Daily Market Outlook by Kate Curtis from Trader's Way

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Forex Major Currencies Outlook (Apr 3 – Apr 7)

RBA and RBNZ meetings, followed by employment data from the US and Canada will be the highlights of the week ahead of us. Please note that Friday is Good Friday holiday, liquidity will be thinner than usual and with NFP being published we could have greater than usual volatility.

USD

March consumer confidence improved to 104.2 from upwardly revised 103.4 in February. Households managed to look past banking turmoil and show us a picture of a healthy consumer. Final reading of Q4 GDP showed that consumer struggled mighty in the previous quarter with GDP coming in at 2.6% vs 2.7% annualized in second reading and personal consumption attributed only 0.7% to the reading, down from 0.93% in second and 1.42% in first reading.

Headline PCE inflation in February came in at 5% y/y vs 5.4% y/y in January. while core PCE slipped to 4.6% y/y from 4.7% y/y the previous month. Inflation continues to come down making it a 50/50 whether there will be a pause or a 25bp rate hike in May. Personal spending and personal income both continued to increase by 0.2% and 0.3% respectively.

The yield on a 10y Treasury started the week and year at around 3.38%, rose toward 3.59% and finished the week at around the 3.4% level. The yield on 2y Treasury reached at around 4.17%. Spread between 2y and 10y Treasuries started the week at -47bp then widened further to -60bp. FedWatchTool sees the probability of no change in May at 58.5% while probability of a 25bp hike is at 41.5%.

This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected to print around 250k while the unemployment rate should tick down to 3.5%.

Important news for USD:

Monday:​

• ISM Manufacturing PMI​

Wednesday:​

• ISM Non-Manufacturing PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

German Ifo index in March showed improvement across all three categories, current conditions, business climate and expectations. Ifo economist Klaus Wohlrabe stated that winter recession became more unlikely. The number of companies that were planning to raise prices is declining. Sentiment data for the Eurozone in the month of March saw slight declines and consumer confidence ticked down for the first time after five consecutive months of improvement.

German inflation in March declining due to base effects, Russia invasion of Ukraine sent energy prices through the roof in March of 2022, it came in at 7.4% y/y vs 8.7% y/y in February. More attention should be paid to monthly figures and there the number was unchanged from February 0.8% m/m indicating that there are still strong price pressures brewing. French inflation reading declined to 5.6% y/y from 6.3% y/y the previous month with monthly figure slipping to 0.8% m/m from 1% m/m in February. Eurozone inflation dropped to 6.9% y/y vs 7.1% y/y as expected and down from 8.5% y/y the previous month but monthly reading still printed an increase of 0.9% m/m. Core inflation is of concern, it ticked up to a new high of 5.7% y/y as expected. This data should keep ECB firm on the rate hike path.

GBP

Final reading of Q4 GDP saw a slight improvement to 0.1% q/q from being flat. GDP rose 0.6% y/y vs 0.4% y/y as preliminary reported. The services sector grew by 0.1% and the construction sector grew by 1.3%, while the production sector growth was flat. Real household consumption was revised up to 0.2% and it helped improve the overall reading as business investment and government consumption were down.​

AUD

February CPI data showed a much welcomed decline. CPI came in at 6.8% y/y vs 7.1% y/y as expected and down from January figure of 7.4% y/y. This is not official data point, but it will be incorporated in RBA’s decision next week and we think they will see weakening in inflation as a sign to pause with rate hikes.

Chinese official PMI data for March saw manufacturing beating expectations and coming in at 51.9, down from 52.6 in February. Non-Manufacturing rose to astonishing 58.2 from 56.3 the previous month and it lifted composite to 57 from 56.4 in February. The economy continues to expand.

This week we will have RBA meeting. Markets are split 50/50 whether there will be no change or a 25bp rate hike. We think that RBA will use this opportunity to be the second major central bank to take a pause. Inflation is still very high but it seems to be peaking and housing market looks like it could do with a pause.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​

NZD

ANZ survey for March showed business confidence ticking down to -43.4 from -43.3 in February while activity outlook improved to -8.5 from -9.2 the previous month. ANZ comments state “Retail, construction and agriculture respondents were generally more upbeat, while manufacturing and services firms became more pessimistic.” Additionally, although inflation seems to ease with inflation expectations coming lower the report shows that “The net proportion of firms experiencing higher costs remains extremely high.” Residential construction saw improvement while employment when compared to year ago declined significantly. Inflation expectations jumped to 5.4% from 5.2% which will concern RBNZ.

This week we will have RBNZ meeting. We think that RBNZ will follow RBA and BOC and announce pause. Their Official Cash Rate is at 4.75% making it second highest in the developed world, behind only Fed. There is also a possibility of a 25bp rate hike.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

Canadian budget published growth forecasts and it sees GDP at 0.3% in 2023, 1.5% in 2024 and 2.3% in 2025. CAD has benefited this week from surge in oil prices as well as the fact terminal rate for other central banks seems to be smaller than markets have been pricing in. This has caused repricing in CAD as it strengthened around 150 against USD.

This week we will have employment data.

Important news for CAD:

Thursday:​

• Employment Change​
• Unemployment Rate​

JPY

We had a slew of data from Japan with Tokyo area CPI for the month of March being the most prominent. Headline number came in at 3.3% y/y vs 3.4% y/y in February while ex-fresh food came in at 3.2% y/y vs 3.3% y/y the previous month. Both numbers fell by less than expected. On the other hand, ex-fresh food, energy came in at 3.4% y/y, up from 3.2% y/y in February. It has been rising every month since February of 2022 and it indicates that price pressures are much stickier. The unemployment rate in February rose to 2.6% from 2.4% it may pose cause for concern, but it is still at an incredibly low level.

CHF

SNB total sight deposits for the week ending March 24 came in at CHF567bn vs CHF515.1bn the previous week. This is the second consecutive week of rising sight deposits as SNB reverts to buying USD and EUR. This may be influenced by Credit Suisse debacle.​

This week we will have inflation data.

Important news for CHF:

Monday:​

• CPI​

 

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Forex Major Currencies Outlook (Apr 10 – Apr 14)

BOC meeting, inflation and consumption from the US along with employment data from Australia and trade data from China will grab investors’ attention in the week ahead of us. Majority of markets will be closed on Monday for Easter Monday so liquidity will be thinner than usual.

USD

OPEC has made announcement over the weekend about unexpected production cut of 1.16mb/day that will go on from May 1 until the end of the year. With Russia already announcing 500kb/day cut this will lower supply by 1.66mb/day. Oil prices have gaped to $81 on the market open, an increase of 7%. Increase in oil prices will be inflationary and should cause central banks around the world to reconsider their decision to pause. Additionally, it will present major difficulties for the current Biden administration to refill SPR. JOLTS job openings have printed 9.931m in February for the first drop below 10m since May of 2021.

ISM Manufacturing PMI for March slipped further into contraction and came in at 46.3 vs 47.7 in February. This is now fifth consecutive month that index is below 50. New orders, new export orders and employment fell further while production remained unchanged at a low level of 47.3. One positive is that prices paid component fell into contraction indicating ease of price pressures.

ISM services for March came in at 51.2, down from 55.4 in February. The reading has fallen to the low levels seen during the pandemic of 2020. New orders and new export orders showed huge declines with latter even falling into contraction while employment index also declined. With inventories increasing we have a deadly combination of falling new orders and rising inventories. A small positive in otherwise weak report is that prices paid continued to decline.

NFP employment in March came in at 236k vs 230k as expected. The unemployment rate ticked down to 3.5% while participation rate ticked up to 62.6%. Average wages rose 0.3% m/m and 4.2% y/y vs 0.2% m/m and 4.5% y/y the previous month. Leisure and hospitality added 72k jobs while government added 47k jobs. Employment in professional and business services added 39k while health care added 34k jobs. Fed may take comfort in average wages slowly coming down but labour market is still very tight. Odds of a 25bp Fed rate hike surged post NFP.

The yield on a 10y Treasury started the week and year at around 3.52%, fell below a strong support of 3.30% and finished the week at around the 3.4% level. The yield on 2y Treasury reached at around 4.14%. Spread between 2y and 10y Treasuries started the week at -59bp then tightened to -52bp. FedWatchTool sees the probability of no change in May at 30.7% while probability of a 25bp hike is at 69.3%.

This week we will have inflation and consumption data as well as minutes from the latest FOMC meeting.

Important news for USD:

Wednesday:​

• CPI​
• FOMC Minutes​

Friday:​

• Retail Sales

EUR

Final manufacturing PMI for the month of March was revised up to 47.3 from 47.1 as preliminary reported. Upside revision to German and stronger than expected Spanish reading managed to improve overall Eurozone reading despite downward revision to the French reading. The report shows improvement in supplier delivery times but warns that production will weaken in coming months. Lower demand and energy prices contributed to lower input costs which lead to lower selling prices and thus lower inflation.

Final services PMI was revised down to 55 from 55.6 as preliminary reported due to a big revision down in French reading. It is still a very healthy number, a ten-month high, and great improvement from February. Spain services were astonishing, coming in at 59.4 vs 57.5 as expected. There was additionally a big beat in expectations for Italy. Composite was revised down as well, 53.7 from 54.1 and it also represents a ten-month high.

GBP

March final manufacturing PMI was revised down to 47.9 from 48. Same as in Europe input prices are falling which is contributing to lower selling prices and pushes inflation down. Services were revised slightly up to 52.9 from 52.8 while composite remained unchanged at 52.2. The report notes sustained improvement in new orders as well as business and consumer confidence. Additionally, new export orders also attributed to stronger services reading while prices paid component continues declining.

AUD

RBA has decided to leave the cash rate target at 3.60% as majority of market participants expected. Monetary policy works with a lag and this pause will give board more time to assess the impact of higher interest rates on economic outlook. With monthly inflation reading coming down there are signs that inflation is peaking and base case remains for it to fall this and next year and print around mid-3% in 2025. The bank seems like it is preparing to pause with rate hikes as their statement says: “The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target.”

In his speech Governor Lowe stated that this pause does not mean that the bank is done with rate hikes. At the next meeting there will be a review of monetary policy with updated forecasts. He added that “Board prepared to have slightly slower return to inflation target than some other central banks” which can be interpreted as a very dovish comment and should weigh in on AUD.

Caixin manufacturing PMI in March came in at 50 vs 51.6 in February. It was expected to rise to 51.7. The report shows that weak external demand caused a huge drop in new export orders which fell into contraction territory. Employment worsened as well. The report concludes “The foundation for economic recovery is not yet solid. Looking forward, economic growth will still rely on a boost in domestic demand, especially an improvement in household consumption. Only by working hard to stabilize employment, increase household income, and improve market expectations, can the government reach its goal of restoring and expanding consumption”. Caixin services smashed expectations and came in at 57.8, highest since November 2020, vs 55 as expected and in February which pushed composite to 54.5. The report shows that production, demand and employment showed increases with business optimism increasing while input prices reached a new seven-month high.

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

Important news for AUD:

Tuesday:​

• CPI (China)​

Thursday:​

• Employment Change​
• Unemployment Rate​
• Trade Balance (China)​

NZD

Over the weekend Fonterra cut Farmgate Milk Price to $8.30/kgMS from $8.50/kgMS. They have cited weak short-term demand and increase in production in the US and the EU. Milk and dairy products are major export for New Zealand so this could lead to lower revenues and lower demand for NZD.

RBNZ has delivered a surprise rate hike of 50bp and thus lifted the Official Cash Rate to 5.25%. Markets were expecting a 25bp rate hike and minutes of the meeting showed that the Committee debated whether to go for a 25bp or a 50bp rate hike. Inflation is described as still being too high and the rate hike was necessary in order to bring it down to bank’s 1-3% target. They see demand still outpacing supply which puts upward pressure on prices. GDP is expected to slow down throughout the year as lower global demand and effects of tighter monetary policy take its toll on economic growth. Decline in global demand will affect demand for New Zealand’s key exports, we saw that Fonterra cut prices, while it is expected that tourism services will partially offset the loss of lower exports revenues.

CAD

Employment report for March show another beat on expectations as employment change came in at 34.7k vs 12k as expected. The unemployment rate stayed unchanged at 5% while participation rate ticked down to 65.6%. Average weekly wages rose 5.2% y/y vs 5.4% y/y in February. Full-time employment rose by 18.8k while part-time employment rose by 15.9k. BOC is on the pause and this report that shows healthy labour market and easing wages will keep them firm on that path.

This week we will have a BOC meeting where no change to monetary policy is expected.

Important news for CAD:

Wednesday:​

• BOC Interest Rate Decision​

JPY

BOJ Tankan survey of large manufacturing and non-manufacturing firms in Q1 showed a stark divergence between sectors. Non-Manufacturing showed improvements in both outlook and index while manufacturing fell in both categories. Manufacturing index fell for five straight quarters. Increases in raw material and energy prices as well as weak external demand are main causes for decline in manufacturing while ease of Covid 19 restrictions and government tourism subsidies propelled non-manufacturing sector. The survey also showed that inflation expectations for one year ahead ticked up to 2.8% from 2.7% as seen in the previous quarter. Final PMIs saw very nice improvements to preliminary readings as manufacturing drew close to expansion with 49.2 while services moved away further in expansion with 55 thus lifting composite to a new nine-month high of 52.9.

CHF

Inflation print in March saw headline inflation decline to 2.9% y/y from 3.4% y/y in February. This is mainly due to base effects as sudden energy price increase that happened due to Russia invasion of Ukraine drops out of calculation. SNB will be satisfied that core inflation declined to 2.2% y/y from 2.4% y/y the previous month. SNB total sight deposits for the week ending March 31 came in at CHF563.6bn vs CHF567bn the previous week. Seasonally adjusted unemployment rate remained at 1.9% in March.​

 

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Forex Major Currencies Outlook (Apr 17 – Apr 21)

Preliminary April PMI data from Eurozone and the UK coupled with GDP data from China and inflation data from Canada and New Zealand will garner attention in the week ahead of us.

USD

CPI in March fell a full percentage point to 5% y/y from 6% y/y in February. Expectation was for it to drop to 5.2% y/y. Energy component was most responsible for the huge fall with -3.5% m/m out of which gasoline was -4.6% m/m. CPI rose 0.1% m/m vs 0.2% m/m as expected. Core CPI came in at 5.6% y/y as expected, ticking up from 5.5% y/y the previous month. Shelter category rose 0.6% m/m vs 0.8% m/m in February. Shelter has the biggest weighting o all the goods and services used to calculate inflation. Fed will continue raising rates with another 25bp in May, but after that they may pause. FOMC minutes showed that forecasts were made considering mild recession starting later this year and several participants considered leaving rates unchanged.

Retail sales fell -1% m/m in March vs -0.4% m/m as expected. Control group came in at -0.3% m/m as expected hurting the Q1 GDP reading. Ex autos and ex autos, gas also declined coming in at -0.8% m/m and -0.3% m/m respectively. Looking at the details sales at gasoline stations fell by 5.5% m/m and 14.2% y/y while only increase in retail sales came from nonstore retailers (online) which rose 1.9% m/m and 12.3% y/y. High inflation is killing disposable income as consumers restrict their spending.

Board of Governors member Waller, who is considered voice of the hawks, delivered a hawkish message in his speech. He stated that Fed's job is not done and that rates will need to rise further. He added that extent of future rises will depend on the incoming data. He hammered the remark that monetary policy will need to remain tight for longer than markets anticipate. Yields have risen on his remarks.

The yield on a 10y Treasury started the week and year at around 3.37%, rose to 3.53% and finished the week at around the 3.52% level. The yield on 2y Treasury reached at around 4.13%. Spread between 2y and 10y Treasuries started the week at -57bp then widened to -61bp. FedWatchTool sees the probability of no change in May at 17.8% while probability of a 25bp hike is at 82.2%.

EUR

Retail sales in February fell 0.8% m/m as expected and -3% y/y. The drop was caused by drops in automative fuels, non-food and food, drinks and tobacco categories. Mail orders and internet was a positive input rising 2.6% m/m. Industrial production rose 1.5% m/m in February vs 1% m/m as expected and January reading was revised up to 1% m/m from 0.7% m/m. Strong industrial production numbers will boost Q1 GDP. Divergence between production and consumption is strong, but with inflation being so high ECB will continue with rate hikes and markets are currently pricing in 3.75% as the terminal rate, meaning 75bp more rate hikes to come.

This week we will have preliminary April PMI readings.
​

Important news for EUR:

Friday:​

• S&P Global Manufacturing PMI (Eurozone, Germany, France)​
• S&P Global Services PMI (Eurozone, Germany, France)​
• S&P Global Composite PMI (Eurozone, Germany, France)​

GBP

February GDP figure came in flat vs 0.1% m/m as expected. Services sector and production output notched declines which were covered up by an increase in construction sector. January figure was revised up to 0.4% m/m from 0.3% m/m as previously reported.

This week we will have employment and inflation data as well as preliminary April PMI readings.

Important news for GBP:

Tuesday:​

• Claimant Count Change​
• Unemployment Rate​

Wednesday:​

• CPI​

Friday:​

• S&P Global Manufacturing PMI​
• S&P Global Services PMI​
• S&P Global Composite PMI​

AUD

Employment report in March was another strong one. Employment change came in at 53k vs 20k as expected. The unemployment rate stayed at historically low level of 3.5% while expectations were for it to tick up to 3.6%. Participation rate ticked up to 66.7% giving another star to the report. Finally, to finish off a great report, all of the jobs added were full-time jobs (72.2k). Part-time jobs declined (19.2k) indicating that they have been switched to the full-time jobs. Higher rates are not having negative impact thus far on labor market which remains incredibly tight. Chances of a 25bp rate hike in May have surged after the employment report.

Chinese inflation continued to decline in March as it came in at 0.7% y/y vs 1% y/y as expected and in February. On the other hand, PPI came in at -2.5% y/y as expected and down from -1.4% y/y the previous month. Baring short stops in November and December of 2022 PPI has been declining every month since November of 2021. Additional fiscal stimulus can be added into the economy without fear of pushing inflation out of the hand and it seems necessary in order to stimulate the economy. This should support AUD. Trade balance data for March saw a huge jump in exports. They came in at 23.8% y/y in CNY terms and 14.8% y/y in USD terms.

This week we will get Q1 GDP, production and consumption data from China.

Important news for AUD:

Tuesday:​

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

NZD

Electronic card retail sales, they amount to almost 70% of overall retail sales, came in at 0.7% m/m and 15.5% y/y in March vs 1.5% m/m and 9.5% y/y as expected. Finance Minister Robertson said in an interview with CNBC that New Zealand may experience a recession, but it would be a shallow one adding that economy is resilient and robust.

This week we will get Q1 inflation data.

Important news for NZD:

Thursday:​

• CPI​

CAD

BOC has left interest rate unchanged at 4.50% while continuing their quantitative tightening policy as was expected. The bank says that global growth surprised to the upside and it now sees global GDP at 2.6% in 2023, 2.1% in 2024 and 2.8% in 2025. “In Canada, demand is still exceeding supply and the labor market remains tight.” The statement shows that “As more households renew their mortgages at higher rates and restrictive monetary policy works its way through the economy more broadly, consumption is expected to moderate this year. Softening foreign demand is expected to restrain exports and business investment.” As a result of that GDP is seen rising 1.4% in 2023 and 1.3% in 2024. Inflation is seen falling to around 3% of 2023 and Governing Council remains prepared to raise further if need arises to return inflation to 2% target. Markets were pricing in some cuts in the Q4 but Governor Macklem dismissed them as they firmly in the pause mode with a slight lean toward more rate hikes.

This week we will get inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Newly appointed BOJ governor Ueda met with Prime Minister Kishida and they agreed that there was no immediate need to change joint statement from 2013 with government while they discussed the need to for flexibility in monetary policy given the economic uncertainty. Governor Ueda reiterated BOJ’s commitment to achieve price stability while characterizing current monetary policy as “intense”. Ueda is expected to return monetary policy to normality, but it will not happen in the near future as he stated that it is appropriate to continue with negative rates for now and that changes in policy may come in December if data supports it.

CHF

SNB total sight deposits for the week ending April 7 came in at CHF532.2bn vs CHF563.3bn the previous week. After two weeks of rising sight deposits, new data points to a resumption of a downward trend. SNB chairman Jordan stated that they cannot exclude the possibility that further tightening will come. Markets are now leaning toward the 25bp with above 60% probability of the move.​

 

[katetrades]

Forex Major Currencies Outlook (Apr 24 – Apr 28)

BOJ meeting, PCE, Q1 GDP from the Eurozone and the US as well as Q1 inflation from Australia will dominate the markets in the week ahead of us.

USD

Housing starts in March printed 1420k vs 1400k as expected, slightly down from 1432k in February while building permits showed 1413k vs 1450k as expected and 1550k the previous month. It is a mixed report, but overall trend is to the downside. High mortgage rates combined with tighter credit after the SVB collapse are constraining demand for housing and pushing the overall trend to the downside.

The yield on a 10y Treasury started the week and year at around 3.53%, rose to 3.62% and finished the week at around the 3.56% level. The yield on 2y Treasury reached at around 4.26%. Spread between 2y and 10y Treasuries started the week at -61bp then widened to -65bp and finished the week around -58bp. FedWatchTool sees the probability of a 25bp hike at 84% while probability of no change in May is at 16%.

This week we will have advanced Q1 GDP reading and Fed’s preferred inflation measure.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

ECB’s Chief Economist Phillip Lane said in an interview with Bloomberg that current base case is a rate hike in May. The size of a rate hike will depend on the incoming data. Final inflation data for March was unchanged at 6.9% y/y for headline and 5.7% y/y for core.

The story of preliminary PMI data for April is divergence. Manufacturing PMI continued to decline and came in at 45.5 vs 47.3 in March while services PMI continued to rise and it came in at very healthy 56.6 vs 55 the previous month. The rise in services managed to push composite up and it came in at 54.4 vs 53.7 in March. Price pressures are falling in manufacturing due to improved supply chains and in services sector. Overall numbers indicate that Eurozone started Q2 better than expected and that fears of negative growth seem unfounded.

This week we will have a preliminary Q1 GDP reading.

Important news for EUR:

Friday:​

• GDP​

GBP

March employment report saw the unemployment rate tick up to 3.8% but other data showed strong and tight labour market. Employment change for three months ending February was up 169k vs 65 in previous month. Wages have beaten expectations and came in at 5.9% y/y and 6.6% y/y when bonus is excluded. Still elevated wages will keep pressure on prices and make BOE’s job of bringing down inflation harder.

March inflation failed to drop below double digit as it printed 10.1% y/y vs 9.8% y/y as expected. It has come down from 10.4% y/y in February but still it came in hotter than expected rising by 0.8% m/m. Inflation has been in the double digits for more than half a year. Food and non-alcoholic beverages prices as well as recreation and culture categories saw increases in prices while transport and housing and household services printed decline in prices. Core reading remained at 6.2% y/y while expectations were for it to fall to 6% y/y. This report, in combination with higher wages from employment report, will move central bank toward a 25bp rate hike in May. Markets are already pricing almost a 95% probability of a 25bp rate hike.

Preliminary April PMI data showed the same divergence as was seen in the Eurozone data. Manufacturing declined to 46.6 while services improved to 54.9 dragging the composite with them to 53.9. S&P Global notes that: “Services saw the fastest new order growth for 13 months as consumer confidence grew and spending on a few more luxuries increased. Whereas the manufacturing sector received another body blow and became more entrenched in contraction with a fall in new orders and another round of job shedding.”

AUD

Minutes from the latest RBA meeting saw board contemplate raising rates in April and then pausing before arguing that it would be better to pause right away and assess effects of monetary policy. Jobs, inflation, consumer spending and business confidence are main data point to be assessed and these data points will highest impact on AUD going forward. Inflation remains too high while jobs market remains tight. Quarterly NAB business confidence for Q1 dropped to -4 from -1 while improvement to 2 was expected. Although last week monthly survey showed improvement, quarterly has a larger sample size and tells us that companies are still struggling.

Q1 GDP from China came in at 2.2% q/q as expected and 4.5% y/y vs 3.8% y/y as expected. GDP for Q4 of 2022 was revised up to 0.6% q/q from being flat. Industrial production for March came in at 3.9% y/y, up from 2.4% y/y in February while retail sales smashed expectations and came in 10.6% y/y vs 7.4% y/y as expected and up from 3.5% y/y the previous month. Domestic consumption was the main driver of robust Q1 GDP and it is a very encouraging sign. The report removes any need for further easing to stimulate the economy and indeed one day before GDP was published PBOC has decided to keep 1Y MLF rate, 1Y LPR rate and 5Y LPR rate unchanged at 2.75%, 3.65% and 4.30% respectively.

This week we will get Q1 inflation data which will be key data point for RBA’s next decision.

Important news for AUD:

Wednesday:​

• CPI​

NZD

Q1 inflation came in at 1.2% q/q and 6.7% y/y vs 1.7% q/q and 7.1% y/y as expected. Overall lower energy prices have helped bring inflation down, but it is still at highly elevated levels. Core CPI, it is RBNZ “Sectoral factor model” ticked down to 5.7% y/y from 5.8% y/y in Q4. This report should not stop RBNZ from delivering another 25bp rate hike in May. Global dairy auction saw prices rise by 3.2% for the first increase after four consecutive auctions of falling prices. Skim milk powder showed the biggest increase in prices. This will give some pause to the NZD declines as dairy is their main export.

CAD

March headline CPI number came in at 4.3% y/y as expected, down from 5.2% y/y in February. Prices have been increasing at a slower pace since July of 2022 and it will keep BOC satisfied with their current monetary policy stance. Core measures are showing declines as well with median printing 4.6% y/y vs 4.9% y/y in February, trim is at 4.4% y/y vs 4.8% y/y the previous month and common is at 5.9% y/y 6.4% y/y in February. A small concern is that headline monthly figure rose 0.5% m/m which means that it will take longer than expected for yearly figure to go back down to 2%.

BOC Governor Macklem commented that further declines in inflation are expected as inflation is expected to fall to around 3% in the summer. Inflation is expected to go down to 2% by the end of 2024. Inflation expectations will need to come down further while services price inflation and wage growth needs to moderate and corporate pricing behavior has to normalize in order for inflation to go back down to the target. He added that they are prepared to tighten further if inflation does not continue to move to the target. He said that soft landing is possible and that weak growth is needed as demand is too strong.

JPY

Headline inflation in March declined for a second consecutive month as it came in at 3.2% y/y vs 3.3% y/y in February, however core measures prove to be much more resilient. Ex fresh food came in at 3.1% y/y same as the previous month while ex fresh food, energy increased by 3.8% y/y vs 3.5% y/y in February for a twelfth consecutive monthly increase. Core measures indicate that underlying inflationary pressures are becoming more persistent.

Preliminary April PMI data showed manufacturing improving to 49.5 from 49.2, services ticking down to 54.9 from 55 and composite at 52.5 vs 52.9 the previous month. When we dig into details we see that new orders show stronger growth, same as employment, but output and shows weaker growth. Output prices show stronger inflation while input prices show weaker inflation. Overall, there is a stronger positive outlook regarding future output.

This week we will have BOJ meeting. There will be no change to interest rate but as this is the first meeting led by new Governor Ueda we may get a surprise in change of Yield Curve Control.

Important news for JPY:

Friday:​

• BOJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending April 14 came in at CHF544.1bn vs CHF532.2bn the previous week. SNB Maecheler stated that although inflation is coming down, rate hike in March was necessary to bring down inflation toward their 2% target. SNB Chairman Jordan acknowledged risk of correction in the housing market adding that although expectations are for inflation to decline this year there is still work to be done.​

 

[katetrades]

Forex Major Currencies Outlook (May 1 – May 5)

This week we will have Fed, ECB and RBA meetings with first two delivering rate hikes while later standing pat, additionally, there will be inflation data from the Eurozone and employment data from Canada and New Zealand.​

USD

Preliminary A1 GDP reading rose by 1.1% annualized vs 2% annualized as expected. Consumer spending rose by 3.7% vs 1% as in previous quarter, contributing 2.48pp to the GDP number, with great majority of this being spending on durables (16.9% vs -1.3% in Q4). GDP deflator rose again as core PCE increased by 4.9% vs 4.7% as expected and up from 4.4% in Q4. The biggest drop was caused by inventories. USD has rallied on report due to the details showing strong demand as described by spending on durables. Inflation running hotter adds more credibility to future rate hikes. Ultimately, if there was no such big drop in inventories, indicating strong demand, GDP reading would be much higher and most likely beat the expectations. Once concerning factor is that fixed investment contributed negatively 0.07pp to GDP thus marking fourth consecutive quarter of falling investments.

PCE inflation in March continued to decline, now at a faster pace, as headline number came in at 4.2% y/y vs 5.1% y/y in February. Core inflation ticked down to 4.6% y/y but it stays stubbornly high and comes down slowly. This may nudge Fed toward raising 25bp next week and then deciding to pause.

The yield on a 10y Treasury started the week and year at around 3.56%, fell to 3.4% and finished the week at around the 3.46% level. The yield on 2y Treasury reached at around 4.17%. Spread between 2y and 10y Treasuries started the week at -62bp then tightened to -51bp and finished the week around -60bp. FedWatchTool sees the probability of a 25bp hike at 87.4% while probability of no change in May is at 12.6%.

This week we will have ISM PMI data, Fed meeting and NFP on Friday. Markets are pricing in a 25bp rate hike so much more attention will be paid to Fed’s language and whether they will continue hiking or pause. Headline NFP is seen at around 190k with the unemployment rate staying at 3.5%.

Important news for USD:

Monday:​

• ISM Manufacturing PMI​

Wednesday:​

• Fed Interest Rate Decision​
• ISM Non-Manufacturing PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

German Ifo survey in April showed that business climate continues to improve by coming in at 93.6 vs 93.2 in March. The data has been improving for seven consecutive months. Current conditions declined to 95 from 95.4 the previous month while expectations continued to improve to 92.2 from 91 in March. Ifo economist Klaus Wohlrabe noted that although industry export expectations have risen and that there is a smaller number of companies wanting to increase prices, German economy still lacks momentum.

ECB executive board member Isabel Schnabel stated in an interview that headline inflation is coming down quickly but given the developments around the core inflation it is still far too early to declare victory. Core inflation is expected to peak soon, but they are more concerned with direction of it, they want to see it coming down. She highlighted several times that ECB is fully data dependent and that 50bp rate hikes in May cannot be ruled out. ECB Chief Economist Philip Lane confirmed ECB’s data dependence and that hikes after May meeting will depend on incoming data.

Preliminary Q1 GDP came in at 0.1% q/q vs 0.2% q/q as expected. French, Italian and Spanish reading helped to keep it in positive while German reading came in flat, barely escaping recession since it printed -0.4% q/q in Q4. Still German reading printed -0.1% y/y. Inflation in France in April increased to 5.9% y/y from 5.7% y/y in March with a 0.6% m/m reading. German inflation slipped to 7.2% y/y from 7.4% y/y in March and monthly reading showed a much lower increase at 0.4%.

This week we will have preliminary April inflation data and ECB meeting. Another 25bp rate hike is the market consensus but a 50bp rate hike is sill on the table as a realistic possibility.

Important news for EUR:

Tuesday:​

• CPI​

Thursday:​

• ECB Interest Rate Decision​

GBP

BOE Chief Economist Huw Pill sparked the outrage by stating that people in the UK should accept that they are worse off and that their real spending power is declining, basically that they are poorer, and avoid bidding up prices through demands for higher wages. This just follows remarks stated by BOE Governor Bailey in 2022 that people should not be asking for higher wages. Blatant lack of empathy is coming out as a result of their incompetence to reign in inflation that is still running in double digits despite “best” efforts from monetary authorities.

AUD

Q1 inflation data saw headline CPI print at 1.4% q/q vs 1.3% q/q as expected and 7% y/y vs 6.9% y/y as expected. The numbers came down from 1.9% q/q and 7.8% y/y in Q4 of 2022 but the decline was not as big as expected. Trimmed mean measure, that is core CPI, slowed down to 1.2% q/q and 6.6% y/y. This is the second consecutive quarter that shows slower inflation on a quarterly basis. Although both headline and core reading are well above bank’s target range of 2-3% RBA will be satisfied with core coming down faster than expected.

This week we will have RBA meeting where no change to the rate is expected.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​

NZD

Trade balance data for March saw big increases in both exports (NZD6.51 vs NZD5.06 in February) and imports (NZD7.78bn vs NZD5.86bn in February) indicating return of strength to the New Zealand economy. ANZ business confidence survey saw another decline as April figure printed -43.8 vs -43.4 in March. The report showed increases in wage expectations and export intentions as well as improvement in commercial construction and activity and employment on a yearly basis. The biggest declines are seen in residential construction and profit expectations. Inflation expectations continue to decline but are still very elevated at 5.7%. Still they are at the lowest level since March of 2022.

This week we will get Q1 employment data.

Important news for NZD:

Wednesday:​

• Employment Change​
• Unemployment Rate​

CAD

February GDP number came in at 0.1% m/m vs 0.2% m/m as expected. January reading was revised up to 0.6% m/m and March reading is projected to be negative 0.1% m/m which in total would put Q1 GDP at 0.6% q/q. Both goods and service producing sectors made a 0.1% growth while wholesale trade and retail trade contracted -1.3% and -0.5% respectively. CAD has been hammered this week and falling alongside oil.

This week we will get employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

We had a slew of economic data published before the BOJ interest rate announcement and they were painting a picture of slowing economy with increasing inflation. Headline CPI number for Tokyo area in April printed 3.5% y/y vs 3.1% y/y as expected and up from 3.3% y/y in March. Excluding fresh food category also rose by 3.5% y/y vs 3.2% y/y the previous month while “core core”, ex fresh food, energy, increased by 3.8% y/y, up from 3.4% y/y in March and highest since 1982! The unemployment rate unexpectedly rose to 2.8% from 2.6% the previous month while retail sales continued to increase but at a slower pace both on monthly and yearly readings.

BOJ decided to leave interest rate unchanged at -0.10% and there were no tweaks to the Yield Curve Control. They have, however, make changes to the forward guidance. Changes include removing references to Covid-19 and pledge to keep rates at current or lower levels. The decision on not changing YCC was unanimous and the bank is not in a rush to change it. BOJ will spend 12 to 18 months to conduct a review of monetary policy guidance. This is a way to long period and overall the message from the meeting was dovish thus JPY suffered. This was Ueda’s first meeting as a Governor and he may prove to be more dovish than Kuroda.

CHF

SNB total sight deposits for the week ending April 21 came in at CHF538.4bn vs CHF544.1bn the previous week. The decline continues as SNB sells EUR and USD. Retail sales in March declined by -1.9% y/y as sales for food, beverages and tobacco continued to decline.​

 

[katetrades]

Forex Major Currencies Outlook (May 8 – May 12)

BOE meeting with expected final hike, inflation from the US and China as well as GDP from the UK will be the highlights of the week.

USD

ISM Manufacturing PMI for April came in at 47.1 vs 46.8 as expected and up from 46.3 in March. Manufacturing sector spends sixth consecutive month below 50 and now prices paid index is increasing indicating mounting pressures from prices of raw materials. New orders, new export orders and production all showed increases but are still below 50 while employment index managed to return into expansion territory with a 50.2 print.

ISM Non-Manufacturing printed 51.9 in April, up from 51.2 in March. Prices paid index nudged a bit higher but there was a monumental jump in new export orders and imports with former printing above 60. Additionally, new orders index also rose substantially. Employment index declined but it is still in the expansion territory.

Fed has delivered a 25bp rate hike as was widely expected, lifting the rate into the 5-5.25% range. The statement and the accompanying press conference seem to lean toward the scenario that this will be the last rate hike and that long pause ensues from June. Markets are still not convinced and are pricing in rate cuts from September. Chairman Powell has reiterated that Fed will be data dependent. He strongly emphasized that banking sector is sound and resilient. They seem to expect that credit tightening conditions exacerbated by recent bank issues will help bring demand and inflation down. Mike McGee from Bloomberg asked him whether there will be rate cuts this year and Powell completely dismissed the question, again pointing to their data dependence.

NFP for April printed 253k vs 180k as expected. March reading was revised down to 165k from 236k as preliminary reported for a big revision. Professional and business services and health care saw biggest job increases, The unemployment rate slipped to 3.4% while participation rate remained at 62.6%. An unpleasant surprise for Fed came from average wages which rose 0.5% m/m and 4.4% y/y. Fed will not be satisfied how things are going on in the labour market. They are hinting at a pause, but such a tight labour market, with NFP report beating estimates for thirteenth consecutive month, is not what they want to see.

The yield on a 10y Treasury started the week and year at around 3.46%, fell to 3.34% and finished the week at around the 3.46% level. The yield on 2y Treasury reached at around 4.16%. Spread between 2y and 10y Treasuries started the week at -60bp then tightened to -42bp. FedWatchTool sees the probability of a 25bp hike at 2% while probability of no change in June is at 98%.

This week we will have inflation data.

Important news for USD:

Wednesday:​

• CPI​

EUR

Preliminary inflation data for the month of April saw headline number tick higher to 7% y/y, as expected, from 6.9% y/y in March. The increase was due to rising energy and services prices. On the other hand, core CPI ticked down to 5.6% y/y from 5.7% y/y the previous month. Inflation increased 0.7% m/m which is still way above the trend needed to bring it down to targeted 2%.

ECB delivered a 25bp as widely expected and main refinancing rate is now at 3.75%. The statement opened with talk about inflation outlook being too high for too long. ECB will remain data dependent in deciding about future hikes with inflation outlook and incoming economic and financial data as most important. APP will continue to shrink by €15bn until June 2023 and reinvestments will stop from July of 2023. PEPP reinvestments are planned to go on at least until the end of 2024. At the press conference The statement is suggesting that ECB is getting near to the rate hike peak. President Lagarde was adamant that the bank is not pausing as there is more ground to cover. She was delivering a more hawkish message, leaving door open for future rate hikes. She added that stopping of APP reinvestments from July will amount to €25bn reduction on average on a monthly basis. This move opens the door for another rate hike in June and then pause from there.

GBP

Final manufacturing PMI for the month of April was revised up to 47.8 and now it is just a tick down from 47.9 printed in March. S&P Global notes that new orders and output continued to contract. Improvements are seen in supply chains as lead times are now shortened which in turn led to pushing down of input prices. Services PMI showed even bigger improvement on the back of increase in demand and it printed 55.9 vs 54.9 as preliminary reported. This has in turn lifted composite to 54.9 from 53.9 as preliminary reported and, as stated in report, it means that UK economy started Q2 with a bang as new orders rose at the fastest pace in 13 months.

This week we will have preliminary Q1 GDP reading and BOE meeting. Expectations are for a final 25bp rate hike.

Important news for GBP:

Thursday:​

• BOE Interest Rate Decision​

Friday:​

• GDP​

AUD

RBA has surprised markets and delivered a 25bp rate hike, thus moving the cash rate to 3.85%. There was an overwhelming consensus for no change. The statement shows that although inflation is coming down, it is still too high and that is why the Board decided to proceed with a rate hike. The central forecast on inflation remains unchanged, 4.5% in 2023 and 3% in mid-2025. The central forecast is for GDP to rise at a below-trend pace and to increase by 1.25% in 2023 and “around 2 per cent over the year to mid-2025”. “The unemployment rate is forecast to increase gradually to be around 4½ per cent in mid-2025.“ The statement concludes with another modification to forward guidance stating “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.“

Statement of Monetary Policy, a document that is published quarterly, showed that RBA is willing to hike further, it may be required, in order to bring inflation down in the reasonable time frame. New forecasts show inflation at 4.5% by the end of 2023, 3.2% by the end of 2024 and at 3$ by mid-2025. GDP growth has been revised down and it now shows 1.2% by the end of 2023, 1.7% by the end of 2024 and 2.1% by mid-2025. The unemployment rate is expected to go up to 4% by the end of 2023, 4.4% by the end of 2024 and 4.5% by mid-2025. Wage growth is seen declining but still rising at a healthy 4% by the end of 2023, 3.8% by the end of 2024 and 3.7% by mid-2025. All of the projections were made with peak interest rate at 3.75% and falling to 3% by mid-2025.

Over the weekend official Chinese PMI for April were published and they showed signs of slowdown. Manufacturing PMI returned to contraction with a 49.2 reading vs 51.9 in March. NBS has commented on weak reading “A lack of market demand and the high-base effect from the quick manufacturing recovery in the first quarter”. Non-Manufacturing held much better as it slid to still very elevated 56.4 from 58.2 the previous month. Composite has declined to 54.4 from 57 in March. Caixin manufacturing PMI also dipped into contraction with 49.5 from 50 in March due to slowing demand. Caixin services also slipped to 56.4 from 57.3 thus dragging composite to 53.6 from 54.5 the previous month, but the numbers are still elevated and healthy growth in new orders and activity is seen.

This week we will have trade balance and inflation data from China.

Important news for AUD:

Tuesday:​

• Trade Balance (China)​

Thursday:​

• CPI (China)​

NZD

Employment data for the first quarter showed a very strong labour market. Employment change came in at 0.8% q/q vs 0.4% q/q as expected for a huge beat. The unemployment rate was unchanged at 3.4% while participation rate increased to 72% from 71.7% as expected and as in Q4. Wages rose 4.5% y/y vs 4.6% y/y as expected. Prior to the report Governor Orr stated that financial system was well positioned to support the economy and sustain higher interest rates. In combination these two are opening doors for more rate hikes coming from RBNZ.​

CAD

Employment report for April showed very tight market. Employment change came in at 41.4k vs 20k as expected. The unemployment rate slipped to new low of 5% while participation rate remained unchanged at 65.6%. Average hourly wages also remained at very strong 5.2% y/y. One of the stains on this report is that all of the jobs created were part-time (47.6k) while full-time jobs declined (-6.2k). A strong report should not derail BOC from their current stance, a pause.

JPY

Final Manufacturing PMI in April was unchanged at 49.5. The report shows that new orders printed slowest reduction since July of 2022 and that supply chains are improving. Inflationary pressures remain elevated and firms have passed costs to consumers, thus increasing their profit margins and accelerating the rate of change of inflation.

CHF

SNB total sight deposits for the week ending April 28 came in at CHF523.9bn vs CHF538.4 the previous week. Deposits continue to decline as SNB sells EUR and USD. Seasonally adjusted unemployment rate for April stayed at 1.9% for the fifth consecutive month. Inflation data for the same month were very encouraging as it saw headline inflation print 2.6% y/y vs 2.8% y/y as expected and down from 2.9% y/y in March and it was flat on a monthly basis. Core inflation was unchanged at 2.2% y/y.​

 

[katetrades]

Forex Major Currencies Outlook (May 15 – May 19)

Consumption data from the US and China, employment data from Australia and the UK and preliminary Q1 GDP from Japan will highlight the week ahead of us.

USD

Headline CPI for the month of April came in at 4.9% y/y vs 5% y/y as expected and in March. Monthly reading was 0.4% as expected, which is still high for the 2% y/y target. Energy was down 5.1% y/y. The report shows “The index for shelter was the largest contributor to the monthly all items increase, followed by increases in the index for used cars and trucks and the index for gasoline. The increase in the gasoline index more than offset declines in other energy component indexes, and the energy index rose 0.6 percent in April”. Core CPI slipped to 5.5% y/y as expected from 5.6% y/y the previous month. Inflation is coming down, but some categories that were previously falling are starting to increase again. Core is proving to be stickier than projected and Fed will have hard time bringing it down. One positive is that core services ex shelter category, that is the measure Chairman Powell closely follows, came in at 0.11% m/m. Senior Loan Officers Opinion Survey showed that credit is tightening further and it leads to increase in recessionary risks as rising borrowing costs weigh in on companies. Additionally, the report also showed that demand for loans is also waning.

The yield on a 10y Treasury started the week and year at around 3.43%, rose to 3.53% and finished the week at around the 3.46% level. The yield on 2y Treasury reached around 4.07%. Spread between 2y and 10y Treasuries started the week at -50bp then tightened to -53bp. FedWatchTool sees the probability of a 25bp hike at 25.8% while probability of no change in June is at 74.2%.

This week we will have consumption data.​

Important news for USD:

Tuesday:​

• Retail Sales​

EUR

ECB’s uber hawk member Knot, president of Dutch central bank, stated he voted for a 25bp rate hike in May but could see himself supporting further rate hikes. He says he is prepared to go above 5% if that proves to be necessary. ECB board member Kazaks, another hawk, stated that rate hikes may not be over in July and that market betting on rate cuts in Spring of 2024 may prove to be premature. He added that it is possible to ECB to pause or even hike as Fed cuts. ECB’s Kazimir, a more neutral member, stated that there is still a lot of ground to cover and that slowing down of rate hikes allows them to go higher for longer. He added that September is the earliest when they can assess effectiveness of past rate hikes. ECB’s Nagel agreed that meeting-by-meeting approach is the correct one adding that it will take almost 18 months for core inflation to get back close to 2%.

GBP

BOE has delivered a well expected 25bp rate hike and lifted the interest rate to 4.50%. The vote was 7-2 with Dhingra and Tenreyro voting to keep rates unchanged. The statement shows that risks around inflation projections are skewed to the upside as there is uncertainty regarding the pace at which inflation will return sustainably at 2%. Additionally, they see H1 GDP coming in flat, however GDP for Q2 of 2024 was revised from -0.3% q/q to 0.9% q/q for the biggest revision in BOE’s history. During the press conference Governor Bailey reiterated that inflation remains way too high and that outlook for unemployment and growth improved with economic activity, as shown by data, came in stronger than expected. Inflation is projected to drop sharply from April. The bank is data dependent.

Preliminary Q1 GDP came in at 0.1% q/q as expected and as was in Q4 of 2022. The report shows that construction sector grew by 0.7% while services and production sector both grew by 0.1%. Real household consumption was flat on the quarter as high inflation dampened it while business investment grew by 0.7%. Net trade contributed negatively to the print.

This week we will have employment data.

Important news for GBP:

Tuesday:​

• Claimant Count Change​
• Unemployment Rate​

AUD

Chinese trade balance data for April saw widening of surplus to $90.21bn, but the composition of it was less favorable. Exports have risen 8.5% y/y, a drop from 14.8% y/y in March while imports continued to plunge and came in at -7.9% y/y vs -1.4% y/y the previous month. Declining imports are indicating that domestic demand is weak. Additionally, imports are basis for future exports so their decline poses a big concern for the export sector. April inflation data saw CPI at just 0.1% y/y vs 0.4% y/y as expected and down from 0.7% y/y in March. PPI plunged even further into negative by coming in at -3.6% y/y vs -3.2% y/y as expected and down from -2.5% y/y the previous month. PPI has been declining since November of 2021 and this is the seventh consecutive month of it being in the red. Very low inflation readings have opened the possibility of strong stimulus package from China to stimulate the economy and AUD benefited.

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

Important news for AUD:

Tuesday:​

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

Wednesday:​

• Wage Price Index​

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

Kiwi had a roller coaster week. It managed to gain strength until Wednesday then pause on Thursday and on Friday it weakened after RBNZ published data on inflation expectations. They have revised both 1-year and 2-year expectations down. The numbers showed 2.79% vs 3.3% for 1-year and 4.28% vs 5.11% for 2-year. Lower inflation expectations mean that RBNZ could consider stopping rate hikes.

CAD

Building permits in March recorded a major bounce back increasing by 11.3% while expectations were for a decline of -2.9%. The data shows that some major projects have been undertaken and that moved the numbers toward the high side. Additionally, when BOC stopped increasing rates it sent a positive signal to builders as mortgage costs will stabilize.

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Final services PMI for April was revised up to 55.4 and now comes up from 55 in March. This marks eighth consecutive month that reading is above 50. Details of report show the biggest jump in rate of output since 2007 helped by international tourists. Services companies are passing their increased costs to the consumers which pushes both output and inflation up. Composite was also revised up to 52.9 and now it sits unchanged from previous month’s reading. Wages data for March saw total wages rise 0.8% y/y, same as in February with inflation adjusted wages falling -1.9% y/y vs -2.9% y/y the previous month. Household spending was abysmal as it fell -1.9% y/y vs 1.6% y/y in February. Expectations were for a moderate increase of 0.4% y/y. Falling wages in real terms must reflect in declining household spending.

BOJ Governor Ueda stated that if price target is reached in a sustainable and stable matter BOJ will end Yield Curve Control. After that BOJ will shrink its massive balance sheet. He added that inflation expectations have risen and that they are at elevated levels.

This week we will have preliminary Q1 GDP data.

Important news for JPY:

Wednesday:​

• GDP​

CHF

SNB total sight deposits for the week ending May 5 came in at CHF525.6bn vs CHF523.9bn the previous week. This may mark the start of rising total sight deposits as inflation is coming down so SNB will not need to proactively strengthen the currency.​

 

[katetrades]

Forex Major Currencies Outlook (May 29 – June 2)

Preliminary inflation data from the Eurozone, employment data from the US and official PMI data from China will be the main economic news in the week ahead of us. Please note that Monday is a Memorial Day Holiday, markets in the US will be closed, therefore liquidity will be lower.

USD

FOMC minutes from May meeting showed unanimous decision for May but a split in regards of what to do in the future. “Some” members stated that inflation is falling slower than expected and that it could mean more rate hikes in the meetings ahead. On the other hand, “several” members stated that if economy continues to perform as expected there will be no need for further rate hikes. Both camps agreed that inflation is “unacceptably high” and that they will be data dependent.

Second reading of Q1 GDP was revised higher to 1.3% annualized from 1.1% annualized as reported in advanced reading. Personal consumption helped push the number up with a contribution of 2.52% followed by government spending. Net exports were basically flat while fixed investment were a drag on the reading. PCE data for April saw headline number rise to 4.4% y/y from 4.2% y/y in March with core PCE ticking up to 4.7% y/y from 4.6% y/y the previous month. Personal spending rose 0.8% m/m while personal income rose 0.4%. Deadly combination of rising inflation and rising income means that Fed will keep the foot on the rate hike pedal.

The yield on a 10y Treasury started the week and year at around 3.67%, rose to 3.85% and finished the week at around the 3.82% level. The yield on 2y Treasury reached around 4.6%. Spread between 2y and 10y Treasuries started the week at -57bp then widened to -75bp. FedWatchTool sees the probability of a 25bp hike at 58.5% while probability of no change in June is at 41.5%.

This week we will have ISM Manufacturing PMI and NFP data. Headline NFP number is expected to come at around 180k with the unemployment rate ticking up to 3.5%.

Important news for USD:

Thursday:​

• ISM Manufacturing PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

ECB policymaker Villeroy, a hawkish leaning member, stated that main question is the pass-through effect or prior rate hikes. He added that he expects ECB to be at the terminal rate by September also stating that it is far more important how long will rates stay high than what the terminal rate will be. He reiterated that bank is data dependent and that in next 3 meetings they could hike or pause.

German Ifo business climate for April snapped the streak of seven month’ increases and came in at 91.7, down from downwardly revised 93.4 in March. Ifo economist has stated that German economy is heading towards stagnation in Q2. Second reading of German Q1 GDP came in at -0.3% q/q and with Q4 reading printing -0.5% q/q Germany hash entered a technical recession, defined as two consecutive quarters of negative growth. Private and public consumption were drag on the reading while net exports, helped by China reopening, managed to contribute positively.

Preliminary PMI data for the month of May showed slowdown of the economy. Manufacturing PMI slipped to 44.6 from 45.8 in April due to dreadful German reading of 42.9. Services PMI managed to beat expectations with 55.9 vs 55.6 but it fell from 56.2 the previous month, German reading managed to climb to 57.8 thus accentuating different paths with manufacturing going down, while services going up. Composite was slightly down to 53.3 from 54.1 in April. The report states how production and new orders are declining rapidly but are still well above averages for this time of year. Additionally, price pressures in service sector, ECB pays close attention to that inflation, are seen rising which will be another input for ECB to continue hiking rates. Employment index is on the rise as companies continue to hire.

This week we will have preliminary May inflation data and it is expected to go down.

Important news for EUR:

Thursday:​

• CPI​

GBP

Preliminary May PMI data were all on decline. Manufacturing fell deeper into contraction with 46.9, services declined to 55.1 from high of 55.9 in April and composite was dragged down to 53.9. The report shows that economy is still expanding but at a slower pace. The divergence between sectors is also seen in the prices charged. Services sector sees increases in prices while manufacturing sees decreases in prices.

April CPI data was not something BOE wanted to see. Headline number declined from 10.1% y/y to 8.7% y/y but expectations were for a bigger decline, down to 8.2% y/y. Monthly inflation rose 1.2% vs 0.8% as expected. Details show that food inflation was the biggest contributor to rising prices as it rose astonishing 19% y/y. The drop in headline number was due to prices of housing and housing services, that is electricity and gas prices, as well as Ofgem energy price cap going out of the calculation. Core CPI rose to 6.8% y/y from 6.2% y/y in March with a monthly increase of 1.3%! almost doubling the expected number. Core inflation is at the highest level in over 30 years.

BOE Governor Bailey stated the day before the inflation report that inflation is turning the corner and that bank is drawing nearer to the peak rates. After the report his statements cannot be taken seriously and markets are repricing rate expectations higher, toward 5.34% as a terminal rate. Post report he said he was satisfied with inflation coming down into single digits. He also argued that only one-third of the rate hikes had actually had effect on the economy and that there is still room for current rate hikes to show their effects. Markets are, however, pricing three more rate hikes.

AUD

PBOC has left LPR rates unchanged as was widely expected as they stand at 3.65% for 1-year and 4.3% for 5-year. The former is used as a benchmark for most new and outstanding loans while latter is used for most mortgage loans.

This week we will have official PMI data from China.

Important news for AUD:

Wednesday:​

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

NZD

RBNZ meeting was a live one where options for pause, 25bp rate hike and 50bp rate hike were all on the table. In the end decision was to go for a 25bp rate hike and bring Official Cash Rate (OCR) to 5.5%, This will be a peak in interest rates as projections show it will stay there until at least June of 2024. September of 2024 could see first rate hike while OCR is seen at 3.31% in June of 2026. The bank sees GDP for Q2 and Q3 to be negative which will bring a technical recession, two consecutive quarters of negative GDP growth, while CPI for 2024 is seen at 3.6%. The statement reiterated that “The OCR will need to remain at a restrictive level for the foreseeable future, to ensure that consumer price inflation returns to the 1% to 3% annual target range, while supporting maximum sustainable employment.“ Significant sign that this will be a pause in rates led to big repricing of NZD down. Additionally, Q1 retail sales data were abysmal. They came in at -1.4% q/q vs 0.2% q/q as expected and down from downwardly revised -1% q/q in Q4 of 2022.

CAD

Preliminary manufacturing sales for April came in at -0.2% m/m vs 0.7% m/m in March. Food and primary metal industries were the biggest drags. Wholesale trade in April rose 1.6% m/m vs -0.1 m/m the previous month on the back of higher sales of petroleum and petroleum products. CAD took advantage of week JPY and rose to 103, it fell against USD while it was mostly flat against other currencies.

JPY

Preliminary May PMI data saw manufacturing return to expansion territory after six months. The reading printed 50.8, up from 49.5 in April. The report showed growth after decline for output and new orders as well as weaker input and output prices inflation. Services continued to increase and came in at 56.3, up from 55.4 the previous month. The report showed stronger growth for output as well as new and new export orders, weaker inflation for output prices but input prices showed stronger inflation. Composite was lifted to 54.9 from 52.9 in April and it is a level not seen for almost a decade!

CPI data for the Tokyo area in the month of May showed headline number easing to 3.2% y/y from 3.5% y/y in April. Ex fresh food category also printed 3.2% y/y and was down from 3.5% y/y the previous month. Both readings came in weaker than expected. On the other hand, ex fresh food, energy category, so called “core-core”, ticked up to 3.9% y/y from 3.8% y/y in April and marked a new 40-year high. BOJ Governor Ueda is mulling a possibility of changing Yield Curve Control from 10y bonds to 5y bonds. Core machinery orders, a good proxy for the business investment 6-9 months into the future, fell in March 3.5% m/m and 3.9% y/y. Both numbers missed expectations by a large amount. This data point is very volatile but still this is a huge drop in y/y reading from 9.8% in February.

CHF

SNB total sight deposits continued to decline and came in at CHF515.7bn vs CHF520.1bn the previous week. SNB is firm on the path of strengthening the Swissy to contain inflation.​

 

[katetrades]

Forex Major Currencies Outlook (June 5 – June 9)

RBA and BOC meetings, both expected to deliver no changes to rates or policy, will be the highlights of the week ahead of us.

USD

Over the weekend a deal in principle was reached on lifting the debt ceiling between US President Biden and House Speaker McCarthy. Debt ceiling should be raised by around $4tn in the next two years. Now the deal is passed to Congress for voting. ISM Manufacturing PMI for the month of May slipped to 46.9 from 47.1 in April. The details of the report show drops in new orders, inventories and backlog of orders. On the other hand, there are improvements in employment and production components with both of them printing above 50. The biggest decline was seen in prices paid index (44.2). It indicates waning price pressures, lower inflation in the coming months.

May NFP saw a headline number of 339k vs 190k as expected. This is fifteenth consecutive month that the reading smashed expectations. The unemployment rate rose to 3.7% vs 3.5% as expected and up from 3.4% the previous month while participation rate remained at 62.6%. Wages rose 0.3% m/m and 4.3% y/y as expected. Professional and business services added 64k jobs followed by government employment at 56k and healthcare at 52k while manufacturing and IT saw job losses. It is a mixed report as headline number beat again but the unemployment report jumped more than expected.

The yield on a 10y Treasury started the week and year at around 3.77%, fell to 3.6% and finished the week post NFP at around the 3.65% level. The yield on 2y Treasury reached around 4.6%. Spread between 2y and 10y Treasuries started the week at -76bp then widened to -78bp. Markets completely reversed probabilities of Fed moves after Fed Jefferson and Parker hinted at a pause in June while NFP numbers added more to the chances of a raise in June. FedWatchTool sees the probability of a 25bp hike at 33.3% while probability of no change in June is at 66.7%.

This week we will have ISM Non-Manufacturing PMI data for the month of May.

Important news for USD:

Monday:​

• ISM Non-Manufacturing PMI​

EUR

French inflation reading for May fell by more than expected to 5.1% y/y from 5.9% y/y in April with a negative monthly reading of -0.1%. Expectations were for a drop to 5.5% y/y. German reading came in at 6.1% y/y vs 7.2% y/y previous month with monthly reading also falling 0.1% m/m. Expectations were for a drop to 6.5% y/y. Preliminary Eurozone CPI came in at 6.1% y/y vs 6.3% y/y and down from 7% y/y the previous month with prices staying the same month over month. Services inflation came down to 5% y/y from 5.2% y/y in April. Core inflation fell to 5.3% y/y from 5.6% y/y while expectations were for a 5.5% y/y reading. ECB will be very pleased with inflation data, however be mindful that ECB President Lagarde stated that they are still not satisfied with inflation outlook and will need to continue raising rates as inflation is too high and will stay high for too long.

GBP

Final May manufacturing PMI was revised up to 47.1 from 46.9 as preliminary reported. The reading is still lower than April (47.8). New order and employment indexes declined at a faster pace. On the positive side, input costs have continued to decline thus easing the inflation pressures and companies report improvements in supply chains.

AUD

Building permits in April plunged -8.1% m/m vs expected increase of 2% m/m. Housing is a big part of Australian economy. Higher interest rates cause mortgage payments to increase making houses less affordable thus bringing demand for them. Monthly CPI data for the month of April fell to 6.8% y/y from 7% in March, but larger fall was expected (6.4% y/y). RBA Governor Lowe stated that in September there will be a great number of fixed-rate mortgages rolling off into much higher current rates. Q1 CAPEX data came in at 2.4% q/q vs 1% q/q as expected, down from upwardly revised Q4 reading of 3% q/q.

Official PMI from China for the month of May saw readings decline across the board. Manufacturing fell to 48.8 from 49.2 in April while a rebound to 51.4 was expected. Non-Manufacturing holds strong with 54.5, but is still down from 56.4 the previous month. Composite was dragged down to 52.9 from 54.4 in April. Weaker than expected readings pulled AUD down. Every time that PMI data show declines in economic activity talks regarding stimulus from China become louder. Caixin manufacturing PMI returned to expansion with 50.9, up from 49.5 in April due to strong jump in output and new orders. On the other hand, employment index has made a big drop as companies are reluctant to hire new workers.

This week we will have RBA meeting as well as trade balance and inflation data from China. Markets are pricing in no change from the RBA, although higher inflation reading may bring some murmurs during the meeting.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​

Wednesday:​

• Trade Balance (China)​

Friday:​

• CPI (China)​

NZD

ANZ survey showed business confidence improving in May to -31.1 from -43.8 in April. The biggest improvement were seen in residential construction, profit expectations and ease of credit. Inflation expectations have dropped to 5.47% from 5.7%.

CAD

Q1 GDP came in at 3.1% vs 2.5% annualized as expected and 0.8% q/q. The beat was achieved thanks to positive contributions from household spending and net exports while business investment and inventories were drag. Advance reading for April, first month of Q2, shows GDP increasing by 0.2% m/m.

This week we will have BOC meeting and employment data. BOC is expected to continue with their current monetary policy of leaving rates on hold.

Important news for CAD:

Wednesday:​

• BOC Interest Rate Decision

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

Emergency meeting that consisted of members of BOJ, FSA and MOF produced nothing more than a verbal warning. Top currency diplomat Kanda stated that top currency officials are closely monitoring movements in FOREX markets. Industrial production and retail sales both missed in April coming in at -0.4% m/m and -1.2% m/m vs 1.5% m/m and 0.5% m/m as expected respectively. Q1 CAPEX data saw a tremendous increase in investment of 11% q/q, double than expected 5.5 q/q and up from 7.7% q/q in Q4.

CHF

SNB total sight deposits for the week ending May 26 came in at CHF516.7bn vs CHF515.7bn the previous week. Q1 GDP surprised to the upside as it came at 0.3% q/q vs 0.1% q/q as expected and up from being flat in Q4 of 2022. The increase was supported by domestic demand as consumer spending rose 0.6% q/q.

This week we will have inflation data.

Important news for CHF:

Monday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (June 12 – June 16)

Fed, ECB and BOJ meetings, inflation from the US, employment data from the UK and Australia as well as retail sales from the US and China will be highlights of the massive week ahead of us.

USD

ISM Services PMI for May came in at 50.3 vs 52.2 as expected and down from 51.9 in April. The reading barely held above the 50 level. Prices paid index has declined to the lowest levels since the start of the pandemic in March of 2020 and good news from this report basically ends there. New orders declined, but is still above the 50 level while backlog of orders plunged to 40.9. There was also a huge rise in inventories index. Employment fell into contraction which is contradicting the payroll support that showed services sector gaining jobs. With services sector moving dangerously close to restrictive territory the chances of recession are rising while chances of June rate hike are falling.

The yield on a 10y Treasury started the week and year at around 3.7%, rose to 3.82% and finished the week at around the 3.75% level. The yield on 2y Treasury reached around 4.6%. Spread between 2y and 10y Treasuries started the week at -80bp then widened to -84bp. FedWatchTool sees the probability of a 25bp hike at 22% while probability of no change in June is at 78%. However, after hikes by RBA and BOC the probability of a skip, meaning no hike in June but hike in July is at 63%.

This week we will have inflation and consumption data as well as Fed meeting. Markets are leaning toward the pause in June. This meeting will present us with new Summary of Economic Projections and dot plot.

Important news for USD:

Tuesday:​

• CPI​

Wednesday:​

• Fed Interest Rate Decision​

Thursday:​

• Retail Sales​

EUR

Final services PMI reading for the month of May was revised down to 55.1 from 55.9 as preliminary reported and came in lower than 56.2 in April. The report says that services sector is supported by strong labor market and tourism sector that enjoys potent recovery. Price data points to increases in services sector which will have negative impact on inflation, meaning it will add upside pressures to inflation that just started to fall. Composite was also revised down and it printed 52.8 vs 53.3 as preliminary reported and down from 54.1 the previous month.

Final Q1 GDP reading was revised down and now it shows that economy contracted in the first quarter (-0.1% q/q). Annual reading was also revised down to 1% y/y from 1.3% y/y as reported in preliminary and second readings. Q4 GDP was also revised down from 0% q/q into negative territory of -0.1% q/q so now the economy has officially entered a technical recession. Technical recession constitutes two consecutive quarters of negative growth.

This week we will have ECB meeting. New growth (revised down) and inflation projections will be announced and 25bp rate hike is widely accepted consensus.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

Final Services PMI for the month of May were slightly revised up to 55.2, but are down from 55.9 in April. Composite was also revised up to 54 and is down from 54.9 the previous month. Although the numbers are down compared to the previous month, they are still at a very healthy levels. We see in the UK strong divergence between manufacturing and services sector that is seen in many other developed economies. The report shows that main driver is domestic demand and consumers switching from spending on goods to services spending. It also notes strong wage pressures and increase in prices charged by companies.

This week we will have employment data.

Important news for GBP:

Tuesday:​

• Claimant Count Change​
• Unemployment Rate​

AUD

RBA has surprised the markets and raised cash rate by 25bp bringing it now to 4.10%. This is a second consecutive rate hike. The statement shows that inflation is past its peak but still way too high with upside pressures and rate hike was intended to bring inflation down to its targeted range of 2-3%. Wages have picked up and they are in line with inflation target “provided that productivity growth picks up.” The statement shows that “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve”. Additionally, inflation and labor market remain most watched data but now “trends in household spending” have been added to the watchlist.

Q1 GDP data came in at 0.2% q/q vs 0.3% q/q as expected and down from 0.5% q/q in Q4 of 2022. Domestic demand was the biggest driver of growth as it contributed 0.5pp to the GDP reading. Household consumption rose by 0.2% while government consumption rose by 0.1%. Net trade deducted 0.2pp as exports rose by 1.8% while imports rose by 3.2%. One of the notable data showing how inflation is hurting households is a drop in household saving ratio to 3.7% from 4.4% Terms of trade were improved by 2.8% but only because price of imports fell more than price of exports.

Caixin services PMI in May rose to 57.1 from 56.4 in April while expectations were for it to drop to 55.2. The reports shows that both supply and demand for services expanded and that indexes for business activity, new orders and new continued to increase and are now above the 50 level for five straight months. Input and output prices continued to increase, the former indicating higher labor and raw material costs while latter indicate increased demand for services. Input costs increased at higher rate than output prices.

Trade balance data for May was abysmal. In USD terms trade surplus plunged to $65.81bn from $90.21bn in April. Expectations were for it to rise to $92bn. Exports have collapsed and came in at -7.5% y/y from 8.5% y/y the previous month while imports fell 4.5% y/y vs fall of 7.9% y/y in April. There are base effects from last year’s reopening, but still this a much larger drop than anyone expected. Chinese banks have cut deposit rates in order to boost investments and stimulate the economy. Inflation data for the month of April ticked up to 0.2% y/y from 0.1% in March but expectations were fore a 0.3% y/y increase. PPI has continued to plunge and came in at -4.6% y/y vs -3.6% y/y the previous month. Calls for further rate cuts are getting louder post this report.

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

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​
• Industrial Production (China)​
• Retail Sales (China)​

NZD

Manufacturing sales in Q1 have continued to decline coming in at -2.1% q/q after a -4.7% q/q fall in Q4 as higher interest rates take its toll on the economy. GDT auction saw dairy prices drop by 0.9%. NZD has benefited from the risk on appetite that developed in the second half of the week and gained against USD and JPY.

CAD

Over the weekend OPEC+ meeting in Vienna resulted in an announcement of a reduction in the output target that will take effect from the July 1. Saudi Arabia will lower their production by 1 million barrels per day, their reduction will be highest of all members. Additionally, members agreed that their cuts will go on through 2024 as well while previously reductions should last only until the year end. WTICrude has gapped at the open to over $74 as a result.

BOC has surprised the markets and raised the rate by 25bp bringing it now to 4.75%. This is the first rate hike since January after a few meetings with pause. The bank sees inflation as stubbornly high and expect CPI inflation to slow down to around 3% in the summer but “concerns have increased that CPI inflation could get stuck materially above the 2% target”. They acknowledged that growth surprised to the upside. There is no commitment to further rate hikes but the bank will continue monitoring inflation outlook and expectations. BOC rate is now above the inflation rate.

Employment report was very disappointing. Jobs have fallen by 17.3k making it the first time they have fallen since August of last year. This has caused the unemployment rate to rise to 5.2% from 5% for the first increase in the rate also since August of last year. Wages have slipped to 5.1% y/y from 5.2% y/y the previous month. All of the job losses were in full-time (-32.7k) while part-time rose by 15.5k.

JPY

Final services PMI for the month of May was revised down to 55.9 from 56.3 as preliminary reported and up from 55.4 in April. It still represents a record high number. The report showed improvements in employment index, thus continuing a four-month trend of stronger employment. Input and output prices have continued to increase but their rise has moderated, they are now increasing at a slower pace. Due to revision in services reading composite was also revised down and it now prints 54.3 vs 54.9 as preliminary reported, still up from 52.9 the previous month.

Wages data saw nominal earnings rise 1% y/y in April vs 1.3% y/y in March. When we calculate inflation we see that real wages fell by 3% y/y, more then previous month when they fell by 2.3% y/y. Household spending was also abysmal falling 4.4% y/y vs falling 1.9% y/y in March. Final reading of Q1 GDP saw improvement to 0.7% q/q from 0.4% q/q as preliminary reported and up from 0.1% q/q in Q4 of 2022. The improvement was made on the back of stronger capital expenditure that rose 1.4% vs 0.9% as preliminary reported. Private consumption was at 0.5% making it the biggest increase in the last three quarters.

This week we will have BOJ meeting. No changes to monetary policy are expected but there is a perpetual fear that they may abandon Yield Curve Control or widen the YCC band which would lead to JPY strength.

Important news for JPY:

Friday:​

• BOJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending June 2 came in at CHF519bn vs CHF515.7bn the previous week. This is the second week that deposits are up and it may indicate a change in trend if SNB is happy with current level of CHF. May inflation data was encouraging as it came in line with expectations. Headline number fell to 2.2% y/y from 2.6% y/y in April while core reading fell below the 2% level and printed 1.9% y/y vs 2.2% y/y the previous month. SNB is on the path to hike one more time at their next meeting later in the month and after that, data is indicating, they should pause.​