With no major surprises and as traders waited for key inflation data, price action was a choppy mess for most of the week.
But before the week’s close, the U.S. dollar was the clear winner once again thanks to another surprisingly strong inflation update on Friday.
Notable News & Economic Updates:
Libya’s largest oil field, El Sharara, restarted production at around 180K b/d on Monday
Stagflation danger spurs World Bank to cut 2022 global growth outlook to 2.9% from 3.2% April estimate
Poland’s central bank raised the interest rate 75 bps to 6% as expected
11% of Norwegian oil workers threatened to strike over wages
U.S. EIA crude oil inventories post surprise build of 2 million barrels
China announced on Thursday an upcoming weekend lockdown in Shanghai for mass testing as covid-19 cases grow
Ukraine said proposals from Russia and Turkey to allow Ukrainian grain exports were not credible
The ECB announced a more aggressive rate hike path than expected on Thursday, a potential scenario where the deposit rate hits 0.0% by the end of Q3
Libyan oil production and exports are set to drop again on port blockages due to protesting ahead of the weekend
The Bank of Russia cut the benchmark rate 150 bps to 9.50% on Friday
U.S inflation rose at the fastest annual pace in May at 8.6%, raising speculation the Fed will have to tighten more aggressively
U.S. equities posts the worst week since January after U.S. CPI data hits a 40-year high
Intermarket Weekly Recap
Directional biases were no where to be found for most of the week as traders likely stayed on the sidelines ahead of a string of top tier events, and likely due to the fact that we didn’t get any major surprises this week.
It wasn’t really until Thursday that we started to see small momentum moves, and with equities and crypto turning lower against a stronger greenback and bond yields, we can argue that traders were starting to lean risk averse during the U.S. session.
This may have been a reaction to the aggressive monetary policy tightening rhetoric from both the Reserve Bank of Australia and European Central Bank, and we could probably throw in there a reaction to rising odds of more covid-19 restrictions in China as case grow in Shanghai. We also got weaker-than-expected U.S. weekly initial jobless claims, the most recent signal that a slowdown in the U.S. may still be ahead.
The most anticipated event was the latest consumer inflation data from the U.S. on Friday, and boy did it do a number to risk-on traders as it came in way hot, killing the idea that high inflation conditions may be stabilizing. On a month-over-month basis, CPI came in at 1.0%, well over the 0.7% forecast and 0.3% previous month read, and traders were quick to react selling off risk assets, likely on the idea the Federal Reserve will likely have to remain hawkish on monetary policy tightening. Gold and bond yields popped higher, along with the Greenback as expected.
The move higher in USD on Friday solidified the Greenback’s dominant performance this week, which was closely followed by the British pound, likely higher on promises from U.K. Prime Minister Boris Johnson to cut taxes and regulation to support the economy.
On the other end of the spectrum was the Japanese yen, continuing its downward trend as officials from both the Japanese government and the Bank of Japan continue to stay strong on keeping easy monetary policy despite the drastic fall in the yen and strong inflation conditions.
USD Pairs
U.S. Trade deficit drops 19.1% to $87.1B in April
Yellen: US dealing with “unacceptable” inflation levels, expects inflation to remain high
U.S. MBA mortgage applications for week ending June 3: -6.5% vs. -2.3% previous
U.S. weekly initial jobless claims ending June 4: 229K vs 200K forecast
U.S. CPI in May: +8.6% y/y; core CPI +6.0% y/y
University of Michigan’s preliminary read on U.S consumer sentiment fell to a record low of 50.2 from 58.4 in May
GBP Pairs
U.K. Prime Minister Boris Johnson won a confidence vote with majority backing of Tory MPs; and with 59% of the vote in his favor he is immune from further leadership challenges for a year.
Halifax: U.K. annual house prices slow for 3rd month in a row in May
The latest economic forecast report from the British Chambers of Commerce showed lower expectations of GDP growth for 2022 at 3.5% and U.K. inflation to reach 10%
UK Prime minister Johnson promised to lawmakers during his Friday speech to cut taxes and regulation, and to limit government spending
EUR Pairs
German factory orders tumbled by 2.7% vs. estimated 0.4% uptick
Sentix investor index rose to -15.8 in June from -22.6 in May
France’s trade deficit narrows from 12.7B EUR record high to 12.2B EUR in April
Eurozone GDP for Q1 2022 grew at +0.6% q/q vs. a revised 0.3% q/q in Q4 2021; +5.4% y/y vs. a previous estimate of +5.1% y/y
The European Central Bank gave their latest monetary policy statement on Thursday:
ECB to end net purchases under APP starting July 1
ECB expects another rate hike in September, and then “gradual but sustained” increases after
ECB downgraded growth forecasts and increased inflation estimates
CHF Pairs
Switzerland’s unemployment rate dropped from 2.3% to 2.1% in May
CAD Pairs
Canada Trade Balance for April: 1.5B vs. 2.9B forecast, March revised lower to 2.3B
Canada Ivey PMI moves higher to 72.0 in May from 66.3 in April
Bank of Canada Financial System Review — 2022: financial system is still resilient; balance sheet of business and households are in good shape. Financial system vulnerabilities are more complex and risks are elevated due to current environment of high inflation & geopolitical risks.
Bank of Canada Governor Macklem says the economy is overheating and higher rates may produce a “healthy” slowdown in the housing market.
Canada’s unemployment rate fell to a record low of 5.1% as the economy added 39K jobs in May 2022; average hourly wages is up to 3.9% y/y vs. a 3.3% y/y read in April
NZD Pairs
New Zealand ANZ commodity prices sink by 2.8%, following earlier 1.9% slump
Globa Dairy Prices rose 1.5% in the latest auction vs. -2.9% at the previous auction
AUD Pairs
AU MI inflation gauge up by 1.1% in May vs. 0.1% downtick in April
AU ANZ job ads up by 0.4% vs. 2.0% drop in April
Reserve Bank of Australia Monetary Policy Statement on Wednesday
RBA hiked interest rates by 0.50% to 0.85%
RBA statement highlighted strong inflation and resilience of Australian economy; RBA officials expressed concerns on household spending and house prices
ANZ Roy Morgan Weekly Consumer Confidence dips to 87.0 from 90.7 in the week ending June 3
JPY Pairs
BOJ’s Kuroda vows unwavering stance in keeping ultra-easy policy
BOJ Kuroda walked back remarks on rising inflation tolerance on Tuesday; also said a quick, big fall in the value of yen is negative for the economy
Japan leading indicators index for May: 102.9 vs. 100.8
Japan economy watchers survey index rose 3.6 to 54.0
Japan final Q1 GDP reflects smaller contraction (-0.5% y/y) than initially reported (-1.0% y/y)
Japanese preliminary machine tool orders increased by 23.7% y/y
Japan’s input price growth cools from 9.8% to 9.1% y/y in May on ramped-up government help
The Japanese government and the BOJ voiced concerns over the recent sharp fall in the yen on Friday, but no comment on potential FX intervention moves
