InvestMacro

By ForexTime

The market adage “Sell in May and go away” has certainly rung true in 2022.

The selloff across bonds, stocks, and even cryptos has taken a steeper dive so far this month, amid worries that central bank rate hikes could choke the global economy.

Investors and traders worldwide will be scouring the following economic data and events in the coming week, looking for reasons as to whether the selloff should be extended or perhaps take a breather:

Monday, May 16

• JPY: Japan April PPI
• CNH: China April industrial production, retail sales, property sales, and unemployment rate
• EUR: EU Commission releases Spring economic forecasts
• USD: New York Fed President John Williams speech

Tuesday, May 17

• AUD: RBA releases May policy meeting minutes
• GBP: UK March unemployment and April jobless claims
• EUR: Eurozone 1Q GDP and employment
• USD: US April retail sales and industrial production
• USD: Fed speak
  • Fed Chair Jerome Powell
  • Chicago Fed President Charles Evans
  • Cleveland Fed President Loretta Mester
  • Philadelphia Fed President Patrick Harker
  • St. Louis Fed President James Bullard
• Q1 earnings: Walmart, Home Depot, Vodafone, JD.com

Wednesday, May 18

• JPY: Japan 1Q GDP
• GBP: UK April CPI and PPI, BOE MPC member Catherine Mann speech
• US crude: EIA weekly US crude inventories
• CAD: Canada April CPI
• USD: Philadelphia Fed President Patrick Harker speech
• Q1 earnings: Tencent, Target

Thursday, May 19

• JPY: Japan April external trade
• AUD: Australia April unemployment
• ZAR: South Africa Reserve Bank rate decision
• EUR: ECB publishes April meeting accounts
• USD: US weekly initial jobless claims
• Xiaomi Q1 earnings

Friday, May 20

• JPY: Japan April CPI
• GBP: UK April retail sales, May consumer confidence
• EUR: Eurozone May consumer confidence

The GBP index, which measures Sterling’s performance against six of its G10 peers in equal weights, is trading around its lowest levels since December 2020.

This index could return to recent lows if the coming week’s data on jobs, inflation, retail sales, and consumer confidence point to more economic woes.

After all, the Bank of England recently highlighted the risk of a recession by year-end.

Darker clouds over the UK economic outlook should keep the GBP index firmly entrenched in the downtrend that has persisted since February, potentially sending this index back towards the 1.47 mark.

The growing downside risks to the UK economy, which are expected to narrow the window of opportunity for further BOE rate hikes, have allowed most of Sterling’s G10 peers to maintain a year-to-date advance against the Pound.

Even the beleaguered euro has seized the opportunity to break out of its downtrend against GBP that had been in place since September 2020.

Last week, EURGBP secured a weekly close above its 50-week simple moving average for the first time since January 2021.

And with King Dollar reigning supreme across the FX universe, GBPUSD has been sent to its weakest levels since November 2020.

We may see even more US dollar strength in the coming week if the scheduled Fed speak does little to douse the prospects of a 75-basis point US rate hike over the summer months.

Such perceived signals for an ultra-hawkish Fed, coupled with dismal data out of the other side of the Atlantic, should heap more downward pressure on GBPUSD and potentially drag ‘cable’ closer to the psychologically-important 1.20 line.

Although GBPUSD’s 14-day relative strength index has broken below the 30 threshold that denotes oversold conditions, any recovery should prove fleeting, as long as the UK economic data suggests that a recession is inevitable and binds the BOE’s hawkish hands, all while the Fed presses ahead with rate hikes galore.

READ MORE: Dovish BOE sends GBPUSD to lowest since mid-2020

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com

by JustForex

More and more economic experts believe that the Federal Reserve’s plan to curb inflation may lead to a recession in the economy. To fight inflation, the Fed has launched its most aggressive monetary tightening campaign in decades, planning multiple rate hikes of half a percent in a row and $9 trillion in cuts to its balance sheet. But this tightening campaign is causing cracks in financial markets and steep increases in mortgage rates and other forms of borrowing. This could lead to an economic crisis in the coming months and put pressure on the Fed, both because of inflation and the negative side effects of higher rates. The Economic data is also not encouraging. The US producer price index, also called “factory” inflation or wholesale inflation, increased to 11% in annual terms. Last month’s growth was 0.5%. According to many analysts, the producer price index is a more accurate indicator of the inflation faced by businesses and retailers that suffers the most from supply chain disruptions. The initial jobless claims increased to 203,000 (+1,000 for the last week). A strong labor market amid rising inflation is the first sign of an impending recession. Such signals scare investors enough to sell off their portfolios, which leads to a decrease in stock indices. At the close of the stock market yesterday, the Dow Jones Index (US30) decreased by 0.33%, the S&P 500 (US500) lost 0.13%, and the NASDAQ Technology Index (US100) fell by 0.06%.

Federal Reserve Chairman Jerome Powell was re-elected for a second term yesterday. Powell made an interesting point yesterday: “I have said, and I will say again, that, you know, if you had perfect hindsight, you’d go back, and it probably would have been better for us to have raised rates a little sooner,” Powell said, in an interview with Marketplace that will air this evening.

Major European indices closed in the red zone yesterday. The German DAX (DE30) decreased by 0.64%, the French CAC 40 (FR40) fell by 1.01%, the Spanish IBEX 35 (ES35) lost 1.35%, and the British FTSE 100 (UK100) fell by 1.56%. Gabriel Makhlouf, head of the Central Bank of Ireland, has joined many European Central Bank policymakers in urging the ECB to be more decisive and take action on inflation.

According to analysts, the UK is already showing signs of stagflation (slowing economic growth while consumer prices are rising). It is likely that the Bank of England will have to raise interest rates even more to curb inflation, warns Bloomberg manager Dave Ramsden.

Sanctions imposed on “EuRoPol” GAZ by Moscow prohibit gas deliveries through the Polish section of the Yamal-Europe pipeline.

The International Energy Agency (IEA) said yesterday that it does not expect acute shortages amid the worsening disruption of oil supplies from Russia. According to the IEA, a new embargo against Russia may accelerate the reorientation of trade flows of Russian oil toward Asia. This is the reason why oil continues to rise despite lower demand. On the other hand, more and more European countries want to eliminate oil and gas dependence on Russia following its invasion of Ukraine. Sooner or later, this will cause serious economic damage to Russia as most of Russia’s profits come from the sale of oil and gas.

Asian markets closed yesterday with a decline. Japan’s Nikkei 225 (JP225) fell by 1.77%, Hong Kong’s Hang Seng (HK50) lost 2.24%, and Australia’s S&P/ASX 200 (AU200) was down by 1.75%. On Thursday, Japanese Foreign Minister Yoshimasa Hayashi agreed with his counterparts in Britain, Canada, and France on the importance of G7 unity in countering Russia’s invasion of Ukraine.

Chinese developer Zhongliang Holdings struggles to extend a $729 million bond maturity before next week’s deadline to avoid defaulting on offshore debt. Zhongliang’s bond default could heighten investor fears about China’s real estate sector.

Main market quotes:

S&P 500 (F) (US500) 3,930.08 -5.10 (-0.13%)

Dow Jones (US30) 31,730.30 -103.81 (-0.33%)

DAX (DE40) 13,739.64 -89.00 (-0.64%)

FTSE 100 (UK100) 7,233.34 -114.32 (-1.56%)

USD Index 104.77 +0.92 (+0.98%)

• – Eurozone French Consumer Price Index (m/m) at 09:45 (GMT+3);
• – Eurozone Spanish Consumer Price Index (m/m) at 10:00 (GMT+3);
• – Eurozone Industrial Production (m/m) at 12:00 (GMT+3);
• – US Michigan Consumer Sentiment (m/m) at 17:00 (GMT+3);
• – US FOMC Member Mester Speaks at 19:00 (GMT+3).

by JustForex

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

By Orbex

The latest data from the US has been giving some mixed signals about the underlying conditions. That has increased the uncertainty about what the Fed might do at its next meeting. The practical result for us traders is that there is more volatility in the currency markets. Generally, the dollar sets a relatively steady course, but contradicting data could make it hard to figure out where things are going.

Tomorrow’s release of University of Michigan consumer sentiment could stir up the mix a little more. Consumers are the drivers of the American economy, and they are being buffeted around by choppy economic waters. All through last year, consumer optimism had been declining. Which isn’t surprising, since inflation had been increasing faster than wages, sapping at consumer purchasing power. But since March a little optimism has returned. Now the question is whether that’s just a little “hump” before turning to the downside, or the sign of a new trend.

The conflicting data

First, we had the report of negative Q1 GDP growth. Following that, investors took a more cautious outlook in terms of what the Fed will do in the next meeting. Speculation coalesced around the idea that the Fed would raise rates by 50 basis points, and 75 bps was out of the question.

But yesterday, CPI figures came in above expectations. Sure, they were lower than the prior four-decade record high. But they showed that inflation is still far from betting firmly under control. Inflation, particularly if not coupled with real wage growth, eventually leads to economic stagnation. With already one quarter of negative growth, getting prices under control has increased urgency. Following the data release, the number of analysts expecting a 75 bps hike at the next meeting increased to 15%, nearly doubling the 8% from a week ago.

Can we get a resolution?

Falling consumer sentiment would be an indication that a recession might be imminent, and likely would be interpreted as the possibility of looser monetary policy than currently expected. That could contribute to a weaker dollar. But if consumers are regaining confidence, that would help give the Fed the motivation needed to keep raising rates. So, it could support the dollar.

The current consensus is that the Michigan May Consumer Sentiment indicator will fall a bit. The estimation is for it to move back to 64.0 from 65.2 in April. Not necessarily a bad sign, but if it doesn’t rise, that wouldn’t be a good sign, either. So, we’d have to see a significant beat or miss to potentially solve the issue of conflicting data.

The key levels

If Michigan Consumer Sentiment drops below the 60 level, it could be an indication that the recent positivity was an aberration of the trend. On the other hand, a move close to the 70 level could be seen as confirmation that consumers are finally feeling better about spending.

Article by Orbex

Orbex is a fully licensed broker that was established in 2011. Founded with a mission to serve its traders responsibly and provides traders with access to the world’s largest and most liquid financial markets. www.orbex.com