Market Update – May 6 – Massive U-turn ahead of NFP

The markets did a big U-turn after Wednesday’s post-FOMC rally, and the pop in rates hammered Wall Street. Along with positioning, the recent massive swings in the markets and mostly bearish tones have been fostered by escalating fears over inflation, an overly aggressive tightening path from the Fed, and increasing angst over slowing growth, in other words, “stagflation.” That potential was imbedded in the Q1 productivity report that revealed near record contraction in productivity as well as unit labor costs, leaving a hollow ring to Chair Powell’s beliefs that the Fed can tame inflation and that the economy can achieve a “softish” landing with a “significant chance” of avoiding a “significant slowdown, or a big jump in unemployment.”

RBA flags further tightening ahead. The RBA said in its quarterly monetary policy report that it will need to raise interest rates further, against the background of tightening labour markets that risk triggering a wage price spiral.

• USDIndex at a 5th winning week – breached 103.95. Currently at 103.84 ahead of US jobs report that is likely to back the case for aggressive monetary policy tightening.
• Equities – was crushed by the revived hawkish outlook and the pop in yields. The USA100 dove over -5% but finished with a -4.99% decline. The USA500 tumbled -3.56%, with the USA30 -3.12% lower.
• Yields 10-year up 17 bps to 3.105%, with the 2-year up 10 bps to 2.738%. 
• Oil climbed to 111.36 high, after the Biden administration outlined a plan to refill oil reserves (SPR). But it has dropped right back down to 109.34. Reportedly, the Department of Energy will put out a tender for 60 mln barrels in the fall, according to an unnamed source. But the purchases will be at some time in the future, which saw the price fall back. Having the government an assured buyer should provide some support. Meanwhile, the looming EU ban on Russian oil imports and the less hawkish than feared FOMC result have helped calm fears. There were no surprises from OPEC which stuck to its plan for a modest hike in output.
• Gold drifted back to 1866 as the USD and Treasury yields rallied.
• Bitcoin tumbled 8% overnight, hitting at 35,278.
• FX markets – EURUSD at 1.0508, USDJPY helds above the 130.50, Cable down to  1.2333. AUD turns below 0.7100.

Biggest FX Mover @ (06:30 GMT) GBPCHF (-0.73%) declned intothe EU open at 1.2157, with next support to 1.2114.  MAs & Stochastics bearishly crossed and RSI is at 36 sloping lower. H1 ATR 0.00169, Daily ATR 0.01081.

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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The Crude Chronicles - Episode 134

Oil Traders Reduce LongsThe latest CFTC COT institutional positioning report shows that oil traders reduced their net-long positions once again last week. While there was firm buying in crude, brent positions saw a larger reduction in upside exposure, resulting in a net reduction in oil upside over the week. Despite the reduction in upside positioning, oil prices have been higher again this week with crude prices now testing the April highs.Ukraine Conflict Keeps Upside Risks IntactOil prices continue to derive firm support from the backdrop of the ongoing conflict in Ukraine. With violence between Russia and Ukraine showing little sign of stopping in the near-term, oil supply remains significantly disrupted. The main focus this week has been on the EU plan to move away from Russian oil and gas within a six-month timeframe. Given that the EU relies heavily on Russian oil imports (accounting for roughly a third of imports by 2020), there is now a major focus on finding alternative providers.OPEC Meeting in Focus TodayLooking ahead, the key focus today will be on the OPEC+ meeting due to take place later today. The group has come under increased pressure to hike output at a faster pace in order to help combat the spike in energy prices linked to the Russian invasion of Ukraine. However, the group has refrained from any quicker pace of production hikes, sticking to it’s own plan of adding back in around 400k barrels per day, each month. Additionally, data -shows that OPEC members have been failing to meet their current monthly quotas, suggesting that any further increases in monthly quotas would have limited impact.EIA Reports Headline Inventories BuildThe rally in oil prices this week comes despite the latest report from the Energy Information Administration. The EIA reported a 1.3 million barrel increase on the week, marking an extension from the previous week’s 0.7 million barrel increase and a firm beat on the 0.7 million barrel drawdown the market was looking for. However, there were solid drawdowns in both gasoline and distillate inventories, which fell by 2.2 million barrels and 2.3 million barrels respectively.Technical ViewsCrude OilFor now, oil prices remain within the recent 95.93 – 108.74 range which has framed price action over the last six week. However, price is once again testing the upper end of that range, suggesting room for a break higher, with the market still underpinned by the rising trend line. Above 108.74, 114.71 is the next resistance to note. To the downside, any break of the 95.93 level will put the focus on deeper support at 83.75.

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Investment Bank Outlook 05-05-2022

CIBCFX FlowsFrom our economics team: Another 50 bps move seems likely at the next meeting as a result, but the statement didn’t hint at anything more than “ongoing increases”. There were no dissents in favour of a larger hike today. We still expect that as rates approach 2% later this year, there will be enough signs of cooling inflation and growth to return to 25 bp moves, with a peak in the mid-2% in early 2023.This is what our macro strategist Bipan said, not really realistic for Powell to commit that far out, so I wouldn’t characterize that comment as particularly dovish with regards to markets. However just listening to Powell, I get the sense that he’s grown more concerned with respect to inflation and expectations thereof. Powell started the presser off by reassuring the audience that they understood the risks of too high inflation. Comments on “further surprise” on inflation possibly in store plus “inflation may flatten, but not drop”. Bipan said the market reaction is largely a function of positioning going in. But peel that away and you’re still left with a very hawkish central bank. That should cushion the US$ against the funders once the take profit move is done for.Our head of rates trading Pawan asked since when was 50 bps hike considered dovish? Fact is market is pricing in excessive and Fed not mentioning 75 bps just got people taking profit. Pawan believes the Fed will go another two times of 50 bps hike then pause.$YEN briefly moved up to 129.54, there are suspicions that the move was caused by Japanese retail but with Japan closed today, it was all a speculation. Market slowed down, eventually weakened to 128.765.AU$ remained supported, despite weak CNH and Caixin PMIs. Trade surplus widened in April to AU$9.3bn beating estimates of AU$8.4bn. Commodity futures also firmed up. Strong resistance noted near the 100-day SMA which lies at 0.7262. Think we could be locked in range until payrolls tomorrow. Large option strikes at 0.7300 for AU$2.05bn and AU$780mio at 0.7200.EUR$ firmed up to 1.0642 after stops triggered above 1.0630. Large strikes at 1.0600 for €1.82bn mature today.Macro strategist Jeremy Stretch said we expect the BoE to hike rates by a further 25 bps at today’s meeting, with rates rising to 1.0%. Such a move will take the bank to the threshold at which it previously announced it would consider moving from passive to active QT.CitiEuropean OpenA dovish FOMC yesterday in the US session raised rates by 50bps, and Fed Chair Powell essentially took 75bps off the table for future meetings. UST yields dived, along with USD, while equities soared. The Asian session felt the reverberations of the decision, although by and large it was a somewhat tranquil session. AUD dipped lower slightly, and Aussie rates bull steepened alongside the UST moves overnight. Moves higher in NOK and lower in GBP came ahead of their respective rate decisions, as focus shifts away from the FOMC. PHP CPI came in hotter than expected while THB headline CPI came in under consensus.Looking ahead, we will see a flurry of rate decisions. GBP, CZK, PLN and CLP are expected to be live, while decisions in NOK and HUF are not. We also see OPEC+ meeting today, where they are expected to agree to raise production targets by 432k bpd for June. We will also see CPI prints from CHF and TRY, as well as ECB speak. Lastly, we flag that JPY, ILS and KRW are on holiday.

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Daily Market Outlook, May 5, 2022

Daily Market Outlook, May 5, 2022 Overnight Headlines China Caixin Services PMI Drops To Lowest In More Than Two Years Chinese Analysts See Potential For Economy To Rebound In May Shanghai Covid Cases Fall Slightly, New Infections In Beijing Hold Steady Australia’s March Trade Balance Surprises As Surplus Widens Fed Hikes Rates Half Point, Will Shrink Assets To Curb Inflation US Treasury To Cut Auction Sizes For The Coming Quarter Yellen Sees Solid Growth, Possible ‘Soft Landing’ For US Economy Bank Of England Set For 4th Straight Rate Hike To Fight Inflation UK PM Johnson Gives EU Final Chance To Compromise Over Protocol Brazil’s Central Bank Lifts Key Rate, Signals Another Of Smaller Size India’s Central Bank Roils Markets With Surprise Rate Hike Before Fed US Dollar Bruised As Fed Hike Dashes More Hawkish Bets BofA: BoJ May Spend $100B To Slow Yen Slide If USD/JPY Nears 140 FitchRatings: Slumping Yen Could Prompt BoJ Yield Target Recalibration Australian Bonds Rally As Rates Traders Pare Hike Bets After Fed Oil Steadies Before OPEC+ Meet After Surging On EU Russian Ban Japan Considers Financial Support To Boost US LNG Output Asian Shares Firm As Fed Tempers Aggressive Rate Hike BetsThe Day Ahead Asian equity indices are mostly higher following yesterday’s US Fed policy update. As expected, interest rates were raised by 50bp, the largest increase since 2000, while the start of balance sheet reduction in June was confirmed. Chair Powell indicated that further 50bp rises at the next two meetings in June and July were ‘on the table’ which would bring the top end of the range of the Fed funds rate up to 2%. The rally in risk sentiment in late US trading appeared to result mainly from Powell playing down the likelihood of 75bp increases. Elsewhere, the impact of China’s zero-Covid policy was evident in the Caixin services PMI which plunged to 36.2 in April. Today’s focus is the announcement of the Bank of England’s monetary policy decision at midday, followed by the press conference with Governor Bailey. A fourth consecutive increase in interest rates seems to be on the cards. We expect the majority of the nine-strong Monetary Policy Committee (MPC) to vote for a further 25bp increase in Bank Rate to 1.00%, taking it to its highest since 2009, although we suspect that some members may prefer different courses of action. Updated economic projections in the Monetary Policy Report are likely to see a lift in the BoE’s near-term inflation forecasts which could prompt some members of the MPC – notably Catherine Mann and/or Michael Saunders – to seek a more rapid pace of tightening. However, on the flip side, at least one member – most likely Deputy Governor Cunliffe – may vote against a hike, just as he did in March. Such divergence in views highlights the difficult balancing act facing central banks in setting policy in the current environment (slower growth and high inflation) that continues to make plotting the likely path of policy uncertain. The BoE’s latest set of economic projections will factor in its assessment of the impact of the war in Ukraine, which should add a downside skew to GDP growth projections. Meanwhile, despite the probable higher near-term inflation forecast, the BoE’s longer-term projections seem likely to be cut. With the latest forecasts set to be conditioned on a higher market-implied path for UK interest rates as well as a weaker growth outlook, the BoE will probably now project an even bigger undershoot of the inflation target in three years’ time. That would be an indication that current market pricing for interest rates to rise to at least 2.25% by the year-end is excessive. Expect the Committee to maintain a cautious message regarding prospects for further tightening.FX Options Expiring 10am New York Cut EUR/USD: 1.0500-10 (1.6BLN), 1.0570-80 (810M) 1.0600 (1.8BLN), 1.0675 (290M), 1.0750-55 (1.0BLN) 1.0765 (600M) USD/JPY: 128.00 (410M), 130.70 (395M) GBP/USD: 1.2550 (502M), 1.25890 (320M), 1.2700 (392M) AUD/USD: 0.7000 (516M), 0.7030 (343M), 0.7135 (393M) USD/CAD: 1.2615 (280M), 1.2865-70 (513M) 1.2880-90 (761M), 1.3075 (1.2BLN), 1.3100 (2.6BLN) USD/CHF 0.9700 (230M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.0950 Bullish above Consolidates post – Fed gains in quiet Asian session EUR/USD opened +0.98% at 1.0622 after late rally due to Powell comments It eased to 1.0604 early Asia before finding buyers ahead of 1.0600 It hipped back up to 1.0642 before settling unchanged at 1.0620/25 The 10-day MA is at 1.0603 and another close above that reading solidifies support Resistance is at the 21-day MA at 1.0727, which should be stiff resistance Bids tipped 1.0575/80 and a break below would shift pressure to the downside Trading in Asia was quiet due to Tokyo holiday EUR/USD may consolidate ahead of US non-farm payrolls FridayGBPUSD Bias: Bearish below 1.30 Bullish above. GBP/USD pares Powell – spurred gains pre – BoE event risk 1.2542 is low water-mark for cable since its Powell-spurred jump to 1.2637 Fed chief poured cold water on the idea of 75 bps Fed hikes 1.2453 was GBP/USD low shortly before Powell addressed 75 bp hike question BoE event risk at 1100 GMT; 25 bps rate hike to 1% expected... GBP could leap on 50 bps hike surprise/weaken on "dovish hike" 1.2637 = highest level for GBP/USD since Apr 26 (1.2772 was high that day)USDJPY Bias: Bullish above 125 Bearish below USD/JPY's relapse has found support ahead of a key Fibo Relapse on Wed to break the daily tenkan line that is now at 129.11 The market failed to register a close under it Support found ahead of 128.60, a 61.8% retrace of 126.97-131.25 (EBS) rise There is a good chance that bulls can rebuild to retest 2022 131.25 peak Tenkan and kijun lines are positive aligned, reinforcing the bullish market EUR/JPY sees a 136.84-137.53 Thursday range so far, according to EBS dataAUDUSD Bias: Bullish above .7300 Bearish below AUD/USD rally hits a wall with no fresh trigger for bulls AUD/USD turns lower, deflected by strong resistances looming Offers at 0.7253 protects 200 DMA at 0.7284 Last 0.7236, failure at those levels may cue long-trimming After post-FOMC USD selloff, no fresh triggers on horizon Asia shares up modestly on heels of Wall St; S&P futures flat China's dismal Caixin services PMI won't help AUD

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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.

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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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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