Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Feb 14 – Feb 18)

Retail sales from the US and the UK, coupled with inflation data from the UK, China, Canada and Japan along with employment data from the UK and Australia will be the high points of the week.​

USD

Inflation numbers for the start of the year saw headline number jump to 7.5% y/y for a 40-year high. Additionally disturbing is that on a monthly basis inflation continued to increase (0.6% m/m vs 0.5% m/m in December). Core reading now rose to 6% y/y while a nasty surprise was seen in the real weekly earnings which came in at -0.5%, after last month’s reading was revised down to -0.3% from 0.1% as previously reported. All categories except for lodging away from home and gasoline saw increases in prices. This report will put pressure on Fed to hike by 50bp at March meeting and probability of a 50bp rate hike at March meeting according to FedWatch Tool jumped to 44.3%, rose to almost 95% and finished the week at around 65%. Yield on a 10y treasury bond briefly touched 2% after the inflation report came out. St Louis Fed president Bullard, most hawkish member, stated that Fed should hike by 100bp at the next three meetings and teased with the idea that rate hikes can come in between meetings. Late on Friday report came out that Russia will attack Ukraine within 48 hours which brought risk off mood in the markets and caused USD to rally. Oil, gold and VIX also rallied but the biggest winner was JPY.

This week we will have consumption data.

Important news for USD:

Wednesday:

• Retail Sales

EUR

Dutch central bank president and member of the ECB Governing Council Klaus Knot said in an interview that he expects first rate hikes in Q4 of 2022. That would mean an end to bond purchases by September. He is a well known hawk and currently they are having an upper hand in the ECB. ECB president Lagarde stated that inflation will remain high in the short term, but current price pressures will likely subside before becoming entrenched. She added "any adjustment to our policy will be gradual." Her comments were assessed as “damage control” after market interpreted her press conference last week as very hawkish.

European Commission published latest forecasts and they project inflation to be at 3.5% in 2022 vs 2.2% as projected before, however they see 2023 inflation to fall to 1.7%, below their target of 2%. Inflation is expected to reach its peak at 5% in Q1 and the fall from there, it will stay above 3% until Q4. Growth was reduced to 4% from 4.3% for 2022, but it is expected to rise to 2.7% in 2023 from 2.4% as previously expected.

GBP

Preliminary Q4 GDP data came in at 1% q/q same as the downward revised Q3 reading and 6.5% y/y vs 7% y/y in the previous quarter. Personal consumption rose 1.2% q/q, business investment improved and rose 0.9% q/q vs -0.8% q/q in Q3. Government spending was also a big contributor to the reading by rising 1.9% q/q. Finally, net exports also contributed to the Q4 reading. UK’s economy finished the year on a down note as December’s GDP slipped -0.2% m/m due to the Omicron related constraints. A bigger drop was expected but it was mitigated by the higher health spending.

This week we will have employment, inflation and consumption data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

Retail sales data for the Q4 showed a record high of 8.2% q/q rise. Lifting of covid restrictions in two biggest states coupled with holiday shopping sent the reading to new record levels. RBA governor Lowe continued to preach patience. He stated that they need to wait and see how data develops while acknowledging the a risk to waiting, to which he added the counter risk of acting to soon. GDP is estimated to be around 4.25% in 2022 and 2% in 2023. Gradual pick up in wages is expected. It is acceptable to have inflation running above 3% for some time and it is plausible to have rate hikes later in the year if the data supports it. So far their main concern was wage growth and it continues to be. Wages will need to move north of 3% in order for rate hikes to occur.

Caixin services PMI for the month of January came in at 51.4, down from 53 in December. The report shows slower increases in business activity as well as new orders while export sales fell at quickest rate for 15 months. Additionally, inflation pressures were up compared to the previous month. Composite reading came in at 50.1, barely in the expansion territory as Omicron related restrictions led to drops in production, transportation and sales of goods.

This week we will have employment data from Australia as well as inflation data from China.

Important news for AUD:

Wednesday:

• CPI (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales in January showed an improvement to 3% m/m and 5.7% y/y from 0.4% m/m and 4.2% y/y the previous month. RBNZ inflation expectation data showed inflation in one-year ahead rising to 4.4% which would be a 31-year high. Expectations in the previous quarter were for them to be at 3.7%. RBNZ target for inflation is 1-3% and new inflation projection moved further away from their target. Rate hike on February 23 is imminent and priced in and from a technical standpoint NZDUSD is posed to go down due to the USD strength.

CAD

BOCanada Governor Macklem reiterated that they are on the rate hike path. He sounded hawkishly stating that the policy rate may need to go to neutral level (2.25%) in order to address the price pressures.

This week we will have inflation data.

Important news for CAD:

Wednesday:

• CPI

JPY

December wages and spending data were a downer. Real wages fell -2.2% y/y for the highest drop in 18 months. Nominal wages came in at -0.2% y/y, thus falling for the first time since January of 2021. Household consumption was down -0.2% y/y thus making it a fifth consecutive month of falling personal consumption. Declines were led by fuel, light and water charges while there was an increase in consumption of education. BOJ has decided to keep the yields on 10y JGB capped at 0.25%. Starting February 14 they will buy unlimited amount of bonds at fixed rate of 0.25%.

This week we will have a preliminary Q4 GDP reading. Expectations are for it to go into contraction of almost 1%.

Important news for JPY:

Tuesday:

• GDP

CHF

SNB total sight deposits for the week ending February 4 came in at CHF725bn vs CHF724.9bn the previous week. With ECB president Lagarde sounding so hawkish at the press conference SNB did not need to do anything. They just let the markets drag EURCHF pair toward the 1.06 level. Labour market continues to tighten even further with the unemployment rate in January slipping down to 2.3% from 2.4% in December. Inflation data in January showed a small tick in headline number (1.6% y/y vs 1.5% y/y in December) while core reading stayed unchanged at 0.8% y/y.

 

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Forex Major Currencies Outlook (Feb 21 – Feb 25)

RBNZ meeting, preliminary PMI data from the EU and the UK coupled with wages data from Australia will dominate the week ahead of us. Monday is a holiday in the US so banks will be closed and liquidity will be thinner.​

USD

Retail sales had a strong start to a new year. They came in at 3.8% m/m vs 2.5% m/m as expected. Control group, it is used for GDP calculation, came in at 4.8% m/m. It is important though to note that retail sales are not adjusted for inflation, so when prices of goods rise if people buy the same amount of goods as previous month, retail sales will print a higher number. Non-store retailers, online, showed the biggest rise followed by furniture stores and auto dealers. On the other hand, sales declined at gasoline stations and for sporting goods. After the FOMC minutes showed that there was no serious talk about a 50bp rate hike in March CME’s FedWatch Tool now puts a probability of a 25bp rate hike at 71.2%.

This week we will have second estimate of Q4 GDP as well as Fed’s preferred PCE inflation data.

Important news for USD:

Thursday:

• GDP

Friday:

• PCE

EUR

February ZEW survey showed improvement in German current conditions as well as expectations reflecting the excitement about leaving the pandemic restrictions behind and indicating growing optimism among the investors. EU expectations, on the other hand, slipped for the first time in three months. Second reading of EU Q4 GDP was unchanged at 0.3% q/q and 4.6% y/y.

This week we will have preliminary PMI data for February.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

Employment report showed claimant counts dropping by -31.9k in January. The ILO unemployment rate for December held steady at 4.1% while the 3-month employment change, up until December, came in at 38k indicating tight labour market conditions. Average weekly earnings ticked up to 4.3% from 4.2% the previous month. Inflation in January ticked up to 5.5% y/y from 5.4% y/y in December, a new 30-year high, with core rising a bit higher to 4.4% y/y vs 4.2% y/y the previous month. Month-over-month figure was -0.1% m/m which may indicate that price pressures will slowly start to ease. BOE has said that April will represent peak in inflation, at above 7%. They will continue with the rate hike in March after these reports.

This week we will have preliminary PMI data for February.

Important news for GBP:

Monday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

RBA meeting minutes from the February meeting showed board’s willingness to be patient and monitor how the various factors impact inflation. They acknowledged that inflation had picked up more quickly than expected, but it was too early to conclude that it was sustainably within the target band. They still see inflation moderating when supply issues get resolved. Employment report for January showed employment change at 12.9k vs 0k as expected. The unemployment rate remained at 4.2% while participation rate ticked up to 66.2% from 66.1% in December giving additional strength to the report. Full-time employment fell -17k and it will take away some shine from the report while part-time employment rose 29.9k. Markets were completely unfazed by the report as Russia-Ukraine tensions were dominating.

PBOC has injected 300bn yuan via a 1 year Medium-term Lending Facility (MLF) and left rate unchanged at 2.85% as was widely expected. 1 year and 5 year Loan Prime Rates (LPR) will be set on February 20. Inflation data for January saw CPI drop to 0.9% y/y from 1.5% y/y in December and PPI continue to decline and come in at 9.1% y/y, down from 10.3% y/y the previous month. The government effects of fighting high input costs are yielding results as PPI returned to the levels last seen in July of 2021.

This week we will have wages data. RBA wants to see them north from 3% in order to start raising interest rates.

Important news for AUD:

Wednesday:

• Wage Price Index

NZD

The second February auction saw dairy prices rise by 4.2%. This is a third consecutive auction where dairy prices are rising by more than 4%. Terms of trade keep on improving. PPI for Q4 came below expectations, potentially signalling easing of inflation pressures. Input PPI came in at 1.1% q/q vs 1.6% q/q as expected and in Q3 while output PPI came in at 1.4% q/q vs 2.3% q/q as expected. It was at 1.8% q/q in the previous quarter.

This week we will have RBNZ meeting as well as Q4 retail sales. Rate hike of 25bp to 1% is fully priced in.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

Thursday:

• Retails Sales

CAD

Inflation data in January set a new record held by December’s reading which indicates how fast and far inflation is moving. Headline CPI came in at 5.1% y/y vs 4.8% y/y the previous month. All core readings returned new highs with common at 2.3% y/y, median at 3.3% y/y and trimmed at 4% y/y. BOC stated that it is ready to raise interest rates and with inflation running rampant we can pencil in March meeting as certain. Now the question arises if it will be a 25bp raise or a 50bp raise.

JPY

Preliminary Q4 GDP reading came in a bit weaker than expected at 1.3% q/q vs 1.4% q/q and 5.4% y/y vs 5.8% y/y as expected. Both of the previous readings were revised higher so that can explain small misses to the estimates. Private consumption improved to 2.7% q/q from -0.9% q/q in Q3 and was higher than 2.2% q/q as expected. Business investment also improved to 0.4% q/q from -2.4% q/q the previous quarter. Net exports contributed to GDP reading with 0.2pp. GDP deflator, an indication of inflation, fell to -1.3% from -1.2% in Q3 thus showing well known deflationary pressures. Inflation will increase in the coming months due to base effects, but it is still very well below levels seen in other economies around the globe. Inflation is moving in the opposite direction from the rest of the world. January CPI came in at 0.5% y/y, down from 0.8% y/y in December while ex fresh food and energy category dropped to -1.1% y/y, a new decade low. High energy prices are the only thing keeping the headline number in positive territory.

CHF

SNB total sight deposits for the week ending February 11 came in at CHF725.1bn vs CHF725bn the previous week. Virtually unchanged as markets expect two rate hikes this week from ECB and thus pushed EURCHF toward the 1.06 level during the wee. The announcement of imminent Russian invasion of Ukraine on last Friday lead to Swissy strength, as safe haven. If the situation escalates it may lead to unwanted Swissy strength so SNB will be pressed to act.

 

[katetrades]

Forex Major Currencies Outlook (Feb 28 – Mar 4)

RBA and BOC meetings are in play with BOC almost certainly raising rates in the week ahead of that will also see preliminary CPI reading from the EU for February. It will all be capped by the NFP on Friday.​

USD

Geopolitical action saw Russian President Vladimir Putin recognize independence of two separatist entities in south east Ukraine, Donetsk and Lugansk People's Republics (DLPR). The US, EU, UK, and Canada have reacted by widening the sanctions. The Nord Stream 2 pipeline project, which is designed to transmit Russian gas directly to Germany, was targeted first. Foreign participation in Russia’s sovereign debt issued after 1 March was banned as well as Russia’s two financial institutions, were blocked with financial sanctions. Additionally, new sanctions were applied to a number of high ranking individuals. This was considered to be just the first part of actions against Russia. On the early Thursday morning, during the Asia trading session, Russia’s has started military operations in Ukraine. This has led to jumps in gold and oil with Brent crossing the $100 mark and WTICrude reaching the $100 milestone later in the day. Natural gas prices exploded as well. Stock markets were down across the globe and yield on the 10 y US treasury fell to 1.85% as risk off mood gripped the markets and flight to safety ensued. The probability of a 25bp rate hike at the March meeting, according to the CME FedWatch Tool, is at 82.8%.

This week we will have ISM PMI data as well as the NFP on Friday. Headline number is expected to be around 350k with the unemployment rate staying the same and wages rising 0.5% m/m.

Important news for USD:

Tuesday:

• ISM Manufacturing PMI

Thursday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Preliminary PMI data showed strong improvements in the services sector across the Europe. Eurozone services PMI came in at 55.8 vs 51.1 in January on the back of strong readings from both Germany and France. It managed to lift composite reading also to 55.8 level. Manufacturing reading stalled a bit and came in at 58.4, down from 58.7 the previous month and it is at an elevated level. A drop in German reading lead to the drop in the Eurozone reading, however French reading improved to 57.6 from 55.5 the previous month. A rise in services reading is a very welcoming sign, indicating that Europe has weathered the Omicron crisis, however as Markit notes: “service sector input cost inflation accelerated to a record high reflecting rising wages and soaring energy costs. The resulting overall rate of input cost inflation seen across both sectors rose to the second-highest on record”, mounting price pressures are set to keep inflation elevated in the coming months. The report will bring some upward revisions to Q1 GDP and should cause ECB to take a more hawkish stance. ECB member and governor of Central Bank of Austria Holzman, a well known hawk, stated that ECB should take more cautious approach and keep the stimulus for longer now that Russia’s military action occurred.

This week we will have preliminary CPI reading for the month of February. Preliminary French reading surprised to the upside and came in at 3.6% y/y so we may get higher number than 5.2% y/y as expected.

Important news for EUR:

Wednesday:

• CPI

GBP

February PMI data (preliminary) showed that consumers left Omicron scare behind them and increased their spending on leisure, travel and entertainment. Services reading came in at a very high 60.8 vs 55.2 as expected and up from 54.1 in January. This has helped push composite up to 60.2 from 54.2 the previous month. Markit warns about growing price pressures seen in the economy. Manufacturing PMI was unchanged at 57.3.

AUD

Wage growth index for Q4 came in at 0.7% q/q as expected and slightly missed on yearly figure (2.3% vs 2.4%). Wage growth is a closely watched indicator by RBA as they want to see it north of 3% y/y before considering raising interest rates. The reasoning is that wage growth is necessary for inflation to be sustained. Q4 inflation was 3.5% y/y which puts real wages (nominal – inflation) into negative territory.

This week we will have RBA meeting and a Q4 GDP reading. RBA will acknowledge that wages are rising but since they are still below their target they will not signal that they are in a hurry to raise interest rates.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

Wednesday:

• GDP

NZD

RBNZ stayed through to its word and delivered a 25bp rate hike thus lifting the Official Cash Rate to 1%. In addition to a rate hike they have sounded very hawkishly in their statement stating that more tightening is needed as well as reduction of monetary stimulus. They have agreed to commence gradual reduction of their bond holdings accumulated during the Large Asset Scale Program (LASP). This will be done both passively, by stopping the reinvestment of proceeds from maturing bonds as well as actively, by outright selling the bonds. Bond sales will commence in July.

New projections see official cash rate at 2.57% in March 2023 vs 2.3% previously. Inflation is seen at 3.2% by March 2023 vs 2.9% previously with it reaching maximum of 6.6% q/q in Q1 of 2022. OCR is seen at 3.35% in March 2025, much higher than previous peak of 2.6% back in November. They stated that employment is now above its maximum sustainable level and that when discussing whether to move the OCR up by 25 or 50 basis points. “many members saw this as a finely balanced decision” Governor Orr added that rate hikes of 50bp cannot be ruled out in the future as rate needs to go up significantly. Message was as hawkish as it gets and NZD is now buy-on-dips.

CAD

The escalation of crisis in Ukraine brought concerns regarding availability of Russia’s oil supply which in turn raised oil prices, however CAD did not profit much from it. USDCAD was propelled up on the money flows into USD, acting as a safe haven. CAD profited against EUR and finally broke under the support of 1.4377.

This week we will have a Q4 GDP reading and BOC meeting. BOC is set to start its interest rate hiking path at the March meeting and deliver a 25bp increase.

Important news for CAD:

Tuesday:

• GDP

Wednesday:

• BOC Interest Rate Decision

JPY

Preliminary PMI data for the month of February showed serious declines in Japanese economy. Manufacturing dropped to 52.9 from 55.4 in January, services plunged to 42.7 from 47.6 the previous month and pulled with it composite to 44.6, down from 49.9 at the beginning of the year. This is the lowest services reading since May of 2020, it shows Japan’s struggles in containing the Omicron wave as new restrictions have been reimposed. Employment index showed weaker decline while business outlook declined, although still at a very healthy level. The report cites supply chain constraints and rising input costs for the drop to a 5-months low for the manufacturing reading. February inflation data for the Tokyo area saw headline number rise to 1% y/y from 0.5% y/y in January. This is the highest it is been since December of 2019. The main culprit for the rise were surging energy costs as ex-fresh food, energy component of the inflation improved slightly to -0.6% y/y from -0.7% y/y the previous month, but it is still deeply deflationary.

CHF

SNB total sight deposits for the week ending February 18 came in at CHF725.2bn vs CHF725.1bn the week before. A miniscule increase indicating that SNB is happy with EURCHF being at the current levels.

 

[katetrades]

Forex Major Currencies Outlook (Mar 7 – Mar 11)

ECB meeting, inflation data from the US and China as well as GDP data from the UK and Japan will be highlights of the week ahead of us.​

USD

ISM Manufacturing PMI for the month of February came in at 58.6 vs 58 as expected and up from 57.6 in January. New orders index jumped to 61.7 with production improving to 58.5. Backlog of orders surged to 65 with new export orders also surging. Prices slipped to 75.6 from 76.1 indicating potentially better situation regarding supply chains disruptions. The only dent on a hugely impressive report was employment index which dropped to 52.9 from 54.5 in January, However, the reading is still above 50 so there is no big concern there. Additionally, the only industry that reported a decrease from January was Wood Products. Non-manufacturing was not as impressive as it came in at 56.5 vs 61 as expected. Business activity and new orders dropped around 5 index points while employment index fell into contraction (48.5). Inventories, backlogs of orders, new export orders and prices paid all rose indicating stronger foreign demand as well as growing price pressures.

Fed Chair Jerome Powell confirmed a 25bp rate hike at the March meeting on the back of high inflation and strong labor market. On the balance sheet reduction he stated that it will “commence after the process of raising interest rates has begun, and will proceed in a predictable manner primarily through adjustments to reinvestments".The yield on 10y T-Note fell to 1.687% as flight to safety and risk off mood dominated the markets at the beginning of the week but it rebounded later on going as high as 1.9% only to finish the week around 1.79%.

We had another strong jobs report with headline number coming in at 678k vs 400k as expected. The unemployment rate has dropped to 3.8% from 4% in January, indicating that labour market has potentially reached full employment. Even the participation rate improved to 62.3% giving strength to the drop in the unemployment rate. On the other hand, average earnings data has missed expectations and came in weaker than expected (flat m/m and 5.1 y/y). Leisure and hospitality added 178k with food service and drinking places adding 124k. They are low-paying jobs so they brought the average earnings down.

This week we will have inflation data that could get very close to 8% or even surpass that level.

Important news for USD:

Thursday:

• CPI

EUR

Final Eurozone PMI for the month of February were revised lower on the back of downward revisions to German and French reading. Italy and Spain surprised positively to the upside. Services reading was a mirror image of the manufacturing reading. It was revised down due to revisions in German and French readings while Italy and Spain surprised to the upside. Composite was also dragged down from the preliminary reported figure.

Preliminary CPI data showed headline reading jump to 5.8% y/y vs 5.4% y/y as expected on the back of increases in energy and food prices. Core reading came in at 2.7% y/y vs 2.5% y/y as expected. Both EU and German reading showed inflation accelerating at 0.9% m/m vs 0.3% m/m in January. With energy pricing rising out-of-hand, WTICrude above $110, we can expect inflation to continue increasing in the coming months and putting pressure on ECB to act.

This week we will have ECB meeting. There was hawkishness in minutes from the previous meeting, however with Russia-Ukraine situation escalating further we cannot see ECB moving towards tightening as stagflation risks increase. PEPP program should end and APP purchases should be increased by €20-40bn at the meeting.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

GBP

The UK's February manufacturing PMI was revised up to 58.0 from 57.3 as preliminary reported. It is the first rise in two months. Services reading, on the other hand, was revised down to 60.5 but it is still very well into expansionary territory. Omicron related restrictions were cancelled and it led to big jump in business activity as well as in new orders. Composite was at 59.9.

This week we will get January GDP data and it is expected that the UK strongly started in new year.

Important news for GBP:

Friday:

• GDP

AUD

RBA March meeting did not bring any new information. The rate was left unchanged at 0.10% as widely expected. Board members have reiterated their willingness to be patient and affirmed that they are not prepared to increase the cash rate until inflation is sustainably within the 2-3% target range. They have acknowledged wage growth, however they are still low and members expect them to gradually rise towards the desired 3% level. Q4 GDP data came in at 3.4% q/q vs 3% q/q as expected due to the strong rebound in household consumption (6.3% vs -4.8% in Q3).

Official PMI data from China showed a struggling but resilient economy. Manufacturing ticked up to 50.2 from 50.1 in January while expectations were for it to slip into contraction with 49.9. Non-manufacturing fared much better and came in at 51.6, thanks to big jump in construction reading and it propelled composite to 51.2. Caixin manufacturing also managed to escape the contraction and came in at 50.4 vs 49.1 as expected. The report shows that business confidence started to pick up while new order rose above the 50 level (50.7, up from 49.3 the previous month) indicating that demand is pushing the recovery up. Caixin services dropped to 50.2 from 51.4 the previous month and that left composite barely hanging in the expansion territory at 50.1.

This week we will get trade and inflation data from China.

Important news for AUD:

Monday:

• Trade Balance (China)

Wednesday:

• CPI (China)

NZD

GDT auction brought another impressive result. Change in index came in at 5.1% for a fourth consecutive auction of dairy price increases above 4%. Average price has crossed the $5000 mark. Terms of trade for New Zealand in Q4 were -1% q/q and considering latest dairy auctions that number will turn into a positive in Q1 of 2022. Combined with aggressive hiking path by RBNZ we see NZD going higher.

CAD

BOC has delivered a rate hike of 25bp now lifting the rate to 0.50% as was widely expected. Unlike New Zealand and the UK, BOC decided to continue reinvesting proceeds from maturing bonds until they find appropriate time to start balance sheet reduction. Members have noted the war in Ukraine as a new source of instability that will lead to inflation worries around the world as well as additional supply disruptions which will weigh on global growth. Economic growth in Q4 in Canada has been stronger than expected indicating that economic slack has been absorbed and that Q1 will also be stronger than expected. The bank members see policy rate as primary tool of monetary policy and agree that rates will need to rise further as economy expands and price pressures remain. In regards to reduction of balance sheet and timing of rate hikes bank members stated “The resulting quantitative tightening (QT) would complement increases in the policy interest rate. The timing and pace of further increases in the policy rate, and the start of QT, will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target.”

Q4 GDP came in at 6.7% annualized vs 6.3% as expected and showed a growth of 1.6% q/q vs 1.3% q/q as expected. Investments in business inventories and gross fixed capital formation contributed to the jump while net external demand was a drag on growth with growth in imports outpacing growth of exports.6

This week we will get a February employment report.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

Preliminary January data were a mixed bag. Industrial production declined at the start of the year and came in at -1.3% m/m and -0.9% y/y. On the other hand, retail sales recorded another drop on the month (-1.9% m/m) but improved for the year, coming in at 1.6% y/y for the fourth consecutive month of increases. Social restrictions made it hard for consumers to spend more. Capex data for the Q4 showed a smaller than expected increase. It came at 3.4%, up from 1.2% in Q3, but less than 4.3% as expected. Corporate profits were also down compared to the Q3 as covid struggles were gripping the economy.

This week we will have a final Q4 GDP reading.

Important news for JPY:

Wednesday:

• GDP

CHF

Q4 GDP data came in at 0.3% q/q vs 0.4% q/q as expected and 3.7% y/y. Private consumption came in at just 0.3% q/q vs 2.7% q/q in Q3 with net exports negatively contributing to the reading. Government consumption was up 1% q/q vs -0.4% q/q in the previous quarter and that helped keep the reading positive. Retail sales rebounded strongly in January coming in at 5.1% y/y vs -0.4% y/y in December indicating that consumers started the year on a strong foot. SNB total sight deposits for the week ending February 25 were unchanged at CHF725.2bn. Inflation has crept in into Switzerland with February reading showing headline at 2.2% y/y vs 1.8% y/y as expected and core at 1.3% y/y vs 0.9% y/y as expected. Higher fuel prices and housing rents were the main contributors.

 

[katetrades]

Forex Major Currencies Outlook (Mar 14 – Mar 18)

Fed meeting will be front and centre followed by BOE and BOJ meetings, consumption data from the US and China and employment data from the UK and Australia.​

USD

Inflation in February has set a new record high by coming in at 7.9% y/y. The good news is that it did not surpass expectations. The bad news is that monthly figure came in at 0.8% m/m indicating that new record high will be set in the coming months. Talks about inflation rising over 9% y/y in the near-term are mounting. Core reading came in at 6.4% y/y vs 6% y/y in January with a 0.5% m/m increase. The 10y breakeven, which represents the difference between the nominal yield and the yield of the inflation-protected security, reached a new record high of around 2.96% on March 8. Yield on 10y has returned above the 2% level.

This week we will have consumption data as well as the big Fed meeting. Chairman Powell already announced that Fed will raise interest rate by 25bp. This will mark the beginning of a rate hike cycle and the first rate hike since December of 2018. We will also get new dot plot projections.

Important news for USD:

Wednesday:

• Retail Sales
• Fed Interest Rates Decision

EUR

ECB has left key rates unchanged at their March meeting as was widely expected. On the QE front, APP purchases will be €30bn in May and €20bn in June before being stopped in Q3. Interest rate hikes will be done gradually and only after APP purchases end which leaves possibility for a rate hike in Q4. At the press conference, ECB President Lagarde stated that that conflict between Russia and Ukraine is the main source of uncertainty. She emphasized lower expected growth and higher expected inflation. According to ECB GDP in 2022 is now seen at 4.2% vs 4.6% in their previous forecast. On the inflation front, HICP for 2022 is now seen at 5.1% vs 3.2% as expected in December. That is over 50% increase in expected inflation! Core inflation for 2022 is expected to be around 2.6%. HICP for 2023 is seen at 2.1%, up from 1.8% as previously seen indicating that ECB expects inflation to slow down. Decision to continue with the tightening despite Russia’s escalation give hawkish feel.

GBP

January GDP data showed that the UK had a strong start to 2022. GDP came in at 0.8% m/m vs 0.2% m/m as expected. Services were up 0.8%, production was up 0.7% while construction posted the biggest gain of the three with 1.1%. Goods trade balance posted a record high deficit of -£26.5bn, more than doubling previous month’s deficit of £-12.3bn, on the back of exports tumbling -15.8% y/y while imports surged 21.8% y/y.

This week we will have employment data as well as BOE meeting. We expect BOE to raise interest rate by 25bp at this meeting.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Thursday:

• BOE Interest Rate Decision

AUD

Chinese trade balance data for the period January-February posted new record surplus in USD terms by coming in at $115.95bn. Exports have risen 16.3% y/y while imports rose 15.5% y/y. Trade volumes of certain export items have declined, however inflation caused overall exports to grow. Inflation data for February showed CPI come in at 0.9% y/y as expected and unchanged from January reading, however there was a 0.6% m/m jump which may cause concern. PPI continued to decline, but at a slower pace than expected. It came in at 8.8% y/y vs 8.7% y/y as expected, down from 9.1% y/y in January. Monthly jump was 0.5%, a rather big monthly rise.

“Two Sessions” meeting, the biggest annual political meeting, saw Chinese GDP penned at 5.5%, which is a 30-year low and set employment as the biggest challenge in 2022. Additionally, China is facing a triple threat of shrinking demand, disrupted supply and weakening expectations, stated by Premier Li. Inflation is expected to be below 3% for the year.

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Tuesday:

• Industrial Production (China)
• Retail Sales (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales, which comprise almost 70% of total retail sales, had a dreadful month and fell -7.8% m/m. Yearly figure was able to make a small gain of 1.1% y/y. NZDUSD had an up and down week finishing almost at the same level where it started it. NZDJPY, on the other hand, had a good week with pair rising around 150 pips since the week started.

This week we will have Q4 GDP data.

Important news for NZD:

Wednesday:

• GDP

CAD

February employment report was a complete success. After January report was heavily distorted due to the Omicron outbreak February employment change came in at 336.6k, more than double the 160k as expected. Of all the jobs added 121.5k were full-time jobs while 215.1k were part-time jobs. The unemployment plunged a full percentage point to 5.5% from 6.5% in January and participation rate increased to 65.4% from 65% the previous month. To top the stellar report, wages rose 3.3%. BOC will be delighted with the report and they will remain on course for additional 25bp rate hike at their next meeting.

This week we will have inflation data.

Important news for CAD:

Wednesday:

• CPI

JPY

Some good data from Japan regarding wages. Nominal wages in January rose 0.9% y/y while real wages rose 0.4% y/y thus posting first positive reading in almost 6 months. Final Q4 GDP reading saw revisions to the downside. GDP came in at 1.1% q/q and 4.6% y/y, down from 1.3% q/q and 5.4% y/y as preliminary reported. Both private consumption and business investment were revised to the downside while contribution of the net external demand remained unchanged. The economy was not as strong as hoped in Q4, but it will serve as a lower base for the Q1 reading. Household spending in January was a bright spot as it rose 6.9% y/y for the first increase since July.

This week we will have BOJ meeting. No changes to rate or monetary policy are expected.

Important news for JPY:

Friday:

• BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending March 4 came in at CHF725.7bn vs CHF725.2bn the previous week. EURCHF has reached parity at the start of the week and SNB is well aware that it cannot fight the market now in order to keep the pair at desired level. They have, however, came out and reiterated their readiness to intervene if deemed necessary.

 

[katetrades]

Forex Major Currencies Outlook (Mar 21 – Mar 25)

After a big week that brought more clarity on central bank policies the week ahead of us will be quiet from the economic data standpoint with SNB rate decision, preliminary PMI from the EU and the UK as well as inflation from the UK being the highlights as investors digest central bank’s decisions and prepare to position themselves for Q2.​

USD

Retail sales in February showed that surging gas prices start to impact consumers’ disposable income. Headline number was up 0.3% m/m vs 0.4% m/m as expected. Control group, it includes autos, food and energy and is used for GDP calculation as it has good correlation with overall consumer spending, came in at -1.2% m/m vs 0.4% m/m as expected. There was a big revision to the prior months’ control group reading (6.7% m/m vs 4.8% m/m as preliminary reported), however it may represent a prelude to a negative trend. Ex autos and gas category fell -0.4% m/m as majority of spending went into gasoline.

Fed chair Powell stayed true to his word given under an oath in his Congress testimony and raised interest rate by 25bp. This is the first rate hike since December of 2018 new range is now 0.25-0.50%. New projections in the Dot Plot showed the median rate at the end of 2022 at 1.9% vs 0.9% in December. This represents seven hikes in 2022! Expectations for 2023 and 2024 are at 2.8% which is above the Fed's long-term neutral rate. The Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting. Additionally, they are ready to adjust the stance of monetary policy as appropriate. St. Louis Fed president Bullard wanted a 50bp rate hike at March meeting stating that "The combination of strong real economic performance and unexpectedly high inflation means that the Committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation". If the tensions between Russia and Ukraine ease we could see a 50bp hike in May.

Summary of projections sees GDP at 2.8% in 2022 and 2.2% in 2023. The unemployment rate is seen at 3.5% for both 2022 and 2023 while in the longer run it is expected to be 4%. Core PCE inflation is expected to be at 4.1% in 2022, December production saw it at 2.7% and then drop to 2.6% in 2023. Prior to the Fed meeting the yield on 10Y T-note went as high as 2.196% and up to 2.226% post Fed meeting before dropping down below the 2.15% level. The 2-10y yield curve flattened post meeting as the 2y rose faster to reflect new rate hike projections.

EUR

Results of the ZEW survey for March were abysmal. Current conditions for the German economy dropped to -21.4 from -8.1 in February while expectations plunged to -39.3 from 54.3 the previous month. Notes accompanying report show that stagflation is expected in the coming months as all sectors of the economy have been impacted. Eurozone final CPI for February came in at 5.9% y/y vs 5.8% y/y as preliminary reported. Both monthly and core readings were unchanged at 0.9% m/m and 2.7% y/y respectively. ECB President Lagarde stated that it is increasingly likely that inflation will stabilise at 2% over the medium-term. Inflating energy prices reflected in Eurozone’s trade balance for January which posted a record deficit of -€27.2bn with energy imports increasing staggering 133% y/y.

This week we will have preliminary March PMI readings and a deterioration in numbers is expected.

Important news for EUR:

Thursday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

The employment report added another proof for the tightness of the labour market. The ILO unemployment rate dropped to 3.9% from 4.1% in January while wages, both with bonus and without bonus, showed improvements (4.8% and 3.8% vs 4.6% and 3.8% respectively). Claimant count change dropped by additional 48.1k pulling the claimant count rate with it to 4.4%.

BOE has delivered a 25bp as was expected, now bringing the rate up to 0.75%. The vote showed much less confidence in a rate hike path than at the previous meeting. It was a 8-1 vote in favour of a 25bp hike with MPC member Cunliffe voting to keep the bank rate at 0.50%. Remember, last time the rate was hiked vote was 5-4 in favour of a rate hike with 4 members voting for a 50bp hike. MPC members stated that "some further modest tightening in monetary policy may be appropriate in the coming months". Markets have interpreted it to mean uncertainty about the path of future rate hikes and GBP dropped about 100 pips after the release. We see additional rate hike in May, to bring the rate up to 1%, after which there will be a pause and reassessment of “developments in the light of incoming data and their implications for medium-term inflation, including the economic implications of recent geopolitical events”.

This week we will have preliminary March PMI readings as well as inflation and consumption data.

Important news for GBP:

Wednesday:

• CPI

Thursday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

Friday:

• Retail Sales

AUD

RBA meeting minutes from the March meeting saw members reiterate that they will not increase the cash rate until actual inflation is sustainably within the 2-3% target band. Members have acknowledged pick up in inflation, however it is too early to say that it will be sustainably within the target band. They have stated that the war Ukraine is a major new source of uncertainty. February employment report was a stellar success. Employment change came in at 77.4k, more than double of 37k as expected. The unemployment rate fell to 4% from 4.2% in January while participation rate rose to 66.4% from 66.2% the previous month. To top off the report, 121,9k jobs added were full-time jobs while part-time jobs fell by -44.5k. AUDUSD has crossed the 0.73 level on strong jobs report and some banks stared to call for a rate hike at a June meeting despite what RBA stated. We still think that RBA will not move before wage growth goes over 3%, as they stated multiple times.

China is fighting with new covid outbreak and there are lockdowns for the Shenzhen and the entire province of Jilin. The population of Jilin province is roughly 24 million while the city of Shenzen hosts around 18 million people. February data were encouraging. Industrial production came in at 7.5% ytd vs 3.8% ytd as expected, retail sales were up 6.7% ytd vs 3.5% ytd as expected. PBOC members were satisfied with data and decided to leave MLF rate unchanged at 2.85%. Chinese officials made a shift and promised to keep the stock market stable which prompted a rally in the stock market with Hang Seng index jumping 9%.

NZD

Q4 GDP data, a very dated data since we are closing down on Q1 of 2022, came in at 3% q/q and 3.1% y/y. The data showed a healthy rebound from the Q3 that was impacted by covid restrictions. Leading the way were services which expanded by 6.7% with goods-production industries rising by 6.5% while primary industries contracted by 2.2%.

CAD

Inflation continues to run hot in Canada and it confirms that BOC will not take the foot of the gas pedal in regards to the rate hikes. February data show headline inflation rising to 5.7% y/y vs 5.5% y/y as expected and up from 5.1% in January. Headline inflation rose 1% m/m due to surging energy prices followed by rise in food prices and household appliances. All three of the core measures rose with median coming in at 3.5% y/y, common at 2.6% y/y and trimmed at 4.3% y/y. Retail sales is January rose by 3.2% m/m vs 2.4% m/m as expected. The increase was led by higher sales at motor vehicle and parts dealers Sales were up in 9 of 11 sub sectors, representing 85.5% of retail trade.

JPY

BOJ meeting was another snooze fest. Both the rate (-0.10%) and the monetary policy were left unchanged as widely expected. The overall assessment of the economy was downgraded however, economy is likely to recover as impact of virus subsides. They have noted that exports are increasing but that they are stifled by the supply constraints. The bank members highlighted new risks from the Ukraine crisis and how it can have destabilising impact on financial markets as well as sharply pushing up raw material costs. Inflation data for February saw headline number rise to 0.9% y/y on the back of surging energy prices, however “core-core” reading, ex-frsh food and energy came in at abysmal -1% y/y.

CHF

SNB total sight deposits for the week ending March 11 came in at CHF728bn vs CHF725.2bn the previous week. There was a noticeable jump from the previous week as EURCHF hit parity on Monday. After that, the pair is hovering around the 1.02 mark.

This week we will have SNB meeting. No changes to monetary policy or rate are expected.

Important news for CHF:

Thursday:

• SNB Interest Rate Decision

 

[katetrades]

Forex Major Currencies Outlook (Mar 28 – Apr 2)

The week ahead of us, last week of the Q1, will be dominated by NFP release as well as inflation data from the US and the EU.​

USD

Talks about a 50 bp rate hike in May are mounting as Chairman Powell stated that they are ready to hike by more than 25 bp, if appropriate. Prospect of a 50bp rate hike has been supported by a fair amount of FOMC members. FedWatchTool now sees the probability of the event at 70.5%. Yield on 10y T-note was up to 2.489%, however the 2-10y spread went as low as 0.137 before stabilizing around 0.21.

This week we will have Fed’s preferred inflation measure PCE and NFP data on Friday. Headline number is projected at around 475k, while the unemployment rate should tick down to 3.7% with wages rising about 0.2% m/m.

Important news for USD:

Thursday:

• PCE

Friday:

• Nonfram Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Preliminary PMI readings for the Eurozone, German and France in the month of March had a common team of smaller than expected slowdowns and mounting price pressures led by surging input prices index. French services reading deviated from the trend as it improved compared to the February reading (57.4 vs 55.5 the previous month) and dragged with it composite up to 56.2 from 55.5 in February. Eurozone manufacturing came in at 57, services at 54.8 and composite at 54.5. The numbers are still elevated but with ongoing Russia – Ukraine situation and with backlog of orders declining we can see them dropping in the coming months.

Ifo report for March showed German business climate deteriorating to 90.8 from 98.5 in February and now barely holding above the level from January of 2021. Expectations plummeted even faster coming in at 85.1, down from 98.4 for the lowest reading since May of 2020, at the heart of first Covid wave. Ifo economist, Klaus Wohlrabe, stated that firms are facing bigger and bigger price pressures and are planning to increase prices. He added that supply chain issues have worsened since February.

This week we will have preliminary inflation data for the month of March and continuation in trend is expected with a rise to 6.4% y/y for the headline reading and 3.2% y/y for the core reading.

Important news for EUR:

Friday:

• CPI

GBP

Inflation shows no signs of slowing down. Headline number for the month of February came in at 6.2% y/y vs 5.9% y/y as expected and up from 5.5% y/y in January with 0.8% m/m increase. Core reading came in at 5.2% y/y vs 5% y/y as expected and up from 4.4% y/y the previous month. The reading is highest in 30 years. It was led by higher energy prices, however food prices also contributed strongly with a 1% m/m rise. Inflation should continue rising and reach its peak in April. BOE will be forced to continue with hiking rates to achieve price stability and probability of a 50bp rate hike at the next meeting increased substantially after the report.

Preliminary PMI data for the month of March showed a divergence between sectors. Manufacturing fell to 55.5 from 58 in February while services rose to 61 from 60.5 the previous month. Composite has followed manufacturing and slipped to 59.7 from 59.9 in February. Retail sales for February both missed expectations and were weaker than in January. Sales were down in non-store sales (-4.8%) and in food stores (-0.2%), with large falls in alcohol and tobacco stores. The readings indicate that mounting energy costs are starting to weigh in on consumer. Spring Budget statement showed a cut in projection for a 2022 GDP to 3.8% from 6% while GDP for 2023 is seen at 1.8%. The fuel duty has been cut until March of 2023 to help people cope with the surging fuel prices.

AUD

China has signaled its support for the economy in the previous week, however there were no changes to the rates. The 1-year loan rate is still at 3.7% while the 5-year is at 4.6%. Expectations are now that we will see a cut in reserve requirement as a way to stimulate the economy. City of Tangshan that boasts a population of more than 7 million people has been put into full lockdown. The city is located in a Hebei province, renowned for steel production, so the lockdown can negatively impact both supply chains and commodity prices.

This week we will have official PMI data for the month of March from China.

Important news for AUD:

Thursday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

NZD

Trade balance data for the month of February showed improvement compared to the January reading and lead to a smaller deficit of -NZD385m vs -NZD1126m the previous month. Exports rose significantly as dairy prices continued to rise while imports declined somewhat, although there was still increase in import of petroleum and petrol products.

CAD

Preliminary manufacturing sales for the month of February rose 3.7% m/m. CAD has enjoyed a strong week on the back of rising oil prices and taking Russia’s place in exports. USDCAD has dropped below the 1.25 level at the end of the week.

JPY

Preliminary PMI data for the month of March showed improvement as manufacturing rose to 53.2, services to 48.7 and composite was pulled almost to the expansion level with 49.8. However, when we dig into the details of the report we see that main culprit for the rise in the reading are input prices. The report notes “Input prices rose at the fastest pace since August 2008 with businesses attributing the rise to surging raw material prices, notably energy, oil and semiconductors amid deteriorating supplier performance.” Additionally, new export orders have continued to plummet with manufacturing ones turning from growth to decline. Inflation data for the Tokyo area in the month of March were up from February numbers across the readings. Headline came in at 1.3% y/y, ex fresh food came in at 0.8% y/y while ex fresh food and energy came in at -0.4% y/y.

CHF

SNB total sight deposits for the week ending March 18 came in at CHF728.9bn vs CHF728bn the previous week. There was a small increase in the deposits but nothing noticeable as markets pushed EURCHF pair away from the parity toward the 1.03 level by the mid-week. SNB has published its 114 annual report for the year 2021 and it showed that total intervention in the markets was CHF21.1bn, more than five times lower than CHF109.7bn in 2020.

SNB has decided to leave policy rate unchanged at -0.75% as widely expected. The usual comments about Swissy being highly valued and bank’s readiness to intervene if need arises were present. New inflation forecasts see it now at 2.1% for the 2022 before dropping to 0.9% in 2023 and 2024. Accompanying statement showed that “SNB assumes that energy prices will remain high for the time being, but that there will be no acute energy shortages in the major economic areas. It also anticipates that the global economic recovery will continue overall despite the war in Ukraine, albeit somewhat subdued. The higher commodity prices will lift inflation further in the short term.” They now see 2022 GDP growth at 2.5% and assess that risks for growth, for both global economy and Swiss economy, are considerable and skewed to the downside.

 

[katetrades]

Forex Major Currencies Outlook (Apr 4 – Apr 8)

We will be entering first full week of Q2 with RBA meeting and FOMC minutes from the March meeting as highlights of the week.​

USD

President Biden announced that SPR will be tapped for the amount of 1 million barrels per day. The program should last for 6 months, which means 180 million barrels in total. This move will decrease oil prices in the short run, however, it will not resolve the bigger structural issues concerning supply and demand. It seems more as a political move to gain favour for the mid-term elections.

We had yet another strong employment report. Headline number came in at 431k while previous month’s reading was revised up almost 80k to 750k. The unemployment rate dropped to 3.6% with participation rate ticking to 62.4% and moving in the right direction. Wages have continued to improve and add additional shine to the bright report. Hourly earnings rose 0.4% m/m and 5.6% y/y. Another strong report will nudge Fed toward 50bp rate hike in May.

The yield on 10y T-note went as high as 2.55% and then proceeded to fall for the rest of the week while the 2-10s curve inverted on Thursday for a short period before going back to positive spread. Inversion of 2-10s yield curve is considered to be the harbinger of recession in 6-12 months time. Important caveat is that inversion occurred when 10y was falling below the 2y indicating that 2.5% yield could be the top at the moment. FedWatchTool sees probability of a 50bp rate hike in May at 76.6%.

This week we will have ISM Non-Manufacturing PMI as well as the FOMC Minutes from the March meeting.

Important news for USD:

Tuesday:

• ISM Non-Manufacturing PMI

Wednesday:

• FOMC Minutes

EUR

Sentiment data from the EU showed decline induced by the Russia – Ukraine conflict. Economic sentiment dropped to 108.5 from 114, industrial sentiment to 10.4 from 14 while consumer confidence plunged to -18.7 from -8.8 the previous month. Only positive was services sentiment that rose to 14.4 from 13 in February on the back of recent reopening.

Preliminary inflation data for March shows scorching hot inflation. Spain reported CPI rise of 9.8% y/y, Italy of 6.7% y/y vs 5.7% y/y in the previous month while Germany reported CPI at 7.3% y/y vs 5.1% y/y in February and astonishing 2.5% m/m increase in prices. German inflation should continue going higher in the coming months and a double digit inflation cannot be ruled out. France reported a 4.5% y/y increase in prices, from 3.6% y/y the previous month. For the Eurozone the reading came in at 7.5% y/y vs 6.6% y/y as expected and up from 5.9% in February and 2.5% m/m, same as German reading. Energy and food prices were the main contributors. Core was up to 3% y/y from 2.7% y/y the previous month. ECB will find itself in a hot seat after these reports to raise interest rates at least to zero. Higher interest rates could negatively impact growth in the Eurozone thus leading to stagflation (low growth and high inflation).

GBP

BOE Governor Bailey stated that evidence of growth slowdown are becoming apparent and that it is still appropriate to tighten monetary policy in current circumstances. Markets interpreted his comments as a nod that monetary policy will not be as aggressive as thought. Q4 GDP was revised to 1.3% q/q from 1% q/q as preliminary reported on the back of rising exports and service industries that were boosted by the removal of restrictions.

AUD

Over the weekend industrial profits from China for the period of January-February 2022 came in at 5% y/y vs 4.2% y/y in December. Additionally, Shanghai has entered lockdown. All three PMI measures dropped below the 50 level in March. Manufacturing came in at 49.5 vs 49.9 as expected, non-manufacturing was at 48.4 vs 53.2 as expected and drops in both readings dragged composite to 48.8. Newly introduced covid restrictions subdued economic activity and led to declines in output and new new orders. There are signs that this drop is only temporary and that we should see a rebound in April when restrictions are retracted. Caixin manufacturing followed the official PMI and dropped into contraction with 48.1 vs 50.4 the previous month. The report shows drops in new orders and new export orders while input costs continue to surge.

This week we will have RBA meeting. Wages have still not reached RBAs target necessary for a rate hike, however we will see if recent strong job reports will make them change their narrative.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

NZD

Consumer confidence in the month of March came in at 77.9, down from 81.7 in February. This represents a new low for the reading and ANZ notes “a perfect storm of Omicron, rising living costs, a retreating housing market and rising interest rates soured the mood”. Additionally, inflation expectations have risen to 6%.

CAD

January GDP came in at 0.2% m/m as expected as Canadian economy continued to grow entering the New Year. CAD has followed oil closely this week and finished it down in a 150 pips range for the week against USD. Next week’s employment report can be catalyst for CAD strength as it pushes BOC toward a 50bp rate hike.

This week we will have employment report which is expected to moderate after a blockbuster one in February.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

At the start of the week BOJ announced that it will conduct unlimited bond buying operations from March 29 to March 31 in order to defend the yield target of 0.25%. This is the second such operation this year, as previous one was done on February 10. BOJ’s announcement had a detrimental effect on JPY with currency dropping around 200 pips against the majors with USDJPY touching the major level of 125.

CHF

SNB total sight deposits for the week ending March 25 came in at CHF731.5bn vs CHF728.9.bn the previous week. This is a decent sized increase, first in a while, as SNB wishes to move EURCHF as far as possible from the parity. Inflation continued to increase in March and came in at 2.4% y/y vs 2.2% y/y in February with core printing 1.4% y/y vs 1.3% y/y the previous month.

 

[katetrades]

Forex Major Currencies Outlook (Apr 11 – Apr 15)

Three major central banks, ECB, RBNZ and BOC, will hold their April meetings this week with latter two expected to deliver rate hikes. That would be coupled with inflation data from the US, the UK and China as well as employment data from the UK and Australia.​

USD

ISM Non-manufacturing PMI in March rebounded to 58.3 from 56.4 in February. New orders made a huge positive jump along with the employment index which returned back to expansion after it showed contraction the previous month. Business activity continues to improve as well, however prices paid component also rises on the back of higher energy and commodity prices thus bringing more inflationary pressures.

Yield on the 10y started the week at around 2.4% while FedWatchTool saw the probability of a 50bp rate hike at the May meeting at around 70% when the week started. Fed Governor Brainard, a known dove, came out with hawkish comments stating “Currently, inflation is much too high and is subject to upside risks. The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.” When a well known dove agrees with a typical hawkish stance the markets pay close attention and more weight is added to her words. She also added that talks about rapid BSR will likely be held at the May meeting. The dollar has gained around 100 pips across the markets on the back of her comments with yields on a 10 rising to 2.66%. FedWatchTool saw an increase in the probability of a 50bp rate hike at the May meeting to 76.6%.

FOMC minutes showed that many members would preferred a 50bp rate hike at March meeting. Additionally, minutes showed that members announced “commencement of balance sheet runoff at a coming meeting”. Regarding the amount of BSR “Participants generally agreed that monthly caps of about $60 billion for Treasury securities and about $35 billion for agency MBS would likely be appropriate”. Minutes resulted in lower yields on a 10y note, however the 2-10y spread improved to 15.2bp. FedWatchTool saw additional increase in the probability of a 50bp rate hike at the May meeting to 81%.

This week we will have inflation data expected to rise above 8% as well as consumption data.

Important news for USD:

Tuesday:

• CPI

Thursday:

• Retail Sales

EUR

Final services PMI for the month of March showed improvement in Eurozone reading to 55.6 from 54.8 as preliminary reported on the back of improvement in German reading. Composite was also improved to 54.9 from 54.5 as preliminary reported. Services reading improved thanks to the loosening of covid restrictions, however it will have a rocky path ahead. Rising input costs coupled with worsening of supply issues and uncertainty around Russia-Ukraine conflict will weigh heavily on the business activity in the coming months.

This week we will have ECB meeting. We expect to see announcement of ending APP purchases in Q3. March minutes showed members’ view that APP had fulfilled its stated objective. Additionally, we expect more clarity to forward guidance on policy normalisation (raising rates toward 0%). It seems that both hawks and doves found common ground and are willing to proceed with policy normalisation so we may see September emerging as a target for the first rate hike.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

GBP

Removal of covid restrictions and as Markit notes “stronger demand arising from the return to offices, alongside a resurgence in the travel, leisure and entertainment sectors.” led to final services PMI reading in March print 62 and pulls up with it composite reading to 60.9. There are, however, dark clouds over the services sector as optimism fell to the lowest level in 17 months.

This week we will have February GDP data, employment data as well as inflation and consumption data.

Important news for GBP:

Monday:

• GDP

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

RBA has left the cash rate unchanged at 0.10% as was widely expected, however there were some changes in the wording that investors interpreted as a gradual shift toward a tighter monetary policy. Guidance on cash rate was changed to “The Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates.” The talk about patiently waiting has been omitted. Additionally, they have stated that they will closely monitor incoming employment and inflation data and make decisions based on that. AUDUSD shot past the 0.76 level after the announcement. We will have an employment report next week, inflation data at the end of the month while wage growth data will be published in mid-May. We believe that RBA will wait for the wages report before deciding to act, so that excludes May meeting and puts emphasis on the June 7 meeting. Australian elections will be held in late May so that is additional factor to exclude May meeting and set June meeting as the first possible for a rate hike.

Effects of China’s zero-covid policy are clearly seen in Caxin’s PM data for March. Services reading plunged to 42.2 from 50.2 in February and dragged down with it composite reading to 43.9 vs 50.1 the previous month. Asian Development Banks has already downgraded projections for Chinese 2022 GDP to 5%. The data raises probability of additional monetary easing by the PBOC.

This week we will have employment data from Australia as well as inflation and trade balance data from China.

Important news for AUD:

Monday:

• CPI (China)

Wednesday:

• Trade Balance (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Kiwi had a strong start to the week with NZDUSD rising around 130 pips before reversing on Tuesday and giving it all back. Fed minutes pushed the pair even lower and it finished the week down some 70 pips from where it started. However, with RBNZ firmly on the rate hike path this could be case for buying the dips when price on charts presents the opportunity.

This week we will have RBNZ meeting. We will see continuation of rate hikes. Majority expects a 25bp rate hike, but a 50bp rate hike cannot be ruled out.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

CAD

Canada produced another very strong employment report. Employment change in March came in at 72.5k, after a staggering 336.6k in February. The unemployment rate dropped to 5.3% from 5.5% thus making it the lowest unemployment rate in history of the reading which started in 1976. The rate was shaved while the participation rate stayed consistent at 65.4%. Wages were up 3.7% while full-time employment came in at 92.7 k and part-time employment at -20.3k. This will just give credence to the 50bp rate hike next week while also open the door for additional 50bp rate hikes in the future. Canada is set to announce a ban on foreign purchases of real estate in order to cool off the bubble building in the housing sector. The ban will refer to the period of two years.

This week we will have BOC meeting. A 50bp rate hike seems to be fully discounted by the markets as output gap is closed and employment is above pre-pandemic levels. There will be talks about QT as Canada had the biggest QE response after pandemic struck.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Nominal wages in the month of February rose 1.2% y/y but were eaten away by inflation and were flat in real terms. Still, they were much stronger than expected and thus represent positives for the economy. Household spending improved only 1.1% y/y vs 2.7% y/y as expected. BOJ Governor Kuroda characterised JPY’s fall as rapid which could indicate that recently reached USDJPY level of 125 represents top for the pair and bottom for the JPY.

CHF

SNB total sight deposits for the week ending April 1 showed a much bigger jump in deposits than in the previous months. The reading came in at CHF737.2bn vs CHF731.5bn the previous week. It is interesting that such a jump is seen when EURCHF moved away from parity. However, it seems that SNB deems the current level as too close to parity and finds it necessary to ramp up the intervention. Seasonally adjusted unemployment rate in March stayed unchanged at 2.2%.

 

[katetrades]

Forex Major Currencies Outlook (Apr 18 – Apr 22)

Preliminary PMI data from Eurozone and the UK coupled with inflation data from Canada and New Zealand along with Q1 GDP reading, production and consumption data from China will be the most watched economic releases of the week.​

USD

March inflation data posted a new 40-year high and showed CPI rise to 8.5% y/y vs 7.9% y/y in February and 1.2% m/m vs 0.8% m/m the previous month. Core CPI came in at 6.5% y/y vs 6.6% y/y as expected but up from 6.4% y/y in February. Gasoline was the main contributor with a whopping 18% y/y increase with energy overall rising 11% y/y. Used vehicles dropped -3.8% m/m which may be a harbinger of inflation nearing the peak. With oil prices falling due to lower demand and SPR release we may see gasoline prices slowing down and dragging the inflation down.

Retail sales in March posted a gain of 0.5% m/m vs 0.6% m/m as expected with February reading being revised up to 0.8% m/m from 0.3% m/m as reported. Sales at gasoline stores led the way with big surge in gasoline prices. Electronic store sales and clothing followed suit. The drops were seen in non-store and car sales. Yield on 10y Treasuries has started the week at a high of 2.78% and then proceeded up to 2.83%. FedWatchTool sees the probability of a 50bp rate hike in May at 91%.

EUR

ECB has left key interest rates unchanged as expected. The Governing Council has reiterated that APP will conclude in Q3. Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June. The statement said that rate hikes will come “some time” after the end of APP. The Governing Council will continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time even after the key ECB interest rates have been rates. Principal payments of PEPP will be reinvested until at least the end of 2024. Optionality, flexibility and data dependence when deciding on future moves has been emphasized. At the press conference ECB President Lagarde clarified the phrase “some time” as ranging from a week to few months.

This week we will have preliminary PMI readings for April.

Important news for EUR:

Friday:

• Manufacturing PMI (EU, Germany, France)
• Services PMI (EU, Germany, France)
• Composite PMI (EU, Germany, France)

GBP

March employment report showed more tightness in the labour market. Claimant count change came in at -46.9k with the ILO unemployment rate slipping to 3.8%. Average wages, regular and ex bonus, are rising due to skill shortages and are trying to keep up with the speeding inflation. They came in at 5.4% y/y and 4% y/y respectively. The employment is above the pandemic levels and the unemployment rate returned to levels seen before the pandemic. Inflation data posted a new record high in the 30 years that data is recorded. Headline number came in at 7% y/y vs 6.7% y/y as expected and up from 6.2% y/y in February with a 1.1% m/m increase. Core came in at 5.7% y/y vs 5.4% y/y as expected and up from 5.4% y/y the previous month. Gas and electricity price increases were the main contributors.

This week we will have preliminary PMI readings for April as well as consumption data.

Important news for GBP:

Friday:

• Manufacturing PMI
• Services PMI
• Composite PMI
• Retail Sale

AUD

March employment report can be assessed as a decent one. Employment change came in at 17.9k vs 40k as expected. Both the unemployment rate and participation rate where unchanged at 4% and 66.4% respectively. The unemployment rate is at its 14-year low. Another big positive from the report is that all of the jobs added were full-time (20.5k). Part-time employment came in at -2.6k. Signs of a tight labour market are persistent. We think that RBA will wait for data from the CPI reading in two weeks as well as wage growth data on May 19 before deciding to act. Elections will be held in late May so we stick with our call that although inflation will be high they will not act before June.

Inflation in China started to accelerate in March and came at 1.5% y/y vs 1.2% y/y and up from 0.9% y/y in February. The number is still very low compared with other countries around the word, excluding Japan, so it should not deter PBOC from acting to further ease monetary policy conditions and spur the economy. PPI came in at 8.3% y/y, larger than 7.9% y/y as expected, but still down from 8.8% y/y in February. Trade balance data showed a big decline in trade surplus as it came in at $47.4bn vs $115.95bn the previous month. Exports were down to 14.7% y/y while imports shrunk -0.1% y/y indicating deterioration in domestic demand caused by reintroduction of covid restrictions, exacerbating supply chain disruptions and Russia – Ukraine conflict. ING analyst Iris Pang stated that a drop in imports cannot be attributed to those factors alone and according to her the main culprit is oil imports. They plunged 8.1% y/y.

This week we will have minutes from the RBA meeting as well as Q1 GDP reading, production and consumption data from China.

Important news for AUD:

Monday:

• GDP (China)
• Industrial Production (China)
• Retail Sales (China)

Tuesday:

• RBA Meeting Minutes

NZD

RBNZ has stepped up and delivered a 50bp rate hike, thus bringing the OCR to 1.5%. NZD gained on the announcement but as the details of how board members assessed the situation arrived NZD’s fortunes reversed. Members noted that 50bp rate hike now provides more flexibility to the policy ahead in light of the highly uncertain global economic environment. Although the committee confirmed that further increases in the OCR are needed in order to meet their mandate it seems that they are front loading the rate hikes now and then waiting to see how things in global economy and at home will develop before acting again. Markets have characterized this as a “dovish hike” and that sent NZD down. Minutes of the meeting also show that members expect inflation to peak at around 7% in H1 of 2022.

This week we will have Q1 inflation data.

Important news for NZD:

Thursday:

• CPI

CAD

BOC delivered a much anticipated 50bp rate hike and brought cash rate to 1%. Unlike the RBNZ statement that was delivered few hours earlier it did not show any signs of dovish rhetoric. They will cease buying government bonds on April 25 thus effectively starting the QT program. BOC members opted to let assets mature and since almost half of their holding mature in less than two years it will represent a fast reduction in their balance sheet. New projections see CPI averaging 6% during H1 of 2022 and then gradually declining to 2.5% in the H2 of 2023 and 2% level as we get into 2024. Projections for GDP see it at 4.25% in 2022, 3.25% in 2023, and 2.25% in 2024. Opening statement of Monetary Policy Report Press Conference presented three main messages. First, the Canadian economy is strong. Second, inflation is too high. Third, higher interest rates are needed as they are main policy instrument to bring inflation down to 2%. The third point may indicate that we could see additional 50bp rate hike at June meeting.

This week we will have inflation data.

Important news for CAD:

Wednesday:

• CPI

JPY

The ongoing covid difficulties have led BOJ to downgrade assessment for 8 out of 9 regions while leaving the outlook for ninth unchanged. PPI data for March showed a rise of 9.5% y/y vs 9.3% y/y as expected. Additionally, wholesale index in March is at 112, which is the highest reading in 40 years. Price pressures are mounting everywhere in Japan except in the CPI numbers which remain conspicuously low. Core machinery orders, a proxy used for capex in the next 6 months, plunged in February almost 10% (-9.8% m/m). This could mean that business decided to delay investments during the pandemic induced restrictions which will have negative impact on GDP for the year.

CHF

SNB total sight deposits for the week ending April 8 came in at CHF739.4bn vs CHF737.2bn the previous week. SNB continued to intervene in the markets as the EURCHF got closer to the parity, finishing the week at around 1.015 level.