2nd May 2022 - Markets sell off as AUD reaches multi-month low.


Market Headlines

The S&P 500 limped into the close on Friday and ended a fourth consecutive week in the red after Amazon's (AMZN) disappointing outlook weighed on sentiment. The benchmark index was down 3.3% in the latest week at 4,131.93 from last week's close of 4,271.78 with all eleven sectors in the red. For the month of April, the S&P 500 suffered its heaviest losses since March 2020, down more than 9% over the last four weeks. Amazon fell to a 22-month low after saying Thursday it swung to a Q1 loss and issued a Q2 sales forecast that missed expectations, killing a rally into the end of the month that was led by bargain hunters.


The sell-off caused tech stocks to lose ground for a second week, down another 1.2% from last Friday's close. Stocks were defensive at the start of the week ahead of the flood of corporate results with earnings expected to disappoint following supply chain warnings from General Electric (GE) and downbeat results from Raytheon (RTX). The material sector escaped most of Friday's selling frenzy with a loss of just 0.8% largely on a 12% rally in Sherwin-Williams (SHW) and an 8% jump in shares of Avery Dennison (AVY) both of which reported better-than-expected quarterly results this week. The energy sector was down 1.3% as the solid gains in shares of Valero (VLO) resulting from upbeat earnings insulated the sector from heavy losses from Halliburton (HAL) and Schulumber (SLB). The remaining sectors struggled into the close with consumer discretionary at the bottom of the pack with a 7.9% loss. Amazon and Tesla (TSLA) were the worst-performing stocks in the sector with Amazon losing 14% in value for the week, and shares of Tesla undermined by CEO Elon Musk's $8.5 billion sale of his personal stock to help finance his $44 billion Twitter (TWTR) acquisition.


Real estate stocks lost 5.6% on continued headwinds from rising mortgage rates. Equity Residential (EQR) and AvalonBay (AVB) were down 11% and 9%, respectively. The financial sector was down 4.6% from the prior week's close as heavy losses in AON (AON) and Cincinnati Financial (CINF) overshadowed more modest gains in insurance stocks like Chubb (CB) and Comerica (CMA).


Consumer staples were down 2.1% followed by a 2.5% loss in health care stocks. Led by a 15% drop in shares of General Electric, the industrials sector closed 2.8% in the red, while Comcast's (CMCSA) 12% drop this week resulted in a 4.1% decline in the communications sector despite a rally in shares of Meta (FB). Economic data also contributed to the sour mood on Wall Street this week.

The economy contracted 1.4% in the first quarter, the US Bureau of Economic Analysis said in a report, but the bad news was tempered by strong consumer spending. While personal income and spending improved in March, inflationary pressures on consumers remained high, fuelling expectations that the Federal Reserve will need to raise interest rates by at least 50 basis points next week.


The Federal Open Market Committee meeting on Wednesday, at which time the Fed is expected to deliver its second rate hike since 2018, and the April payroll data highlight economic data next week. The economy is expected to have created 385,000 jobs which will drive down the unemployment rate to 3.5%.


Currencies

AUD/USD plummets from daily highs near 0.7200 and tanked below 0.7100 as market sentiment turned sour, ahead of a busy week for the Australian and US economic dockets, as both countries’ central banks would have monetary policy meetings. At the time of writing, the AUD/USD is trading at 0.7069. All eyes will be on policy decisions this week and the guidance provided by interest rate decision makers.


The USD/JPY pair came under some selling pressure on the last day of the week and eroded a part of the overnight strong gains to a fresh two-decade high. The pair remained on the defensive through the first half of the European session, albeit managed to rebound a few pips from the daily low and was last seen trading just below mid-130.00s. The US dollar witnessed aggressive long-unwinding trade and snapped a six-day winning streak to the five-year high. This, in turn, was seen as a key factor that exerted downward pressure on the USD/JPY pair. That said, a big divergence in the monetary policy stance adopted by the Bank of Japan and the Fed helped limit the downside.


EUR/USD started the last trading day of April on firm footing and has advanced beyond 1.0550 after having closed the previous six trading days in negative territory. The pair faces the next hurdle at 1.0600 and it could target 1.0660 next if that level turns into support.


The heavy selling pressure surrounding the dollar and the latest data releases from the euro area help EUR/USD push higher early Friday. Germany's Destatis announced that the German economy grew by 3.7% (YoY) in the first quarter, compared to analysts' estimate of 3.6%. More importantly, the annual Harmonised Index of Consumer Prices (HICP) in the euro area rose to 7.5% in April from 7.4% in March and the Core HICP jumped to 3.5% in the same period, surpassing the market expectation of 3.2%.


GBP/USD fell below 1.2550 as investors assess latest US data. GBP/USD came under modest bearish pressure and fell below 1.2550 in the early American session, erasing a portion of its daily gains. The annual PCE inflation in the US jumped to 6.6% in March from 6.3% in February but the Core PCE declined to 5.2% from 5.3% in the same period.


Market Outlook

The Federal Reserve and Bank of England this week are expected to take fresh steps to curb inflation that is running at multidecade highs, while U.S. employment data is forecast to show another strong month for the labor market.

Monday

The Institute for Supply Management’s survey of purchasing managers at U.S. factories is forecast to show another month of expanding activity in April as manufacturers strove to meet high demand for their products while dealing with rising materials costs and wages as well as transportation bottlenecks that have hampered access to supplies.

Tuesday

RBA interest rate decision. Tomorrow will be a massive day for the RBA as we await their commentary and decision on interest rates.

Wednesday

After a slight narrowing in February, the U.S. trade deficit in goods and services likely widened to a record in March as American businesses and consumers slaked their demand for capital goods, cars, computers, food and other products by purchasing them from overseas.

Federal Reserve officials are poised to raise the benchmark interest rate by half a percentage point and approve plans to start shrinking the central bank's $9 trillion asset portfolio. The moves are part of a double-barrelled effort to slow the economy and ease inflation, running at a four-decade high.

Thursday

The Bank of England is expected to announce its fourth rate increase in as many meetings of its policy-making body as inflation rises to levels last seen three decades ago. But with surveys pointing to a slowdown in consumer spending as recent tax increases squeeze household incomes, policy makers might signal that they don't intend to go much further.

Friday

U.S. employers added an average of 562,000 jobs a month in the first three months of the year, a historically solid pace that has brought employment nearer its prepandemic level, pushed the unemployment rate toward a 50-year low and driven wages higher. The Labor Department’s employment report for April is expected to show another strong month for job gains. Economists will be watching for signs that more people are joining the workforce, potentially easing wage pressures.

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Disclaimer

This material is provided by Navigate Global Payments (Navigate) ACN 615 699 888, AFSL 502711.  The material contains general commentary only and does not constitute investment or any other advice.  Certain types of transactions, like futures, options and high yield securities can be risky, and not suitable for all investors.  This information has been prepared without considering your objectives, financial situation or needs.  Please seek your own independent legal or financial advice before proceeding with any investment decision.  The information is believed to be accurate at the time of compilation and is provided in good faith.  Navigate does not warrant the accuracy or completeness of any information contributed by a third party. The information is subject to change without notice and Navigate is under no obligation to update the information. The information contained in this material are opinions of the author at the time of writing and does not constitute an offer, recommendation to act, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter a legally binding contract.  This information, including any assumptions and conclusions is not intended to be a comprehensive statement of relevant practise or law that is often complex and can change.  Past performance is not a reliable indicator of future performance. Any forecasts given in this material are predictive in character.Navigate Global Payments Pty Ltd nor its related parties or officers accepts no liability whatsoever for any loss or damages suffered through any act or omission taken as a result of reading or interpreting any of the information contained or related to this site.