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17th May 22 – Markets Today

17th May, 2022 – Markets Today

It was a choppy session to start the week. Nonetheless, stocks closed predominantly lower across the board with underperformance in the tech-heavy Nasdaq 100 while the DJIA closed marginally green. The majority of sectors were lower, led by losses in Consumer Discretionary, Technology and Real Estate, defensives were green, including Health Care, Consumer Staples, and Utilities, while Energy was the outperformer as it tracked crude prices higher.

  • Crude prices surged throughout the afternoon on prospects of reopening in Shanghai, which helped offset some of the demand fears in wake of the April activity data in China. The disappointing China data supported Treasuries throughout the session on worrying growth signs, which added more fuel to the fire after Goldman Sachs cut their US growth forecasts over the weekend, which was only further buoyed by a weak NY Fed Manufacturing survey
  • The downside in yields weighed on the Dollar while some of the upside in the Euro was seen in wake of commentary from ECB’s Villeroy who reiterated he expects a decisive June meeting followed by action in July, but he also warned a weak Euro could threaten their inflation goal.
  • Feds Williams spoke where he mainly reiterated Powell and himself in expecting 50bps rate hikes at the next couple of meetings while nothing he said suggested a change of view towards the normalisation process in wake of the April CPI report.
  • Attention on Tuesday tums to US retail sales, a plethora of Fed speak from namely Chair Powell speaking to the WSJ, as well as Fed members, Bullard, Harker, Kashkari, Mester, followed by Evans after-hours.
  • The main updates to start the week surrounded NATO rhetoric, where Sweden confirmed its application to join the alliance, a day after Finland confirmed it also wanted membership. However, for this to happen it needs full NATO agreement, and Turkish President Erdogan stated Turkey will not approve Sweden and Finland joining NATO. Erdogan added the delegations should not bother coming to Turkey to convince Turkey to approve their NATO bids, after announcing diplomats would go to address Ankara’s objections.
FX
  • The Australian dollar records decent gains, despite weaker-than-expected Chinese economic data ahead of the release of the Reserve Bank of Australia’s (RBA) last meeting minutes. In the North American session, the AUD/USD is trading at 0.6970 at the time of writing.
  • China’s Covid-19 zero-tolerance policy is worse-than-expected economic data, with Industrial Production contracting 2.9% YoY and Retail Sales plummeting 11.1% YoY, which painted a cloudy economic outlook for the second-largest economy in the world. That is a headwind for the Aussie dollar, as China is its largest trading partner.
  • April activity data out of China was weak and missed expectations; Industrial output and retail sales tumbled while the unemployment rate picked up. However, China’s stats bureau spokesman said economic operations are expected to improve in May and that China is steadily pushing forward production resumption in COVID-hit areas. Shanghai started to gradually reopen businesses on Monday following weeks of a strict lockdown and a Shanghai city official stated 15 out of the 16 districts in Shanghai achieved zero-COVID outside quarantine areas and the city’s epidemic is under control.
  • The Dollar was lower to start the week, and seemingly lost some momentum following NY Fed manufacturing data, where the headline printed a surprise fall. Nonetheless, the Buck was in a contained range on Monday, 104.640-104.130, although Fed’s Williams did speak but offered little new. On this, there was nothing in his remarks to suggest that this has changed his views on the normalisation process, and he reiterated he sees 50bps hikes for the upcoming meetings, noting inflation remains high and persistent and the goal is to bring the economy back into balance.
  • EUR was firmer, but within tight ranges, as the cross hit lows of 1.0390 and a high of 1.0442. Remarks from ECB’s Villeroy supported yields, where he reiterated he expects a decisive June meeting and an active summer meeting, noting the pace of further steps will account for actual activity/inflation data with some optionality and gradualism but, should at least move towards the neutral rate. Meanwhile, ECB’s de Cos said the central bank will likely decide at the next meeting to end its stimulus program in July and raise rates very soon after that, while he added that they are not seeing second-round effects but it is something they are monitoring.
TODAY’S KEY RISK EVENTS
  • Attention now tums to RBA minutes overnight following the Aussies gains in late NY trade. Regarding the RBA minutes, ING analysts wrote in a note that “the minutes from the Reserve Bank of Australia’s May meeting will be scanned closely for hints about the timing and size of additional monetary tightening. On Wednesday, the long-awaited wage data for 1Q will be released. On Thursday, the employment figures for April will be published, with a chance the jobless rate will fall below 4.0%.”
  • UK Unemployment data, as markets expect the data to remain at 3.8%.
  • USA – April’s Retail Sales, Industrial Production, Building Permits, and Initial Jobless Claims would shed some light regarding the actual economic status of the United States.

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