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16th May 2022 – Markets Today

Market Wrap
Equities rallied to end the week after a gruesome performance Monday-Thursday to see stocks still close lower for the sixth consecutive week. Gains were led by the Nasdaq, which was up over 4% at the highs underpinned by strong gains in Consumer Discretionary and Technology. All sectors closed in the green, with the “underperformers” being the defensive Health Care and Utility names, but still closed with gains above 1%. The broad equity upside saw the S&P 500 reclaim 4k. There were also encouraging signs out of China, after Shanghai announced, it is aiming to have zero community spread of COVID by mid-May, which suggests there could be an easing of restrictions.
FED:
Friday night, Fed Chair Powell reiterated the Fed thinks it’s appropriate for there to be additional 50bps hikes at the next two meetings. On a soft landing, he said execution depends on factors the Fed cannot control but they do have the tools to get inflation under control. Powell added if things get better than expected, they are prepared to do less, but also prepared to do more if the situation worsens. Mester (2022, 2024 voter) also said she sees 50bps hikes at the next two meetings, bar any large surprises, before taking a moment in September to assess whether price increases are increasing or decreasing and how policy should react to that, noting the Fed needs several months of inflation moving down before comfortably concluding a peak. AUD/CAD/NZD/ – The final trading session of the week at least, high beta, activity and commodity-backed types all grasped the chance to claw back heavy losses, with the Aussie testing 0.6900 between 0.6830-0.7078extremes and Aud/Nzd cross nearer the top of a 1.1061-1.0984 band. Aud/Usd also drew impetus from a recovery of sorts in the Yuan prompted by verbal intervention from China’s Banking and Insurance Regulatory Commission.
China Covid: The Shanghai Vice Mayor stated they aim to have no community spread of coronavirus by mid-May and is considering expanding the scale of production resumption and will aim to open up an ease traffic restrictions and open shops in an orderly manner. Officials also noted that over 9,000 large-scale enterprises are now operating at nearly 50% capacity in Shanghai. Global Times noted Shanghai prioritises resuming classes for grades g, 11 and 12, while supermarkets, convenience and department stores will resume offline operations in an orderly manner and other services such as hairdressing will open gradually, according to Global Times.
Major Risk Events This Week
China Retail Sales (Monday)
Retail sales are expected at -6%. ING says the focus will be on the degree of weakness in retail sales, as well as the corresponding extent of growth in infrastructure investment to cushion the economy, predicting that these two opposing forces may not net out.
US Retail Sales (Tuesday)
Analysts see a likely rise in the headline figure to 1% from 0.7% in March. Firmer auto sales and rising wages are expected to help activity. Cash savings during the pandemic are also set to keep spending relatively robust until inflation starts to slow.
UK CPI (Thursday)
Investec predicts a big jump in the April headline print to 9.1% y/y form March’s 7%, the highest in three decades. The expected sharp rise mostly reflects the 54% increase in the regulated utility price cap. Core is seen advancing to 6.3% from 5.7% in March. Such an outturn will likely keep the pressure on the MPC to continue with its rate hiking cycle with BoE’s Ramsden this week overlooking soft GDP metrics for March by stating that more rate hikes are required. As it stands, market pricing looks for an additional four 25bps rate hikes by year-end. Many desks remain of the view that such pricing remains too aggressive with analysts at ING expecting the MPC to hit pause on hikes after hiking a few more times in the coming months.
Australian Jobs ( Friday)
April unemployment is forecast for a third straight dip and to reach a record low 3.9% as well as expected to show an addition of 40k jobs in April vs 17.9k jobs added in March. With regional surveys reporting higher pay growth, the wage price index is expected to come close to 3%. This is the RBA’s previous benchmark for “sustained” inflation. Analysts at Westpac see a lower number of job additions: “We have revised our forecast from +32k to +20k to acknowledge a softer momentum in employment while still allowing for a softer than expected recovery in hours worked.” The bank shares the view of a fall in the unemployment rate to 3.9%. The data however is unlikely to change the course of the RBA’s monetary policy given the shift in focus to inflation from jobs.

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