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Fed rate decision – 04/05 – this week’s Federal Reserve rate decision should be of no surprise to most people with a 50bps rate rise expected, which should take the upper bound of the Fed Funds rate to 1%. This is the least of market expectations when it comes to what the Fed may well announce this week. The biggest question will be around the pace of its balance sheet reduction program along with the pace of subsequent rate hikes. Powell’s comments at the IMF that the Fed could well go much harder, and a lot quicker on rate hikes has prompted concern that the Fed may well overplay its hand on rate hikes at a time when the global economy looks set for a sustained slowdown as China continues to lose its battle with Covid. While markets will be looking for clues as to how many more 50bps rate rises could well be coming, we’ll also another eye on the topic of balance sheet reduction, with the potential to also start this week, with a general agreement that we could see $95bn a month, $60bn of that being in treasuries, and $35bn in mortgage-backed securities. From the previous minutes… Read More »The week ahead: Bank of England, Federal Reserve to raise rates, RBA, BP, Shell and Next results

Fed rate decision – 04/05 – this week’s Federal Reserve rate decision should be of no surprise to most people with a 50bps rate rise expected, which should take the upper bound of the Fed Funds rate to 1%. This is the least of market expectations when it comes to what the Fed may well announce this week. The biggest question will be around the pace of its balance sheet reduction program along with the pace of subsequent rate hikes. Powell’s comments at the IMF that the Fed could well go much harder, and a lot quicker on rate hikes has prompted concern that the Fed may well overplay its hand on rate hikes at a time when the global economy looks set for a sustained slowdown as China continues to lose its battle with Covid. While markets will be looking for clues as to how many more 50bps rate rises could well be coming, we’ll also another eye on the topic of balance sheet reduction, with the potential to also start this week, with a general agreement that we could see $95bn a month, $60bn of that being in treasuries, and $35bn in mortgage-backed securities. From the previous minutes… Read More »The week ahead: Bank of England, Federal Reserve to raise rates, RBA, BP, Shell and Next results

Summary United States: GDP Head Fake Obscures Otherwise Intact Fundamentals In a jampacked week of economic data, Thursday's negative GDP growth print took center stage. The U.S. economy contracted at a 1.4% annualized rate in Q1-2022. The weak headline figure raises concern at first glance, but the details of the report suggest underlying demand remained intact. Next week: ISM Surveys (Mon & Wed), Trade Balance (Wed), Nonfarm Payrolls (Fri) International: Bank of Japan Doubles Down on Easy Monetary Policy The Bank of Japan held its monetary policy stance steady at this week's announcement but, in a significant development, reinforced its pledge to cap any rise in Japanese bond yields. The central bank said it was prepared to buy government bonds in unlimited quantities to prevent a rise in yields. In other central bank activity, Sweden's central bank raised its policy rate by 25 bps and signaled multiple further rate hikes in the quarters ahead. Next week: China PMIs (Sat.), Brazil Selic Rate (Wed.), Bank of England Policy Rate (Thu.) Interest Rate Watch: How Much Will the Fed Tighten Next Week? Despite the 1.4% annualized rate of contraction in Q1 real GDP, we look for the Federal Open Market Committee to… Read More »Weekly economic and financial commentary

The FOMC meet next week and markets are expecting a 50 bps rate hike from the Fed as well as QT being announced. The Fed is also widely expected to announce another 50 bps rate hike to come. So, this means the bar is set very high for the fed to surprise markets and send the USD even higher. With so much bullish expectations priced in a ‘buy the rumour sell the fact response’ may be the path of least resistance for the USD next week. One interesting pair to look at for next month is the NZDUSD. Over the last 22 years, the pair has risen 14 times. If the Fed fails to give reasons for more USD strength then the NZDUSD could gain as the RBNZ is still on its hawkish rate path cycle. Over the last 22 years, between May 17 and June 10, the NZDUSD has risen 14 times. It has had an average return of over 1.5%. The maximum gain was nearly 10% in 2020 and the largest loss was in 2008’s global financial crisis with more than a 2.5% loss. Will the NZDUSD pair rise again this year? Major Trade Risks: If earnings releases… Read More »Will the FOMC reach peak bullishness next week? [Video]

The Russian-Ukrainian war entered its third month, without any signs that the conflict will be resolved any time soon. After failing to capture Kyiv, Russian forces are focussing their attacks on the Donbass region in the Southeast and with the 9 May Victory Day approaching, we think Russia is likely to step up their offensive against Ukraine (read more in Research Russia-Ukraine – Several signals point to an escalation in the war in Ukraine as Victory Day looms, 26 April). Global growth concerns have again hit the market mood. Assets that tend to trade closely in tandem with the cyclical outlook have performed poorly and market volatility has increased. News that Russia halted gas deliveries to Poland and Bulgaria after they failed to make payments in Ruble did nothing to turn around sour risk sentiment and sent oil and gas prices higher. Market concerns have been amplified by another COVID-19 outbreak in Beijing, which could trigger a shut-down of the city similar to Shanghai, putting further pressure on global supply chains. Amid broad USD strength, CNY has seen the sharpest weekly decline since 2015, EUR/USD fell to the lowest level since 2017 and USD/JPY moved higher after Bank of Japan… Read More »Weekly Focus: Chinese growth worries and Russian gas cuts rail markets

Gold prices declined amid a worsening demand outlook this week. Fed's rate outlook and balance sheet reduction plan to impact dollar valuation. XAU/USD faces the next significant resistance at $1,930. Gold started the new week under heavy bearish pressure and lost nearly 2% on Monday. Following a meagre recovery attempt on Tuesday, XAU/USD failed to hold above $1,900 and touched its weakest level in more than two months at $1,872 on Tuesday but erased a large portion of its losses to close the week above $1,900. What happened last week? As Shanghai’s coronavirus lockdown dragged into the fourth week, China ordered mass coronavirus testing in Beijing on Monday, escalating fears over a lockdown in the capital city of the world’s second-biggest economy. In turn, XAU/USD dropped below $1,900 for the first time in nearly a month. “After a strong start to Q1 in China, demand came to a virtual halt in March,” the World Council noted in a recently published research. “Tough new lockdowns imposed to contain a resurgence of COVID-19 had a marked impact on demand for jewellery, bars and coins,” the publication further read, suggesting that the gold price is likely to struggle to gain traction as long… Read More »Gold Weekly Forecast: XAU/USD’s gains to remain limited on demand-side dynamics

Oh, to be back in Japan now. Next week is Golden Week in Japan. That means there are three consecutive holidays: Tuesday: Constitutional Memorial Day. Wednesday: Greenery Day (like St. Patrick’s Day, when everyone wears green? More like Arbor Day.). Thursday: Children’s Day (traditionally 3/3 was Girl’s Day and 5/5 was Boy’s Day, now they’re one public holiday). That means most Japanese will simply take the whole week off, which is what the Japanese government intends. Japan has the most public holidays of any country (19) because the culture frowns on workers taking personal days off and so the government compensates. (Ask Glen Wood about this.) In olden days only New Year’s Day was a holiday – one day a year. Alas the rest of us will still be beavering away. It’s a pretty intense week, with Three major central bank meetings: The Reserve Bank of Australia (RBA) on Monday, the US Federal Open Market Committee (FOMC) on Wednesday, and the Bank of England on Thursday. UK local elections on Thursday. The ever-popular US nonfarm payrolls on Friday, heralded by the ADP report on Wednesday. The final manufacturing PMIs on Monday and service-sector PMIs on Wednesday (with some adjustment for… Read More »Golden week in Japan, grind week elsewhere

GBP/USD battered to 21-month lows just above 1.2400. The US dollar index surged to its highest level in 20 years. Cable could see a technical rebound ahead of the Fed and BOE decisions. There was no reprieve for GBP bulls, as the previous week’s selling spiral gathered steam and smashed GBP/USD to its lowest level since July 2020 at 1.2410. King dollar reigned supreme amid heightening volatility within the G10 fx space throughout the week. The monetary policy divergence between the Fed and BOE will remain the main underlying theme ahead of policy announcements and US Nonfarm Payrolls. GBP/USD: A brutal week GBP/USD set off the week on the wrong footing, extending Friday’s 200 pip meltdown below the 1.3000 level. Over the week, the currency pair lost roughly 2.5% and hit 21-month lows, as the US dollar was on a rampage amid varied factors and a relatively better market mood. The US dollar index reached its highest in 20-years just shy of the 104.00 level. In the absence of any first-tier economic releases from the UK, the major remained at the mercy of dollar price action. The greenback remained the most sought-after currency, as aggressive Fed rate hike expectations shot… Read More »GBP/USD Weekly Forecast: In search of a bottom, with eyes on Fed and BOE

The Eurozone will update its CPI inflation and GDP growth readings on Friday at 09:00 GMT. While investors expect a firmer economic expansion and another upturn in inflation, the data could produce only temporary volatility as the war in Ukraine will remain the major, if not, the only driver for the battered euro in the short term. Euro may shrug off new record inflation The euro has been hammered badly this week, depreciating by more than 2.0% against the US dollar in the face of hawkish Fed rate hike talk and Russia’s gas supply cuts to NATO members Poland and Bulgaria. That is the largest damage since March 2020, but the week is not over yet and the common currency may have one more opportunity to rebound before the focus solely turns to the 2017 trough of 1.0339 as Friday’s preliminary CPI inflation and GDP growth data appear on the radar. Looking first at CPI readings, there is growing speculation that global inflation is nearing a peak, as year-on-year comparisons with 2021 high levels could produce softer CPI figures. The ECB’s vice president Luis de Guindos reaffirmed his hopes for a peak in inflation today, though the forecasts for the Eurozone… Read More »Could flash GDP growth & CPI inflation come to the euro’s rescue?

There are understandable concerns about the high and persistent inflation rates around the globe. Much of this is to do with the spike in energy costs, but also in other commodities. Partly this is due to supply issues and increased demand as the economy bounced back from the pandemic, but there’s also the war in Ukraine to consider as well. High energy prices are proving to be quite persistent, and central bankers have been very slow and reluctant to raise interest rates in response. Their fear has been that the global economy is far from robust. But high and persistent inflation is forcing central banks, led by the US Federal Reserve, to tighten monetary policy aggressively just as global economic growth is faltering. This is causing great concern and adding to fears that the US and other countries could be heading for a recession.  Recession Stock markets don’t like recessions. Rising prices lead to a decline in consumer demand as workers struggle to pay their bills and cut back on their spending. This is exacerbated as companies are forced to make redundancies and the newly unemployed must rely on savings and government benefits. But recessions can be short and sharp,… Read More »The yield curve and recessions