exit from ultra-easy policy as Ueda stated during his inaugural speeches last
week that the BoJ will continue monetary easing until the price target is
stably and sustainably achieved and noted that domestic consumer inflation is
currently around 3%, but likely to slow ahead. Furthermore, Governor Ueda
warned against a sudden normalisation of policy and Deputy Governor Uchida also
said they will continue monetary easing to achieve the price stability target
sustainably and stably, while other officials said they are not expecting an
abrupt shift in policy under the new Governor. Nonetheless, participants will
be on the lookout for potential clues about when the central bank could begin
normalisation as most economists cited by Bloomberg expect some sort of policy
shift by June, although some have warned that the BoJ could maintain policy
well into Q2. Meanwhile, recent data releases have been mixed which supports a
patient approach, including the quarterly Tankan survey as the large manufacturers’
sentiment index deteriorated for the 5th consecutive quarter and fell to its
lowest since December 2020, but the large non-manufacturers sentiment index
printed at its highest in more than 3 years. Furthermore, household spending
disappointed, but machinery orders topped forecasts and the latest national
inflation metrics matched largely consensus, with headline CPI at 3.2% and Core
CPI at 3.1%, but showed an acceleration in nationwide Ex. Fresh Food &
Energy CPI to 3.8% (prev. 3.5%). The central bank will also release its latest
Outlook Report containing Board members’ median forecasts for Real GDP and Core
CPI, with the current estimates for growth at 1.9%, 1.7% and 1.1% for fiscal
years 2022, 2023 and 2024, respectively, while inflation is seen at 3.0%, 1.6%
and 1.8% for the respective aforementioned years. In addition, a recent press
report stated that the central bank is mulling CPI projections for FY25 between
1.6%-1.9%, which would remain below the 2% price goal and support the case for
a delayed exit from easy policy.
Tokyo CPI (Fri):
Core Tokyo CPI is expected to have eased to
3.1% from 3.3% amid stabilising energy prices and base effects. The release is
seen as a leading indicator of the national metrics due a couple of weeks
later. Last month Core consumer inflation in Tokyo slowed for the second
consecutive month, but remained well above the central bank’s 2% target. The
slowdown was primarily due to government measures to curb utility costs.
However, the core came in at the fastest year-on-year pace since 1990. That was
also reflected in the national metrics released recently – with the Core CPI
Y/Y rising to 3.8% from the prior 3.5%, and above the forecast of 3.4%. Sources
via Reuters suggested the BoJ is likely to maintain ultra-loose monetary policy
and make no change to interest rate targets and the yield tolerance band at its
meeting next week, and will likely maintain dovish guidance and could discuss
adjusting the reference on COVID-19 in coming meetings. This follows reports
the BoJ is reportedly open to tweaking Yield Curve Control (YCC) this year if
wage momentum holds, according to Reuters sources; may engage in more lively
debate at June and July meetings; but there is no current consensus on how soon
to phase YCC out, with the July wage tally reportedly key.
Eurozone GDP (Fri):
Prelim Q1 GDP data for the Eurozone is
expected to show Q/Q growth of 0.1% (vs. prev. 0.0%) with the Y/Y rate at 1.3%
(vs. prev. 1.8%). Ahead of the upcoming release, analysts at Investec note that
“over the winter period the macroeconomic story from the Euro area has been
it’s better-than-expected performance” whereby fears of a winter recession have
been averted thanks to milder weather and a subsequently better energy
backdrop. Investec states that surveys such as the PMIs “have pointed to a
continued pickup in the services sector”, whilst “industrial output has grown
1.0% and 1.5% (m/m) in January and February respectively and hence looks set to
record positive growth on the quarter”. Accordingly, the desk looks for a small
Q/Q increase of 0.1%. As ever, GDP data will be deemed as stale in some
quarters with traders more mindful of recent PMI metrics, whereby data for
April highlighted the differing fortunes for the manufacturing and services
sectors, with the former delving deeper into contractionary territory and the
latter moving further above the 50 mark. On which, ING concludes the data
„sheds a positive light on the economic performance in the eurozone, as a
pickup in service sector activity is boosting growth“. From a policy
perspective, inflation data and the Bank Lending Survey released ahead of the
May meeting will likely carry greater sway over the upcoming decision whereby
25bps is priced at 68% and 50bps at 32%.
US PCE (Fri):
The consensus expects core PCE to rise 0.3%
M/M in March, matching the prior rate; the annual measure is seen easing by
0.1ppts to 4.5% Y/Y. The data is likely to confirm that the process of gradual
disinflation continued in March, Credit Suisse says, but the core run rate is
still set to remain higher than the Fed’s target. „The CPI release
indicated that core goods prices edged higher in March, however, modest
disinflation in shelter, which is a smaller weight in the PCE than CPI, should
offset most of this so that the monthly inflation rate stays flat,“ CS
writes.
US Employment Costs (Fri):
The data is said to be one of the key measures
that Fed officials look to when assessing longer-term remuneration trends;
officials have indicated that they want to see a slowdown in wage inflation,
amongst other things, in order to help bring down the rate of services
inflation. „We expect that the ECI will show a continued modest slowdown
in the pace of wage gains as the quit rate has eased in recent months,“
Moody’s says. There has been sequential easing in this measure over the course
of the last few reports (1.4% in Q1 2022, 1.3% in Q2, 1.2% in Q3, and 1.0% in
Q4), although that trend may be tested, if the consensus view is anything to go
by: analysts are currently looking for a rise of 1.1% Q/Q in Q1 (prev. +1.0%).
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This article was written by Newsquawk Analysis at www.forexlive.com.
These are relatively dovish comments and work well with a one-and-done scenario where the Fed wants some time to wait and see how the economy evolves.
The March PCE inflation report is due out on Friday.
This article was written by Adam Button at www.forexlive.com.
Markets:
The daily changes in the largest currencies on Friday were minimal but the day wasn’t without drama. In particular, the US PMI from S&P Global led to a sharp rally in the US dollar, including 100 pips in USD/JPY and half that in EUR/USD and GBP/USD. The report was surprisingly strong including high numbers on new orders and price pressures that few people saw coming.
Some skepticism set in after the numbers though and the dollar move faded. Ultimately, the dollar rally completely reversed (and more) against the euro and pound. USD/JPY held onto about 60 pips of gains from the low but that was still not enough to erase the losses from European trading.
There mood in the markets is uncertainty right now. For every data point that indicates a recession, there is one that shows the economy on solid ground. This week a soft Philly Fed cranked up the recession talk again only for it to be undercut by the number today. Next week there is another round of data but the market is less likely to be swayed by second-tier data points unless a few run in the same direction.
One worrisome sign was the underperformance of commodity currencies. It came despite gains in oil, though copper was down slightly and gold fell 1%. Some pointed to softer global manufacturing PMIs today as a worrisome sign for global resource demand and that could have been a factor.
The loonie was especially soft but that owes to weak details in the Canadian retail sales report. I’ll repost here what I told Reuters.
„High mortgage rates are starting to bite Canadians‘ wallets,“ said Adam Button, chief currency analyst at ForexLive. „Canada is particularly sensitive to higher interest rates and that will lead to divergence in U.S. and Canadian economic performance in the second quarter and beyond.“
This article was written by Adam Button at www.forexlive.com.
Looking at the low to high trading ranges for the major indices:
That’s not a lot of movement. The market is non-trending, but a slew of earnings (Microsoft, Alphabet, Amazon, Boeing, McDonald’s, Intel, GM, 3M, Southwest air, etc.) next week will likely lead to something bigger and better next week. So be aware. Be prepared.
In trading today today, the major indices are closing with modest gains. The final numbers are showing:
For the trading week, all the major indices closed lower:
This article was written by Greg Michalowski at www.forexlive.com.