Olivia

The US central bank is set to hike its policy rate by 50 basis points in May. The Fed is also expected to start shrinking its balance sheet by $95 billion per month from June. A 'buy the rumor sell the fact' market reaction could weigh on the dollar. The US Dollar Index (DXY), which tracks the dollar’s performance against a basket of six major currencies, rose nearly 5% in April fueled by the Fed’s apparent willingness to tighten its policy in an aggressive way. The FOMC is widely expected to hike its policy rate by 50 basis points (bps) following the May policy meeting and unveil its plan to start shrinking the balance sheet by $95 billion per month from June. Markets have been buying the rumor and the question on traders’ minds will be whether it will be the right time to sell the fact when the Fed announces its policy decisions on Thursday, May 4? Hawkish scenario According to the CME Group FedWatch Tool, markets are pricing a 94.5% probability of a total of 125 bps in the next two meetings. Additionally, the benchmark 10-year US Treasury bond yield is already up more than 50% since early… Read More »Fed May Preview: ‘Less hawkish’ is the new dovish

China is the world's second-largest consumer and the world’s top importer of crude oil. In the face of adversity, is its economy likely to slow down? Crude oil prices ended slightly higher yesterday after a volatile session, caught between weakening demand in China and the prospect, closer than ever, of a European embargo on Russian oil imports. In the economic capital of Shanghai, where more than 25 million inhabitants have been locked up for a month, anyone who tests positive for coronavirus is sent to a quarantine center, even if they are asymptomatic. Apparently, China is sticking to this “zero-covid” policy that, ironically, has even become a new standard of freedom as similar restrictive models that run counter to individual freedoms were followed by some countries, including Australia, Canada, and New Zealand not so long ago. On the other hand, several countries, including Hungary, Denmark, France, the United States, and Britain, have recently announced they are moving their embassies back to Kyiv as the security situation in the Ukrainian capital improves. As Hungary will not support sanctions on Russian oil and gas shipments, Slovakia says it will seek exemption from any EU embargo on Russian oil. Therefore, the EU executive… Read More »China faces trouble as the EU nears embargo on russian oil

The Federal Reserve is very likely to raise rates today to 0.50%. There is a case to be made for the idea of raising rates immediately to 0.75%. Let’s get this ball rolling. The Federal Reserve is so incredibly behind the curve it is embarrassing to the entire nation. The days of easy money are over. Get over it everyone. Most market participants will be trying to cross the valley without a bridge believing that as the market is expecting a hike it is already priced in. So take advantage and buy into this. It is a psychological subset of always looking across the valley and buying the dip which has pervaded equity markets for the past two years with a high degree of intensity. Human beings decision make/function on the pillars of recency, frequency and intensity. So we have a perfect set up as the fundamental underpinnings fade away under the hoofs of all the bulls, read the entire herd, and they stand their ground only to find themselves in the midst of a nothing but a sea of potential sellers. As an economists of some years, can I tell you it has never looked as ugly as this.… Read More »Forget the RBA, the Fed is about to burn it all

The Federal Reserve is very likely to raise rates today to 0.50%. There is a case to be made for the idea of raising rates immediately to 0.75%. Let’s get this ball rolling. The Federal Reserve is so incredibly behind the curve it is embarrassing to the entire nation. The days of easy money are over. Get over it everyone. Most market participants will be trying to cross the valley without a bridge believing that as the market is expecting a hike it is already priced in. So take advantage and buy into this. It is a psychological subset of always looking across the valley and buying the dip which has pervaded equity markets for the past two years with a high degree of intensity. Human beings decision make/function on the pillars of recency, frequency and intensity. So we have a perfect set up as the fundamental underpinnings fade away under the hoofs of all the bulls, read the entire herd, and they stand their ground only to find themselves in the midst of a nothing but a sea of potential sellers. As an economists of some years, can I tell you it has never looked as ugly as this.… Read More »Forget the RBA, the Fed is about to burn it all

EUR/USD – 1.0520 Euro's decline to 1.0491 (New Yoyk) on Mon due to renewed usd's strength on gain in U.S. yields suggests correction from Thursday's 5-year bottom at 1.0472 has ended and re-test of this key sup is envisaged after consolidation, loss of downward momentum would limit weakness to 1.0435/40. Only above 1.0568 prolongs choppy swings above 1.0472 and may risk gain towards 1.0592 but reckon 1.0630/35 should cap upside. Data to be released on Tuesday New Zealand building permits, GDT price index, Australia RBA interest rate decision Japan Market Holiday, China Market Holiday. France budget balance, Germany unemployment rate, unemployment change, U.K. Markit manufacturing PMI, EU producer prices, unemployment rate. U.S. redbook, durable goods, durables ex-defense, factory orders, durables ex-transport, JOLTS job openings.

EUR/USD – 1.0520 Euro's decline to 1.0491 (New Yoyk) on Mon due to renewed usd's strength on gain in U.S. yields suggests correction from Thursday's 5-year bottom at 1.0472 has ended and re-test of this key sup is envisaged after consolidation, loss of downward momentum would limit weakness to 1.0435/40. Only above 1.0568 prolongs choppy swings above 1.0472 and may risk gain towards 1.0592 but reckon 1.0630/35 should cap upside. Data to be released on Tuesday New Zealand building permits, GDT price index, Australia RBA interest rate decision Japan Market Holiday, China Market Holiday. France budget balance, Germany unemployment rate, unemployment change, U.K. Markit manufacturing PMI, EU producer prices, unemployment rate. U.S. redbook, durable goods, durables ex-defense, factory orders, durables ex-transport, JOLTS job openings.

As UK markets get ready to go back to work on Tuesday after the May Day Bank Holiday, the FOMC meeting that concludes this Wednesday is the key focus for market watchers this week. The meeting concludes at 1900 BST, with the all-important press conference from Fed chair Powell at 1930 BST. The market is overwhelmingly priced for a 50bp rate hike from the Fed at this week’s meeting, which would be the first double rate hike for 22 years. What is more astonishing is that there is a 90% chance of a second 50 bp rate hike in June, and an 86% chance of a 50 bp hike to 200-225bps in July. By year end the market is expecting US interest rates to be in the 3% range, which is a huge move considering rates were essentially at 0% at the start of this year.  The Fed’s terminal rate  The hawkish shift in Fed policy is causing shock waves around the world as the terminal rate, which would mark the end of the current Fed hiking cycle, continues to move higher. A rough guide of where the market thinks the Fed’s terminal rate will be is the 5-year Treasury… Read More »FOMC meeting: 50 Bps is baked in, but what comes next?

AUD/USD Current Price: 0.7042 The contracting Chinese economy added to global headwinds and weighed on the aussie. The Reserve Bank of Australia is set to raise the cash rate for the first time in over a decade. AUD/USD trades near the critical 0.7000 threshold with a bearish bias. The Australian Dollar was among the weakest greenback’s rivals on Monday, with AUD/USD trading in the 0.7030 price zone at the end of the American session. The American currency appreciated on the back of risk aversion, triggered by poor Chinese data released over the weekend, later fueled by persistent tensions in Europe. According to official figures, the Chinese economy suffered a major setback in April, mostly due to the latest coronavirus outbreak in the country. The NBS Manufacturing PMI contracted to 475, while the Non-Manufacturing PMI plunged to 41.9. Australian data released at the beginning of the week was generally encouraging but fell short of boosting the local currency. The S&P Global Manufacturing PMI beat expectations by reaching 58.8 in April, while the official AIG index improved from 55.7 to 58.5 in the same month. Gold prices plummeted despite a generalized dismal mood, adding pressure on the AUD. The bright metal traded… Read More »AUD/USD Forecast: Tumbling ahead of RBA’s announcement

The Reserve Bank of Australia is seen raising OCR by 15 bps to 0.25%. Hotter Australian inflation paves the way for earlier RBA rate lift-off. AUD/USD could see more pain if the RBA decides to stand pat ahead of the election. The Reserve Bank of Australia (RBA) is on course to deliver its first rate hike in 11 years, as it seeks to keep inflation in check, ignoring the upcoming federal election on May 21. The policy decision will be announced this Tuesday, May 3, at 0430 GMT.  Will the expected rate hike by the Australian central bank be able to save AUD bulls? RBA can’t miss the inflation surge The Australian central bank is widely expected to raise the Official Cash Rate (OCR) by 15 basis points (bps) to 0.25% from a record low of 0.10% at its May meeting. So far, the RBA has been behind the curve, as most major central banks have embarked upon its tightening journey to combat raging inflation. With Australia’s annualized Q1 2022 Consumer Price Index (CPI) at a 20-year high of 5.1%, however, it has set a clear path for the central bank to kick off its rate hike cycle earlier than… Read More »Reserve Bank of Australia Preview: Will a 15 bps rate hike be enough to lift the aussie?

Tech earnings disappointing with Apple the standout and Facebook a relief. Amazon was poor and Apple spoke worryingly on the conference call. US GDP shocked to the downside and yields and oil are back on the ascent. Equities are back at precarious levels as we approach the end of the week and the end of the month. Tech earnings season is now more or less done and dusted and the report card looks like its detention. Facebook (FB) rallied 15% but really those numbers were not great, it was just a relief rally that they were not as bad as last time. Amazon (AMZN) had a shocker which really we should have all seen coming as it became a pandemic stock. Now we all go back out, malls are packed and warehouses are quiet. Google (GOOGL) was also a bit of a disappointment. So we come to the good news if there is any on a day when the Nasdaq is staring at -4% at the time of writing. Microsoft (MSFT) and Apple (AAPL) beat the street and produced solid earnings. But even Apple managed to slap bulls in the face on the conference call when it spoke about significant headwinds… Read More »Week Ahead on Wall Street: Apple and Amazon can’t save us, is it time to abandon ship?