The Canadian dollar was king this week, likely drawing in bids due to rising oil prices and a largely expected rate hike from the Bank of Canada. The biggest loser title went to the Japanese yen, still reeling on monetary policy divergence as the Bank of Japan continues to be biased towards easy policy in Japan.
Notable News & Economic Updates:
Kenya hiked benchmark rate by 50 bps to 7.5%
EU decided on Tuesday to ban Russian oil imported by sea, two-thirds of total imports
The latest PMI data from the Chinese government showed improved but continued contractionary conditions with manufacturing at 49.6, services at 47.8
J.P. Morgan Global Manufacturing PMI: 52.4 in May vs. 52.3 in April; manufacturing output index continues to decline due to China lockdown
China ordered banks to setup a 800B yuan ($120B) credit line for infrastructure projects
API: U.S. crude oil inventories fall more than expected at 1.2M barrels in the week ended May 27; EIA said on Thursday that crude oil inventories fell by 5.1M barrels in week ending May 27
OPEC+ agreed on Thursday to boost production by up to 650K barrels per day in July and August
Turkey’s inflation soars to 73%, a 23-year high, as food and energy costs skyrocket
South Korean inflation came in at 5.4%; Bank of Korea sees inflation around 5% in June and July
U.S. Non-Farm Payrolls rose 390K in May vs. 318K forecast; unemployment rate holds steady at 3.6% vs. 3.5% forecast
Intermarket Weekly Recap
Dollar, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay 1-HourDollar, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay 1-Hour
Intermarket price action was mostly choppy this week as there didn’t seem to be one major driving catalyst or theme to push assets to march in unison.
But if were to make an argument for the strongest driver, it looks like continued inflation fears and tightening monetary policy expectations topped the list.
With no signs of inflation slowing and continued rhetoric of rate hikes coming from central banks, we saw bond yields steadily track higher this week, highlighted by the U.S. 10-year Treasury yield creeping back towards 3.00% after dipping to 2.75% last week.
We also got a fresh round of business sentiment this week, coming in mixed as both China and the U.S. saw improvement while European sentiment continues to weaken. Arguably, high prices, higher rates and some signs of businesses souring on the economy may have been the driver for some risk aversion behavior, characterized by weakness in crypto and equities.
Oil was definitely doing its own this week, seeing some volatile and choppy price action as trader’s bounced their focus between oil inventory data, promises from OPEC+ to boost production, and an EU ban on Russian oil imports.
In FX, yen took it to the chin once again, not surprising given that the Bank of Japan refuses to follow their central bank peers in tightening to fight high prices. This was highlighted again this week, this time from Bank of Japan member Seiji Adachi on Thursday who talked down the need for rate hikes despite some chance of inflation rates increasing.
The Canadian dollar easily took the top spot, likely boosted by their number one export, oil, gaining in price to hit $120/bbl this week, but also likely on another rate hike from the Bank of Canada. The Loonie actually saw most of its gains before the BOC event on Wednesday, and there was no sell-the-news behavior, likely on hints from the BOC that they were prepared to act forcefully if inflation rates continued to remain high.
USD Pairs
Chicago PMI rose to 60.3 in May vs. 55 forecast & 56.4 in April
U.S. House price index showed a slowdown to 1.5% in March; +4.6% q/q in Q1 2022 – FHFA
U.S. CB consumer confidence index down from 108.6 to 106.4 vs. 103.9 forecast
Federal Reserve begins reducing its $8.9T balance sheet in June
S&P Global U.S. Manufacturing PMI: 57.0 in May vs. 59.2 in April; prices contiues to rise & demand cools
U.S. job openings in May: -455K from 11.8M openings in April
ISM Manufacturing PMI for May 2022: 56.1 vs. 55.4 in April; Employment index falls to contractionary level at 40.6 vs. 50.9 previous
Fed’s Daly wants to get U.S. interest rates to 2.5% by year end; Fed’s Bullard supports rate hike to 3.5% this year
Fed’s Beige Book reflected moderating economic growth and lower future growth expectations
U.S. Labor productivity fell sharply by -7.3% in Q1 2022 vs. +6.3% in Q4 2021
U.S. Factory orders only grew by 0.3% in April vs. 1.8% growth in March (downwardly revised)
U.S. weekly jobless claims fell by 11K applications to 200K in the week ending May 28.
ADP reported on Thursday that private payrolls increased by 128K in May vs. (dowardly revised) +202K in April
ISM Services PMI fell to 55.0 in May vs. 57.1 in April
GBP Pairs
U.K. mortgage approvals fall to 65.9K in April, the lowest level since June 2020
U.K. Nationwide HPI up by 0.9% vs. 0.6% forecast, 0.4% previous
U.K. BRC price shop index ticked higher from 2.7% to 2.8%
U.K. Manufacturing PMI: unchanged at 56.4 in May; new orders and employment rises as slower rates
EUR Pairs
German import prices rose by 1.8% vs. 2.1% forecast in April
Eurozone economic sentiment index for May: 105.0 vs. 104.9 in April; services sentiment rose to 14.0 vs. 13.6 previous
European Central Bank Chief Economist Philip Lane calls two 25 bps hikes ‘benchmark pace’
Euro area flash inflation estimate for May 2022: +8.1%
German retail sales tumbled by 5.4% vs. projected 0.5% dip
Eurozone Manufacturing PMI falls to a 18-month low t 54.6 in May vs. 55.5 in April; manufacturing orders fall for the first time in two years
Euro area unemployment at 6.8%; EU at 6.2% in April 2022
Eurozone PPI for April: +1.2% m/m vs. +2.3% m/m forecast
Bank of France Chief Villeroy says inflation is too strong and too broad; process should be gradual but resolute
CHF Pairs
Swiss KOF economic barometer down from 101.7 to 96.8 vs. 102.6 forecast
Switzerland’s annual retail sales disappoint with a 6.0% drop vs. 1.4% decrease expected
Swiss trade balance in April: CHF 4.13b VS. CHF 2.99B previous
Switzerland GDP Q1 2022: +0.5% q/q vs. +0.3% q/q previous; +4.4% y/y
Switzerland’s inflation rate hits 2.9% y/y in May, higher than 2.6% expected and the fastest since September 2008: +0.7% m/m & +2.9% y/y
CAD Pairs
Canada current account surplus rises to C$5B in Q1 2022 vs. a -C$137M deficit in Q4 2021
Canada Q1 2022 GDP: +3.1% q/q; +0.9% m/m
Bank of Canada raised the overnight interest rate by 50 bps to 1.5%; hints at further hikes to come if needed
Bank of Canada Deputy Governor Paul Beaudry suggested on Thursday that the policy rate could reach in to the upper part of the 2% – 3% target neutral range
Canada building permits fall -0.6% m/m in April vs. -6.3% previous
NZD Pairs
RBNZ official Conway: Lower domestic inflation likely in second half of 2022
NZ new dwellings drop by 8.5% in April after 6.2% uptick in March
NZ ANZ business confidence fell 14 points from -42.0 to -55.6 in May
New Zealand export prices rose +7.8% q/q in Q1 2022 vs. +4.6% q/q forecast
New Zealand overseas trade index rose 0.5% q/q in Q1 2022
AUD Pairs
AU building approvals dip by 2.4% after 19.2% drop in March
Australia Current Account surplus decreased A$5.7B to A$7.5B in Q1 2022
Australian AIG manufacturing index down from 58.5 to 52.4
Australia GDP: +0.8% q/q vs. +3.6% q/q previous & +0.6% q/q forecast in Q1 2022
Australia Construction Index for May: 50.4 vs. 55.9
Australia retail sales for April 2022: +0.9% m/m, +9.6% y/y
Australia trade balance came in above forecast at A$10.49B
JPY Pairs
BOJ Governor Haruhiko Kuroda said Japan’s core CPI will likely stay around 2% thru 2022, but will slow in 2023
Japan’s unemployment rate fell to 2.5% in April vs. 2.6% in March
Japan Housing Starts: +2.2% y/y vs. +6.0% previous
Japan consumer confidence index rose to 34.1 in May vs. 33.0 in April
BOJ official Wakatabe: Need for additional easing not very high for now
Japanese Q1 capital spending up by 3.0% vs. 3.7% forecast, 4.3% previous
Bank of Japan member Seiji Adachi reiterates BOJ talking points on Thursday, talking down prospects of monetary policy tightening despite chance of inflationary pressures increasing
