Market Update – May 5 – Hawkish (Dovish)?

Can we call the Fed’s most aggressive rate increase since 2000 as a dovish hike? The FOMC did the expected and boosted the funds rate by 50 bps, the biggest increase since 2000. It also announced the start of the balance sheet unwind for June 1. Unexpectedly, at least to bond and stock bears, he pushed back against a 75 bp hike and suggested only 50 bp moves were on the table for the next couple of meetings, with follow-up 25 bp tightenings over the remained of the year. That would put the funds rate in the 2.625% area at year end. The markets had priced in the potential for 75 bp increases and a December rate closer to 2.80%. Ferocious dip buying/short covering rallies ensued in Treasuries and stocks, while the USD lost ground.

• USDIndex drifted to 102.35. Currently trying to recover.
• Equities – Stocks as well as bond markets picked up overnight. GER40 and UK100 futures are still up 2.1% and 1.2% respectively, US futures slightly mixed (USA500 at 4,305, USA30 at 34,034) and across Asia stock markets also moved unevenly. Japan was on holiday, mainland China bourses finally open again and the CSI 300 is little changed after paring earlier gains.
• Yields plunge alongside a ferocious rally on Wall Street. – Given the Fed’s assumed rate path ending the year at 2.625%, bond yields corrected sharply lower. At the end of the session the December futures contract had dropped to a 2.65% rate. The 2-year yield richened over 15 basis points to 2.63%, and the 10-year dropped over 5 basis points to 2.92%.
• Oil flirting 109 high, on EU’s proposed Russian oil ban, but weak China data weighs.
• Gold breached again 1900.
• Bitcoin rallied at 40,030.
• FX markets – EURUSD retests 1.0500 again, USDJPY sideways at 130.00, Cable drifted below 1.2500 at 1.2460.  AUD holds at 0.7120.

European Open: Australia’s 10-year rate dropped back -15.3 bp overnight to 2.38%, and the German 10-year is down -0.1 bp at 0.966% in opening trade, with peripherals rallying and Eurozone spreads narrowing markedly. The latter may have also been impacted by the much weaker than anticipated German orders number at the start of the session, which highlighted the headwinds to the recovery from the Ukraine war, but at the same time added to the arguments against early and aggressive tightening from the ECB as headwinds to the recovery become ever more apparent. German manufacturing orders plunged -4.7% m/m in March. A much sharper than anticipated contraction and while February numbers were revised up to -0.8% m/m from -2.2% m/m that still highlights the marked impact the war in Ukraine and sanctions against Russia are having on the manufacturing sector.

Biggest FX Mover @ (06:30 GMT) GBPUSD (-0.73%) spiked to 1.2633 overnight before drifting below PP at 1.2533. MAs bearishly crossed and RSI is at 46, MACD lines declining but hold above 0. H1 ATR 0.0038, Daily ATR 0.0125.

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Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distribution.

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Brent Oil And S&P500 Move Upwards

Gold has pulled back from the supporting level of 1854.00 and the median line denoted by the points 1, 2, and 3 on the chart below. Gold is likely to jump and face the resistance at the level of 1965.00 away from which it might pull back and drop.The price of Brent oil was moving along the broken side of the triangle. However, it has pulled back from this broken side and is currently gaining momentum. The oil should potentially target the height of the triangle or the level of 138.00. The price of 138 dollars per barrel might turn into a very interesting resistance quite soon.The US stock index S&P 500 has pulled from the supporting zone formed between the levels 4100 and 4150 as well as the broken downtrend. The index might potentially target the resistance area formed between the levels 4540 and 4580, which can reverse the asset’s price and send it down.

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Cost-of-living crisis: a disaster years in the making

The cost-of-living crisis has little to do with Brexit, climate change, Covid-19 or war, says Tim Lee

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EU tightens the noose on Russia

Brussels has proposed a ban on all Russian oil imports. Could that work? Emily Hohler reports

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Xi Jinping’s zero-Covid dilemma

Xi Jinping’s zero-Covid strategy is toast, but strongmen don’t say so. Matthew Partridge reports.

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Why China's Covid lockdowns will be the next big shock for global growth

China’s attempts to eradicate Covid with repeated lockdowns will affect supply chains and depress the global economy.

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If the US dollar keeps rising from here, it’s going to hurt

The US dollar is on a bull run, sending every other asset into freefall. And it's at a particularly critical point right now, says Dominic Frisby. Here, he looks at where things stand, and what might come next.

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Market Update – May 4 – Tightening time

USD continues sideways ahead of the Fed, TechStocks bech stocks were hit by news that the US began a probe into Didi Global Inc’s 2021 debut in New York. VIX is under 29.00 as a 50 bp hike is fully priced in, with risk of a hawkish outcome.  Better than expected factory orders and JOLTS data had no real impact in the market. Yields jumped higher with 10-yr at 2.99%. Aussie and Kiwi got a lift from strong local data this morning – Australian  retail sales jumped 1.6% in March, outpacing forecasts for a third straight month.Jobs data in New Zealand were also upbeat with unemployment holding at record lows of 3.2% and wages hitting a 13-year high.

• Equities – USA30 and UAS100 finished 0.20% and 0.22% higher, respectively. UK100 edged higher, as energy shares lifted by upbeat results from oil major BP outweighed a strong sterling and weakness in mining shares. Hang Seng and ASX declined. Alibaba shares fell as much as 9% on worries over the status of its billionaire founder Jack Ma.
• Yields nudged higher – to 2.99% as the FOMC announcement today comes into view. Australia’s yields continued to rise following the RBA’s bolder than anticipated rate hike yesterday
• Oil at 104.20 per barrel, rose slightly after US industry data showed a drawdown in U.S. crude and fuel inventories.
• Gold down to 1864 area, as higher US Treasury yields and a looming interest rate hike announcement by the Federal Reserve dented demand for zero-yield bullion.
• FX markets – EURUSD retest 1.0500 again, USDJPY sideways at 130.00, Cable difted below 1.2500 at 1.2460.  AUD holds at 0.7120.

FOMC announcement due today. A 50 bp hike is fully priced in, with risk of a hawkish outcome. However, it is hard to see the Fed “out-hawking” market expectations in terms of the statement language. The Fed is universally expected to boost the rate by 50 bps, and though there is risk for a 75 bps, there have been no strong indications from Fed officials that will be forthcoming. And we expect Chair Powell to take a cautious approach in his press conference. We know the FOMC wants to frontload rate increases and Powell indicated the Fed will move “expeditiously.” But he will have to be nimble in terms of signaling further rate increases but without specificity in order to maintain flexibility. We expect the Fed will hike another 50 bps in July and then a quarter point boost in July, though it is possible for a 50 bp or 75 bp move, depending on both inflation and growth data and the extent of QT.

Biggest FX Mover @ (06:30 GMT) USOIL (+2.30%)Rebounds this mornig to 105.20 highs. MAs aligned higher and RIS is at 6, but MACD signal line & histogram hold at zero. H1 ATR 0.54, Daily ATR 4.52.

Click here to access our Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distribution.

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EURAUD, H4 I Potential Rise

Type: Bullish BounceKey Levels:Resistance: 1.49684Pivot: 1.47451Support: 1.4689Preferred Case:On the H4, with price expected to bounce off the RSI indicator, we have a bullish bias that price will rise to our 1st resistance at 1.49684 where the swing high resistance , 78.6% Fibonacci retracement and 61.8% Fibonacci projection is from our pivot at 1.47451 in line with the horizontal swing low support and 78.6 Fibonacci retracement.Alternative Scenario:Alternatively, price may break structure and head for 1st support at 1.4689 where the horizontal swing low support is.

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AUDUSD, H4 I Potential Drop

Type: Bearish ReversalKey Levels:Resistance: 0.71703Pivot: 0.71235Support: 0.7029Preferred Case:On the H4, with price moving below the Ichimoku cloud and the descending trendline, we have a bearish bias that price will drop from our pivot at 0.71235 where the horizontal swing high resistance, 61.8% Fibonacci retracement and 78.6% Fibonacci projection is to our 1st support at 0.7029 in line with the horizontal swing low support and 78.6% Fibonacci projection.Alternative Scenario:Alternatively, price may break structure and head for 1st resistance at 0.71703 where the horizontal swing high resistance is.

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Investment Bank Outlook 04-05-2022

CIBCFX FlowsKicking off Asia, New Zealand released Q1 labour reports, numbers were mostly in line with estimates, average hourly earnings rose 1.9% as supposed to estimate of +1.4%, slight down annual employment change as well as participation rate 70.9% from 71.1%. However, some revisions made to previous quarter, quarterly employment change was flat from +0.1% while yearly was +3.5% from 3.7%. NZ$ just few ticks lower.Our macro strategist Jeremy said following the RBA proving more activist than expected at the meeting we remain on watch for additional policy tightening. A compression in official spreads between the RBA and RBNZ, expect the spreads to dip inside 100 bps prior to year-end, underlines interest in relative value trades such as AU$NZ$. We look for a test towards the 2018 high at 1.1176.Aussie March retail sales bumped up 1.6% against expectations of +0.5%. However, the quarterly sales was unchanged and this prompted a FX reporter to comment that softer quarterly retail sales than expected carries a risk of seeing some downward revisions of Q1 Aussie GDP which will be released on June 1. AU$ firmed from where New York closed, trading has been light. We hear light buying beneath 0.7080 and offers atop 0.7120s.The Times shadow MPC is urging the BoE to double the pact of interest rate hikes to 50 bps this week to maintain credibility in the face of surging inflation. 6 our of 9 shadow members backed an aggressive lift in rates to 1.25% from current 0.75%. Market expectation is 25 bps hike. Diverging Fed-BoE rate outlooks remained a hindrance to Cable gains. BoE would need to take a page from the RBA and deliver a hawkish rate move otherwise, GBP$ could test the recent 2022 low.Quiet in EUR$, not much to pen about. Market is currently pricing in 22 bps for July and 93 bps for 2022. Note that there are total of €3.4bn worth of 1.0600 strikes rolling off Thursday and Friday.$CAD has been offered especially after what BoC Deputy Governor Rogers said last night. Money managers added pressure, selling in the 1.2830s.CitiEuropean OpenA quiet day in the Asian session, with several markets in the region closed for holidays. G10 volumes were seen to be much lower today, with JPY volumes seeing the greatest declines. Notably, fixed income was on the move in antipodean countries. Aussie bonds continued to be under pressure, following the RBA yesterday, while NZD bonds were weighed down by another strong labour report. AUD saw a slight increase, supported by a jump in March retail sales. Elsewhere, oil markets tilted higher in Asian trading after declines yesterday, while equities remained flat.All eyes will be on the FOMC decision today, where Citi Economics expects not only a 50bp hike but also hawkish indications in the press statement and press conference that will add upside risk to its current policy rate forecast. The European session will welcome Eurozone retail sales, which will be watched in light of slowdown concerns. Meanwhile, BRL will see a selic rate decision late in the NY session. Citi Economics maintains the view that Copom will likely increase the Selic rate by further 50bps (to 13.25%) in June and expects hawkish tweaks at this meeting as Inflation continues to run at double-digit levels.

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Daily Market Outlook, May 4, 2022

Daily Market Outlook, May 4, 2022 Overnight Headlines Shanghai Lockdown Exit Delayed By Stubborn Community Spread Australia Retail Sales Hit Record, Underlining Economic Momentum Goldman Sachs Forecast The RBA Cash Rate At 2.6% By The End Of 2022 RBNZ Gov Orr: Cannot Rule Out A Global Recession In Coming Months RBNZ Says Sharp Housing Correction ‘Plausible’ As Rates Rise New Zealand Jobless Rate Holds Record Low As Wages Gain ECB Director Schnabel Believes A Rate Hike In July Is Possible EU To Unveil Plan To Replace Two-Thirds Of Russian Gas This Year EU's Borrell: New Russia Sanctions To Hit Oil, Cut More Banks From SWIFT BRC: Shop Prices In Britain Rise, Fastest Rate Since 2011, Worse To Come Aussie Retail Sales Surprises To The Upside And Supports AUD/USD US Junk Bonds Drop To Lowest In Over Two Years Ahead Of Fed Meeting Oil Climbs As Investors Weigh Inventory Estimates, China’s Curbs China’s Independent Refiners Start Buying Russian Oil At Steep Discounts Chinese Tech Stocks Slide As SEC Probe Didi, US Equity Futures WaverFX Options Expiring 10am New York Cut EUR/USD: 1.0550 (329M), 1.0570 (464M), 1.0600 (1.92BLN) 1.0700 (1.14BLN) USD/JPY: 129.00 (380M), 130.50 (740M) GBP/USD: 1.2425 (405M), 1.2555-60 (247M) AUD/USD: 0.7000 (234M), 0.7100 (734M), 0.7130 (374M) 0.7250 (570M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.0950 Bullish above Consolidates ahead of key Fed decision EUR/USD opened +0.10% at 1.0519 after whippy US session Interest was low in Asia as market readies for Fed decision later today Powell's press conference will likely dictate short-term price action... Support is at last week's 1.0469 low and break targets 2017 low at 1.0340GBPUSD Bias: Bearish below 1.30 Bullish above. Touch softer ahead of the Fed, as inflation flares -0.05% at the base of a quiet 1.2488-1.2515 range on D3, pre FOMC UK shop prices rise at fastest rate since 2011 - BRC Rising energy prices and supply chain issues unlikely to ease short term Adds to the BoE pressure on the May 5, as the economy falters Charts; momentum studies conflict, 5, 10 & 21 day and week MA's slide 21 day Bollinger bands fall, which remains a strong bearish trending setup Targets a test of the 1.2360 low in July 2020 then 1.2252 June 2020 base Close above 1.2624 10 day moving average would undermine downside biasUSDJPY Bias: Bullish above 125 Bearish below OMC shapes up as the trigger for the next move Steady in a very tight 130.05-130.19 range, with Japan on holiday FX majors saw little interest in Asia, as markets await the FOMC Fed expected to hike 50pts - focus on Fed statement and press conference The tone of the Federal Reserve's outlook will drive UST yields and USD Friday's 129.32 low, and last week's 131.25 high are the initial key levels Longer term 5, 10 and 21 day, week and month moving averages head higher Unusual and powerful bullish signals - 126.26 Kijun line is key support Long term target is 135.04/20 monthly highs in February and January 2002AUDUSD Bias: Bullish above .7300 Bearish below AUD/USD opened +0.62% after outperforming due to aggressive RBA hike Goldman call that RBA will hike 50 BP in both June & July underpinned AUD/USD traded above 0.7100 and received added boost from better Aus retail sales... It traded above 0.7110 and traded to a session high at 0.7117 Heading into the afternoon it is settled around 0.7110 Resistance is at 0.7145/50 where yesterday's high and 10-day MA converge A break above 0.7150 would suggest a bottom is forming Support is at Monday's 0.7030 low with bids ahead of 0.7000

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ESG investing could end up being a classic mistake

ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.

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Investment Bank Outlook 03-05-2022

Credit AgricoleAsia overnight Sentiment was steady as much of Asia returned from holidays. Firm US equities as investors started some dip buying last week helped support sentiment. Pledges by Chinese policymakers last week to help support the economy also continue to help sentiment. Investors remain cautious, however, ahead of a series of central bank meetings this week that will see financial conditions tighten. Indeed, the RBA lifted rates by modestly more than expected and signalled a strong focus getting inflation back down. S&P 500 futures and most Asian bourses were trading higher at the time of writing. In G10 FX, a hawkish RBA led to the AUD being to outperformer in the Asia session and the NZD the underperformer on AUD/NZD cross buying.CitiEuropean OpenAUD powered higher after RBA hiked rates by 25bps to 0.35% (consensus 15bps to 0.25%) which was coupled with a hawkish statement, driving a bear flattening of the curve as OIS rates jumped higher. Initial AUD jump has pared as markets digest the meeting details with rate hike pricing already aggressive and China growth, commodities likely to prove key to the FX performance. KRW shrugs off strong CPI print, as does the rates market with NDIRS little changed. Cash Treasuries are closed, though futures fell following weakness in AUD rates after RBA. Volumes across FX were running around 50% of normal owing to holidays across the region including Singapore, Japan and mainland China. With GBP returning from holiday, we can expect a more energetic session ahead with CAD set to pay attention to hawkish comments from BoC’s Rogers. Eurozone PPI will be notable for EUR while NZD sees labor data late in the day. BRL looks forward to industrial production data, and a slew of cross-regional FX remain on holiday.Only game in town. AUD surged as much as higher 1.4% higher after RBA hiked the cash rate by 25bps to 0.35% (Bloomberg consensus/Citi est. 15bps to 0.25%), an outcome not forecast by any contributors to the Bloomberg survey. RBA also confirming they will not reinvest maturing bonds bought as part of QE. AUD OIS rates jumped, with early 2023 rates rising over 20bps, to roughly bake in another RBA hike over the next year. 3y bond yields jumped 11bps as the curve bear flattened.–RBA statement had a hawkish lean overall as the bank lays out the path for a series of future rate increases, noting “The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. This will require a further lift in interest rates over the period ahead.” They also revise inflation forecasts sharply higher and state they will not be reinvesting maturing bond bought under the QE program.

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