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Markets US equities fell sharply Wednesday, S&P down 4%, the most significant daily decline since June 2020. The weakness came as Target's quarterly earnings added fuel to the recession risk narrative, while the drop of US10 year yields down 10bps to 2.88% offered little support. And Oil settled at 2.3% lower on the day. Equities continue to be at the mercy of broader macro themes, with more hawkish comments from Fed Chair Jay Powell leading to a further move higher in front-end rates, which continues to prove problematic for risk. Medium-term, the Fed is likely to respond to any easing in financial conditions by ratcheting up the hawkish noises and, in effect, acting as a lid on the markets. And this should keep active money on the sidelines. The relief rally trap door sprung when the S& P 500 4000 pins snapped after Target's earnings results exacerbated some recession fears that continued the theme of rising inventories detailed by Walmart on Tuesday. And the broad-based sell-off absolutely hammered tech. Indeed, contagion from bellwether consumer earnings prints is sending stagflationary shockwaves through the market, and equities suffered another massive bout of indigestion after yesterday's Alka Seltzer moment. While rising inventories and higher… Read More »Stocks sink in a vicious sea of red, gold in no man’s land

Australian wage growth stood at 2.4% YoY in the first quarter of the year. The unemployment rate is expected to have decreased to 3.9% in April from 4%. AUD/USD is trading between Fibonacci levels and is poised to resume its slump. Australia is set to report its April employment figures on Thursday, May 19. The country is expected to have added 30K positions in the month, while the unemployment rate is foreseen down to 3.9% from the current 4%. But could these numbers be enough to boost the aussie? The Reserve Bank of Australia has hiked the cash rate by 25 bps earlier this month, the first movement in over a decade. The decision was previously conditional on inflation but also on wage growth. The Minutes of the meeting released earlier in the week showed the Board noted that information on “wages over the preceding month had been consistent with more persistent inflationary pressures arising from limited spare capacity in the domestic economy.”   Disappointing wage growth Policymakers linked rate hikes to actual inflation remaining sustainably within the 2 to 3 per cent target range, and this was likely to require a faster rate of wages growth than had been experienced… Read More »Australian Employment Preview: Could strong figures aid the aussie?

Europe Having seen some strong gains yesterday, we’ve slipped back on the back of a loss of momentum after Fed chair Jay Powell’s comments last night that the Federal Reserve is determined to regain the initiative when it comes to reining in inflation. A record high for UK inflation hasn’t helped the mood with retailers suffering the worst effects of a 9% CPI print, with Ocado, JD Sports, Tesco and B&M European Retail all slipping back. The energy sector is helping to underpin the London market, with BP and Shell outperforming. Rolls-Royce shares have come back into favour suddenly, having slipped to 18-month lows earlier this month, the shares have risen back to their highest levels this month.   Commercial real estate British Land has seen its shares rise after reporting a significant improvement in its portfolio valuation and performance, as the return to the office gathers pace, and consumers get out and shop more. Occupancy rates rose to 96.5% from 94.1% Underlying profits rose to £251m. Fresh from returning £3.5bn to shareholders earlier this week, Aviva shares have edged higher after reporting a decent Q1 update. UK and Ireland sales rose 2%, to £8.4bn, with general insurance sales rising… Read More »Stocks roll over again as inflation starts to show signs of biting

Uncertainty about peak inflation in the US continues to support the dollar.  Beijing's zero covid policies add to the greenback's safe-haven appeal. Russia's ongoing war in Ukraine gives sterling an advantage over the euro. That advantage is undermined by relative certainty about the BOE's policies, differing from the ECB's.  EUR/USD and GBP/USD are set to extend their declines – and for good reasons. Where is the bottom? The low point for these currency pairs heavily depends on the Federal Reserve and the main question is: when will the dollar reach a top? *Note: This content first appeared as an answer to a Premium user. Sign up and get unfettered access to our analysts and exclusive content. US inflation has yet to peak The top is peak inflation, or better said: core inflation. Once prices of everything excluding volatile food and energy begin stabilizing, the high point in the Fed's tightening cycle would be seen. Currently, the greenback benefits from high uncertainty, which is compounded by other issues (see later).  The Core Consumer Price Index (Core CPI) read came out at 0.6% MoM in April, which is over 7% in annualized terms. The Fed's target is 2%. On a yearly basis, prices… Read More »Where is the bottom for EUR/USD and GBP/USD? Four factors traders need to consider

European stocks got off to a mixed start to the week yesterday, after a big decline in Chinese retail sales pointed to an economy that came to a crashing halt in April, as a result of widespread covid lockdowns and restrictions.   US markets also underwent a similarly mixed session, with another significant decline in the Nasdaq 100, while the Dow finished slightly higher. Investor concerns about a possible recession are contributing to a short-term bid in US treasuries, pulling yields down in the process, as well as a reluctance to build on the rebound seen at the end of last week. Against that backdrop today’s European open still looks to be a positive one, after Asia markets pushed higher on optimism over the easing of some covid restrictions in Hong Kong and Shanghai, as we look ahead to a day of significant economic data from the UK and US. It’s a big week for the UK economy starting with wages data today, CPI inflation for April tomorrow which is expected to hit a record high of 9.1%, and April retail sales on Friday that are likely to slow sharply, as a result of surging inflation. Earlier this month the… Read More »UK wages and US Retail Sales in focus

While US markets underwent their 6th successive weekly decline, markets in Europe managed to claw their way back into positive territory, helped in some part perhaps by the strength of the US dollar which pushed both the euro and the pound to their lowest levels since 2017 and 2020, respectively. US markets also appear more vulnerable given that of all three central banks, the Federal Reserve appears the more determined of all the others in driving inflation lower, with a strong US dollar helping it to achieve that very goal. It is true that pressure is increasing on the European Central Bank to raise rates by the summer, but anyone who thinks they will be able to raise them much above zero is probably deluding themselves. Even the Bank of England is facing a tricky balancing act when it comes to whether to impose further rate rises on a UK economy that appears to have ground to a halt. At the weekend, the UK central bank came under a fire of criticism from Conservative politicians on the Treasury Select Committee criticising it for being too slow to react to the sharp rise in inflationary pressures. It is certainly true that the… Read More »Europe set for weaker start after China data disappoints

Key highlights EUR/USD started a fresh decline from the 1.0640 resistance zone. A key bearish trend line is forming with resistance near 1.0470 the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair traded below the 1.0500 support, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). The bears even pushed the pair below the 1.0400 level. A low is formed near 1.0349 and the pair is now consolidating losses. On the upside, an initial resistance is forming near the 1.0420 level. The next major resistance is near the 1.0470 level and a key bearish trend line on the same chart. A clear move above the 1.0450 and 1.0470 levels might push the pair towards the key 1.0500 resistance zone. If there is no upside break, the pair could extend decline below the 1.0350 level. The next major support is near the 1.0300 level. Any more losses may perhaps push EUR/USD towards the 1.0250 level.

Global stocks ended the week with a strong rally, the S&P 500 closed up more than 2%, while the Tech heavy Nasdaq Composite index was up nearly 4%. However, this was not enough to reverse the steep sell off from earlier in the week, and the S&P 500 still logged its sixth straight weekly decline, the first time it has done so since 2011. After a few false moves, stocks were finally able to break out of their cycle of declines, possibly on the back of some good news about the potential end to China’s strict Covid lockdowns and general oversold conditions attracting bargain hunters. There are also some early bullish signs that could help markets to recover as we move to the second half of May. Peak inflation hopes along with resilient corporate profit margins and 85% of companies beating their EPS expectations for Q1, expectations of more China policy support and a push back by a number of Fed officials on the prospect of a 75bp rate hike have all helped to lift the market mood. However, there are still risks to be aware of, including stagflation fears, a global shift to more hawkish monetary policy, and forced… Read More »Week Ahead: Fundamentals are still key

Crypto markets in turmoil as many collapse, Bitcoin regains $30,000. Equity and bond markets continue to suffer but end the week strongly. Elon Musk puts his Twitter deal on hold. The Fed stepped up its narrative this week and further confirmed what many had feared. The Fed wants markets lower, in everything. This was more or less confirmed by several Fed speakers this week on the topic of tightening financial conditions. Fed speakers said conditions needed to tighten and we and they know that means lower asset prices. The Fed is finally awake to the massive asset price bubble they have engineered and they are beginning to panic. Fed Chair Powell said this week that controlling inflation would be painful. He meant pain for the economy and asset prices. The mid-week CPI number further demonstrated just how far behind the curve the Fed has found itself. It is now looking more and more unlikely to ever catch up. Instead, a recession will do the job for it. Again we have been calling for this for some time. Why others have not does seem baffling. A quick look at history demonstrates the fallacy of a soft landing. Recessions always end inflation,… Read More »Week Ahead on Wall Street: Crypto crisis, Musk on hold for Twitter, equities dump but Friday pump gives hope

Crypto markets in turmoil as many collapse, Bitcoin regains $30,000. Equity and bond markets continue to suffer but end the week strongly. Elon Musk puts his Twitter deal on hold. The Fed stepped up its narrative this week and further confirmed what many had feared. The Fed wants markets lower, in everything. This was more or less confirmed by several Fed speakers this week on the topic of tightening financial conditions. Fed speakers said conditions needed to tighten and we and they know that means lower asset prices. The Fed is finally awake to the massive asset price bubble they have engineered and they are beginning to panic. Fed Chair Powell said this week that controlling inflation would be painful. He meant pain for the economy and asset prices. The mid-week CPI number further demonstrated just how far behind the curve the Fed has found itself. It is now looking more and more unlikely to ever catch up. Instead, a recession will do the job for it. Again we have been calling for this for some time. Why others have not does seem baffling. A quick look at history demonstrates the fallacy of a soft landing. Recessions always end inflation,… Read More »Week Ahead on Wall Street: Crypto crisis, Musk on hold for Twitter, equities dump but Friday pump gives hope