MARKET WRAP – 31 May 2022
A very quiet session overnight with the U.S out celebrating the Memorial Day holiday. German inflation printed higher than expected which slowed the advance in the DAX and S&P futures posted minor gains before the end of the shortened session. Asian equities were overwhelmingly higher on the close, with the Nikkei the top performer up 2.2%. The ASX finished Mondays session +1.45% lifted by a rally across the tech sector.
European equities opened higher with Eurostoxx 50 +0.9% and FTSE100 +0.5%. German 10-year yields advanced 6bp to 1.02%, while Britain’s advanced 5bp to 1.97%. Oil climbed to a 2-month high, with Brent above $120 a barrel, in response to the EU’s Russian embargo plan & the easing of Chinese lockdown restrictions. ECB Board Member Philip Lane hit the wires, saying that it is appropriate to end negative rates by the end of 3Q. Adding that policy normalisation should be gradual, with 25bp hikes in July and September a ‘benchmark pace’. Spanish May inflation rose to 8.5% (expectation 8.3%).
Eurozone May Economic Confidence has beaten expectations of 104.9 coming in at 105.0. Little reaction to the data with markets generally subdued and moving the into London Lunch, currency movements were subdued. German CPI for May printed at 0.9% MoM and 7.9% YoY, higher than expectations of 0.5% and 7.6% respectively. No reaction from the Euro which drifted back towards 1.0750 over the holiday impacted NY morning. Elsewhere and USD/JPY made new highs of 127.825 while USD/CAD fell to lows under 1.2660.
The Fed’s Governor Christopher Waller hit the wires indicating his support for 50bp rate hikes at “several meetings” with the need to front load rate hikes as inflation would not return to target “anytime soon”.
The USD was softer across the board which saw the EUR/USD peak at 1.0787 while the AUD/USD closed near its high of .7200. AUDUSD spent the session climbing from 0.7154 to 0.7192. During the European session AUD/USD traded sideways near daily highs. NZD/USD edged lower towards 0.6540. EUR/USD made new highs of 1.0781 GBP/USD edged back towards daily highs of 1.2657. USD/JPY hugged 127.30. USD/CAD reached 1.2680 lows.
Despite the seemingly hawkish US Governor comments, the greenback was sold around the London rate set with the local unit rising to highs of 0.7197 while EUR/USD hit 1.0783. USD/CAD also moving modestly lower. The greenback remained offered over a quiet NY afternoon, allowing AUD/USD to move up to 0.7200 while NZD/USD hit 0.6560 and EUR/USD made highs of 1.0787 and GBP/USD reached 1.2660. USD/CAD made lows of 1.2651 with USD/JPY remaining on the sidelines.
A range of housing-related indicators will also be released today, including building approvals and RBA credit data. These data points are expected to be increasingly scrutinised as investors gauge the impact of the recent and expected rate hikes.
China’s PMI data is out today and will likely show a mild rebound from April’s lockdown-affected lows. While the worst should be behind us, the Chinese economy is not out of the woods yet. The key focus will be on signs of life in manufacturing demand, which could be slow to recover due to poor sentiment and the property downcycle. The services index may also remain weak in May given that Shanghai’s gradual reopening only started towards the end of the month.
The AUD/USD traded in a .7149/.7200 range during what was a relatively quiet session. Offering interest remains steady to .7250 while demand should materialise if we dip toward .71c.
Overnight Currency Ranges