Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Nov 29 – Dec 3)

As we enter into the final month of the year we will have NFP and Canadian employment report coupled with Q3 GDP data from Australia and Canada as well as PMI data from China.

USD

PCE data for the month of October continue to show price pressures mounting in the US. Headline number came in at 5% y/y vs 4.6% y/y as expected and up from 4.4% y/y in October. Core PCE number came in at 4.1% y/y as expected, up from 3.7% y/y the previous month. The biggest contributor to price rises was energy goods and services category which jumped astonishing 30.2% y/y. Food prices notched a jump of 4.8% y/y. Personal income rose 0.5% while personal spending jumped 1.3% as Americans started their holiday shopping early.

The White House has re-nominated Jerome Powell to a new four-year mandate as a Fed Chairman. Lael Brainard was nominated to be a vice-chairman in the Fed Board of Governors, thus replacing Richard Clarida. This outcome ensures that monetary policy will stay on its course with QE tapering. Markets are pricing in two full rate hikes in 2022, most likely at September and December meetings. San Francisco Fed President Mary Daly, considered a dove, stated that the case for speeding up the taper can be seen. When a well-known dove comments in a hawkish way markets listen. Her comments should keep USD supported.

This week we will have ISM PMI data as well as NFP on Friday. Headline number is expected to come around 550k with the unemployment rate slipping to 4.5%.

Important news for USD:

Wednesday :

• ISM Manufacturing PMI

Friday :

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings
• ISM Non-Manufacturing PMI

EUR

Eurozone preliminary PMI data for the month of November surprised to the upside. Manufacturing came in at 58.6 vs 57.3 as expected and up from 58.3 in October. Services came in at 56.6 vs 53.5 as expected and up from 54.6 the previous month which pushed composite to 55.8 vs 53.2 as expected and up from 54.2 in October. Both German and French readings were showed improvements from last month with new orders subindex expanding further. Supply chain disruptions are still causing issues for the manufacturing sector and Markit notes that potential new lockdowns across the continent may hurt rebound seen in services sector. Costs component in PMI data continued to increase and it dovetails nicely with the comment from ECB’s Executive Board member Isabel Schnabel, given in a Bloomberg interview, that “the risks to inflation are skewed to the upside”. Her remark may be indicating that ECB is preparing to gradually remove loose monetary policy stance and that we can expect confirmation of PEPP program ending in March of 2022 at the December meeting.

German Ifo business climate for the month of November came in at 96.5 as expected, down from 97.7 in October. Current conditions and outlook came in line with expectations (99 and 94.2 respectively), but were both down from the previous month (100.1 and 95.4 respectively). Business climate and outlook are falling for the fifth consecutive month while current conditions notched three consecutive months of declines. Ifo economist Klaus Wohlrabe stated that falls in Ifo indexes give cause for concern adding that supply bottlenecks are still ongoing and putting pressures on companies. Increasing number of companies plans to transfer price pressures to consumers. Finally, he sees Q4 GDP stagnating.

This week we will have a preliminary November inflation reading, expected to continue rising.

Important news for EUR:

Tuesday :

• CPI

GBP

Preliminary November PMI data was mixed compared to the previous month, but all of the readings beat the expectations. Manufacturing PMI improved to 58.2 from 57.8 in October while services slipped to 58.6 from 59.1 the previous month. Composite also slipped down to 57.7 from 57.8 in October. According to Markit, output continued to grow in both services and manufacturing with new businesses accelerating growth indicating a strong December as well. Supply chain issues persist and price pressures continue to mount as we get closer to the year-end.

AUD

Q3 Capex slumped -2.2% q/q vs -2% q/q as expected. Q2 reading was revised down from 4.4% q/q to 3.4% q/q. Australia experienced heavy lockdowns during Q3 and it reflected on investment, particularly in equipment, plant and machinery which showed a decline of -4.1% q/q vs 2.7 q/q in Q2 as well as in building and structures which came in at -0.2% q/q vs 4.2% the previous quarter. Preliminary retail sales for the month of October showed a high jump to 4.9% m/m vs 2.2% m/m as expected and up from 1.3% m/m in September showing that consumer will guide economic rebound in Q4 after the lockdown impacted Q3.

This week we will have Q3 GDP data from Australia and both official and Caixin PMI data from China.

Important news for AUD:

Tuesday :

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

Wednesday :

• GDP
• Caixin Manufacturing PMI (China)

Friday :

• Caixin Services PMI (China)
• Caixin Composite PMI (China)

NZD

RBNZ has raised the official cash rate (OCR) by 25bps as was widely expected. The rate now stands at 0.75% and board members noted that it is appropriate to continue with reducing monetary stimulus in order to keep inflation low and achieve maximum sustainable employment. The bank has put out new projections which see OCR at 0.94% in March of 2022 vs 0.86% previously and at 2.14% in December of 2022 vs 1.62% previously indicating that they are firmly on the rate hike path. Inflation is seen at 3.3% by the end of 2022, it was 2.2% in previous projection and assessment is that inflation will peak at 5.7% in Q1 of 2022 before returning toward 2% in the next couple of years. Governor Orr stated in a press conference that the 25bp rate hike gives them more options and that due to a high debt load, the bank needs to be cautious. Retail sales for Q3 came in at -8.1% q/q vs -10.5% q/q as expected. New Zealand was under lockdown during Q3 and it reflected in retail sales numbers. Still the reading managed to beat expectations showing additional strength of the economy and consumer.

CAD

Canadian dollar had another slow week with USDCAD falling for the fifth straight week and moving closer to the 1.28 level. The decline was exacerbated with a discovery of new covid strain, named Omicron, which sent oil prices dropping below $70 and dragging CAD down.

This week we will have Q3 GDP data as well as November employment report.

Important news for CAD:

Tuesday :

• GDP

Friday :

• Employment Change
• Unemployment Rate

JPY

Preliminary November PMI data showed improvements across the board. Manufacturing climbed to 53.5 from 53.2 in October while services went deeper into expansion and posted a second consecutive month above the 50-level coming in at 52.1. Composite was thus pushed up to 52.5 from 50.7 the previous month. Output and new orders components showed stronger growth while new orders mostly pointed to growth. Input prices point to a stronger inflation while employment slowed down and outright declined in the service sector. Markit notes that “private sector companies were strongly optimistic that business activity would rise in the year ahead. Positive sentiment was the strongest on record”.

Inflation for Tokyo area in November improved to 0.5% y/y vs 0.1% the previous month on the back of rising energy prices. Both ex fresh food category and ex fresh food, energy came in at 0.3% y/y. With inflation running rampant around the world even Japan managed to post increase in overall prices. JPY gained strength as the new covid variant, called Omicron by the WHO, originating in South Africa. It is thought to have the most mutations off all of the existing variants. It has brought a risk-off environment in the markets and JPY was the biggest benefactor of it with thin liquidity market conditions adding to the magnitude of moves.

CHF

SNB total sight deposits for the week ending November 19 came in at CHF719.3bn vs CHF719.2bn the previous week. This is a rather surprising data point since EURCHF dropped below the 1.05 level in the previous week and SNB did not intervene. Q3 GDP data show that economy grew by 1.7% q/q vs 2% q/q as expected and 4.1% y/y vs upwardly revised 8.6% y/y in the previous quarter. The details of the report show accommodation and food category doubling from Q2 while big growth was also seen in arts, entertainment and recreation.

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Forex Major Currencies Outlook (Dec 6– Dec 10)

RBA and BOC meetings will highlight the week coupled with inflation data from the US as we get closer to the year-end.

USD

Fed Chairman Powell dropped a bomb onto the markets in his testimony in front of the Congress. He stated that it is time to retire “transitory” for inflation and added that it is appropriate to speed up the pace of tapering at the incoming meeting. USD reacted positively to his hawkish remarks and gained more than 100 pips against most currencies during Powell’s testimony. Markets have interpreted that inflation will stay for a longer period of time and that faster taper adds more to the credibility of two rate hikes in 2022 and even open up a possibility of a rate hike in May. Regarding the impact of Omicron variant Powell stated that there is not enough information at the moment and that they will know more in 5-10 days.

ISM manufacturing PMI for the month of November continued to improve and came in at 61.1, up from 60.8 the previous month. Production and new orders indexes are above the 60-level indicating a very healthy and strong sector. Backlog of orders is also above the 60-level while customer inventories continue to drop suggesting pricing power for producers and that demand will keep the sector strong well into 2022 and will give a big push to Q4 GDP.

Headline NFP number in November printed just 210k when it was expected to show 550k. The unemployment rate dropped to 4.2% from 4.6% in October while participation rate rose to 61.8% from 61.6% the previous month. Wages, on the other hand, slipped to 0.3% m/m and 4.8% y/y from 0.4% m/m and 4.9% y/y in October. It was a mixed report that had something for everyone. More people returned to the work force, however wages slid and that is deflationary. Fed should continue to speed up taper as planned at their December meeting.

This week we will have inflation data. The readings are expected to continue their rise.

Important news for USD:

Friday :

• CPI

EUR

Preliminary November CPI data shows prices spiralling upwards with headline number coming in at 4.9% y/y vs 4.5% y/y as expected and up from 4.1% y/y in October. Core CPI also jumped, it came in at 2.6% y/y vs 2.3% y/y and up from 2% y/y the previous month indicating that price pressures are increasing across different categories. Headline number is now at a 30-year high while core reading posted a new record high! Energy prices are the main culprit, rising 27% y/y with goods prices also adding pressures to inflation. EUR was bid on the hopes that high inflation reading will push ECB to raise rates faster than expected. ECB stance is that inflation is transitory and that it will slow down going into 2022, German VAT will step out of the calculation in January, and return to their 2% target in H2 of 2022.

GBP

Final PMI reports saw a downside revisions to preliminary reading, however manufacturing PMI still managed to improve from October reading and came in at 58.1 vs 57.8 the previous month. Services slipped to 58.5 while composite was at 57.6. The readings show a healthy economy in the Q4 with mounting price pressures posing a cause for concern. BOE policymaker Michael Saunders stated that they will look at economic impact of omicron, making it a key consideration at the December meeting. He added that omicron could significantly impact the economic outlook, however a delay of rate hikes could be very costly in the future.

This week we will have October GDP data giving us another data point for Q4.

Important news for GBP:

Friday :

• GDP

AUD

Q3 GDP data surprised to the upside and showed that Australian economy posted a -1.9% q/q decline vs -2.7% q/q as was expected. The country spent great majority of third quarter under strict lockdowns and it reflected on household consumption which fell -4.8% q/q. Net exports were a positive contributor with exports rising 1.2% q/q while imports fell -4% q/q. Government consumption was also a positive input, rising 3.6% q/q.

Official PMI data from China for the month of November showed manufacturing returning to expansion territory after two months of sub-50 readings. The number came in at 50.1 vs 49.6, matching the previous August reading. Services PMI slipped to 52.3 from 52.4 in October which was enough to keep the composite reading at 52.2, up from 50.8 the previous month. Caixin manufacturing reading, on the other hand, fell to 49.9 from 50.6 in October. Services PMI also declined and came in at 52.1, down from 53.8 the previous month which dragged composite reading to 51.2 from 51.5 in October.

This week we will have RBA meeting from Australia as well as trade balance and inflation data from China. RBA may announce it plans to finish the bond-buying program in February. Omicron is uncertainty that will be addressed in the statement.

Important news for AUD:

Tuesday :

• RBA Interest Rate Decision
• Trade Balance (China)

Thursday :

• CPI (China)

NZD

Final business confidence data for November showed improvement from preliminary reading (-16.4 vs -18.1), however it was down from -13.4 in October. ANZ notes that “Business confidence, export intentions, and investment intentions were all a little higher, but own activity, and capacity utilisation dipped. Overall, the theme continues to be gradually easing activity indicators but cost and inflation pressures remain extreme.”

CAD

Q3 GDP data blew up expectations and came in at 5.4% q/q vs 2.5% q/q as expected and up from downwardly revised -3.2% q/q in the second quarter of 2021. Household consumption was the biggest contributor with exports following in the second place. Gross fixed capital formation and inventories were the biggest drag on the reading.

November employment report was stellar. Employment change came in at 153.7k vs 35k as expected. The unemployment rate fell to 6% from 6.7% in October while the participation rate stayed unchanged at 65.3%. Wages rose 3% y/y vs 2.1% y/y the previous month indicating signs of wage pull inflation. Jobs were evenly distributed with full-time jobs gaining 79.9k and part-time jobs adding 73.8k. The strength and tightness of labor market in Canada is impressive.

This week we will have a BOC meeting. The drop in oil prices has negatively impacted CAD, but we expect them to stay on their tightening course, especially after magnificent employment report. Omicron is uncertainty that will be addressed in the statement.

Important news for CAD:

Wednesday :

• BOC Interest Rate Decision

JPY

Retail sales for the month of October came in at 1.1% m/m and 0.9% y/y. After state of emergency was lifted consumers returned to spending with clothing and food leading the way with a surge of 9.2%. Out of all the categories measured auto sales was the only category that showed a decline. Final manufacturing PMI improved to 54.5 and now represents a four-year high. Services PMI also improved to 53 and pushed composite to 53.3 indicating a much healthier economy in Q4 than the one of Q3.

This week we will have a final Q3 GDP reading.

Important news for JPY:

Wednesday :

• GDP

CHF

SNB total sight deposits for the week ending November 26 came in at CHF719.4bn vs CHF719.3bn the previous week. The EURCHF pair spent the whole week below the 1.05 level and even going below the 1.045 level but SNB has not intervened. They are most likely waiting for the right opportunity to strike in order to achieve the most with as little intervention as possible. Headline inflation for the month of November came in at 1.5% y/y, up from 1.2% y/y in October while core reading rose to 0.7% y/y from 0.6% y/y the previous month. Small increases in inflation, particularly in core reading, will not pose any concerns for the SNB, especially when it is compared to the rest of the world, excluding Japan.

[katetrades]

Forex Major Currencies Outlook (Dec 13 – Dec 17)

We are in for a huge week. No less than 5 central banks (Fed, ECB, BOE, BOJ and SNB) will have their final meetings for the year. Additionally, we will have preliminary PMI data for the Eurozone coupled with inflation data from Canada and the UK.

USD

November inflation report came in line with expectations. Headline came in at 6.8% y/y, up from 6.2% y/y in October and core reading came in at 4.9% y/y, up from 4.6% y/y the previous month. Headline inflation is at the highest level since March of 1982 while core is at the highest level since October of 1984, going way back in time. Fed will not be detracted by the reading and will continue on their course with increased tapering.

This week we will have consumption data as well as the final Fed meeting for the 2021. With inflation running red hot we can expect to see hawkish messages from the members. The speed of the taper should be increased so it finishes by the end of Q1 of 2022. The dot plot should point to at least two rate hikes in 2022.

Important news for USD:

Wednesday :

• Fed Interest Rate Decision
• Retail Sales

EUR

German ZEW survey for the month of December showed assessment of current situation plunge into negative territory with -7.4, down from 12.5 in November. The uncertainty relating to the omicron variant and its possible negative impact on the economy is breaking investors spirit. On the other hand, expectations category just slightly slipped to 29.9 from 31.7 the previous month indicating that investors still hold a positive outlook for the future. Eurozone expectations improved to 26.8 from 25.9 in November. Final Q3 GDP reading for the Eurozone came in unchanged at 2.2% q/q and slightly improved to 3.9% y/y vs 3.7% y/y as reported in the second reading. Olaf Scholtz has been officially elected as a Chancellor and thus succeeds Angela Merkel after her 16-year reign.

This week we will have preliminary PMI readings for the month of December as well as the ECB meeting. Next round of macroeconomic projections will be put forward at the meeting. PEPP program will conclude in March of 2022 so the meeting can bring an increase, temporary most likely, in APP to ease the effects of removing PEPP. Additionally, this will be the last meeting for the outgoing Bundesbank president Jens Weidmann.

Important news for EUR:

Thursday :

• ECB Interest Rate Decision
• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

October GDP number came in at 0.1% m/m vs 0.4% m/m as expected. It shows that the economy is still expanding in Q4, however at a much slower pace. Prime Minister Boris Johnson stated that Omicron is growing at much higher rate than the previous variant and it is time to move to so-called “Plan B”. Reintroduction of stay and work from home guidance with facemask requirement further extended to most public venues. Health Minister Javid stated that main purpose of “Plan B” is to slow down spread of Omicron and help to avoid action later.

This week we will have employment, inflation and consumption data along side the BOE meeting. The chances of a rate hike at the meeting are growing slimmer. MPC member Broadbent stated that he is still unsure about the way he will vote at the meeting. Omicron poses a big uncertainty while MPC member Saunders said he wants further information on the Omicron before deciding how to vote. We expect that first rate hike will come in Q1 of 2022, most likely at the February meeting.

Important news for GBP:

Tuesday :

• Claimant Count Change
• Unemployment Rate

Wednesday :

• CPI

Thursday :

• BOE Interest Rate Decision

Friday :

• Retail Sales

AUD

RBA has kept its cash rate at 0.10% as was widely expected. The statement shows concern regarding potential effect of omicron on the economy. They still expect economy to return to its pre-Delta path in H1 of 2022. The purchase of government securities will continue at the pace of AUD4bn/week until at least mid-February and will be evaluated at February meeting. Incoming data from leading indicators is very encouraging as it points to a strong recovery in the labor market. Bank members expect a further pickup in wage growth. The central forecast for underlying inflation is to reach 2.5% over 2023. Housing prices have increased strongly but the rate of increase has eased. They have reiterated their stance that there will be no increase in the cash rate until actual inflation is sustainably within 2-3% target range.

PBOC has decided to cut the RRR (Reserve Requirement Ratio) by 50bp (0.5%). The decision will take effect from December 15. PBOC has stated that they will continue with prudent monetary policy and will keep liquidity at reasonable levels. With inflation stabili\ing and at low levels the bank has decided that pumping additional liquidity will support the economy as well as push short and long-term interest rates lower. Later during the week they have increased foreign reserve ratio from 7% to 9. This is the first increase in 15 years. November trade balance data showed first decline in surplus since March. The reading came in at $71.72bn, down from $84.5bn in October. Exports have risen 22% y/y while imports jumped 31.7% y/y vs 19.5% y/y as expected. The jump in imports may indicate strong domestic demand which is a positive sign for the global economy. Inflation data for the month of November show CPI at 2.3% y/y, up from 1.5% y/y in October but lower than 2.5% y/y as expected. PPI data came in at 12.9% y/y, still very elevated, but down from 13.5% y/y printed the previous month.

This week we will have employment data from Australia as well as consumption and production data from China.

Important news for AUD:

Wednesday :

• Retail Sales (China)
• Industrial Production (China)

Thursday :

• Employment Change
• Unemployment Rate

NZD

NZD had a weak week, falling against all of the pairs but the drop was not great as RBNZ is still on the path of rate hikes which keeps the currency supported.

This week we will have Q3 GDP data.

Important news for NZD:

Wednesday :

• GDP

CAD

BOC has left rate unchanged at 0.25% as was widely expected. The statement showed that after strong GDP growth in Q3 it is now about 1.5% below the pre-pandemic level. Recent economic indicators suggest the economy had considerable momentum into the fourth quarter. Inflation will stay elevated but it should return to the 2% level in H2 of 2022. Bank members reiterated that slack in the economy should be absorbed “sometime in the middle quarters of 2022”. Finally, they have acknowledged that Omicron has introduced some uncertainty which could “weigh in on growth by compounding supply chain disruptions and reducing demand for some services”. Employment is back above the pre-pandemic level, incomes are rising and in combination with savings made during the pandemic it points to a strong demand and healthy economy. All of this should prompt BOC to start hiking rates in late Q1 or early Q2 of 2022.

This week we will have inflation data which is expected to continue rising.

Important news for CAD:

Wednesday :

• CPI

JPY

Final reading of Q3 GDP saw it reduced to -0.9% q/q from -0.8% q/q as preliminary reported. Household consumption came in at -1.4% vs -1.2% while business investment improved to -2.3% from -3.8% as preliminary reported. Net exports did not have any contribution with exports falling -0.9% and imports declining -1%. The country went through state of emergencies through the Q3 which negatively impacted household consumption, but data from the start of Q4 imply that rebound is in the making. Additionally, improvement in business investment bodes well for the future.

This week we will have BOJ meeting. No changes to rate or monetary policy are expected.

Important news for JPY:

Friday :

• BOJ Interest Rate Decision

CHF

SNB total sight deposit for the week ending December 3 came in at CHF720.3bn vs CHF719.4bn the previous week. The bank has increased its activities in the markets, however with a strong risk off mood prevailing, leading to EURCHF falling below the 1.04 level, they have decided to act slowly, looking for a better opportunity to fight the Swissy strength. Tightness of the labor market in Switzerland continues to impress. Latest data show seasonally adjusted unemployment rate for November sliding to 2.5% from 2.7% in October.

This week we will have SNB meeting. No changes to rate are expected, however talks about recent Swissy strength are expected which could lead to more intervention in the market.

Important news for CHF:

Thursday :

• SNB Interest Rate Decision

[katetrades]

Forex Major Currencies Outlook (Jan 10 – Jan 14)

We are up for a quiet week from the economic data standpoint. US and China inflation data and US retail sales will be the highlights of the week.

USD

ISM manufacturing PMI came in at 58.7 vs 60 as expected and down from 61.1 in November. Still, when we go down into the details of the report there are many positives. Employment index improved from the last month, backlog of orders increased to almost 63 while prices paid component dropped to 68.2 from 82.4 the previous month. A drop in prices paid component indicates that fewer companies are reporting rises in input costs. Additionally, there was a drop in supplier delivery times index indicating that supply bottlenecks are easing. New orders and production component declined slightly but are still at a very healthy levers, above 60 or close to it.

Similarly to the manufacturing reading, ISM services PMI fell more than expected. It came in at 62 vs 66.9 as expected. The drop was caused by the Omicron disruptions, but still there is a lot to like in the reading. Employment index improved, new export orders jumped and supplier deliveries eased. Prices paid component rose at the slower pace while new orders are still holding above the 60 level.

NFP report for December provided us with another miss on the headline number which came in at 199k vs 410k as expected. USD weakened on the release, but when we dig deeper into the report we find some encouraging signs. The unemployment rate dropped to 3.9% from 4.2% in November with participation rate staying unchanged at 61.9%. The most impressive reading was a rise in the average hourly figures which came in at 0.6% m/m vs 0.4% m/m the previous month. Fed will take a look at this data and may come to conclusion that wage inflation is picking up thus spurring them to act faster and raise interest rates sooner. USD has gained strength on that assumption after the initial drop on the headline number.

FOMC minutes from the December meeting were loaded with hawkish sentiment. They were leaning toward a faster normalization path that will lead to a reduction in the Fed’s balance sheet after the first rate hike. Fed funds futures are now pricing around 80% chance for a rate hike in March. Voting member Bullard stated that he sees three rate hikes this year with first one probably coming at the March meeting.

This week we will have inflation and consumption data. Headline inflation is expected to rise above 7% while core should cross the 5% threshold.

Important news for USD:

Wednesday :

• CPI

Friday :

• Retail Sales

EUR

Final manufacturing PMI reading for the month of December was unchanged at 58, down from 58.4 the previous month. French reading improved compared to the preliminary reading, however German reading was downgraded, thus ensuring that Eurozone reading stayed the same. Markit noted that supply chain disruptions seem to ease a bit which also led to input prices rising at the slowest rate since April of 2021. Services reading, on the other hand, declined to 53.1 from 53.4 as preliminary reported. The decline was caused by the rising number of Omicron cases and restrictions along the continent which hit particularly hard Germany whose reading fell to 48.7. On the composite front, December reading came in at 53.3 while German reading fell into contraction territory, coming in at 49.9.

Preliminary CPI data for the Eurozone in the month of December saw headline reading coming in at 5% y/y, up from 4.9% y/y in November while core reading came in unchanged at 2.6% y/y. Energy prices rose astonishing 26% y/y while food, alcohol and tobacco rose 3.2% y/y. If we exclude energy prices inflation would be 2.8% y/y. Retail sales for November came in at 1% m/m vs 0.5% m/m as expected and 7.8% y/y showing that demand was improving prior to the Omicron outbreak. Alternatively, high reading may be caused by the front-running of the holiday season shopping.

GBP

A small improvement to the December manufacturing PMI (57.9 vs 57.6 as preliminary reported). Markit notes that production rose at the quickest pace in the previous four months and that there appear to be signs that supply chains are stabilizing “with vendor delivery times lengthening to the weakest extent for a year in December.” Services reading improved to 53.6 from 53.2 as preliminary reported and recorded a smaller decline from 58.5 in November. The reading was heavily impacted by the virus-curbing restrictions, however Markit sees brighter future noting that: “Around 55% of the survey panel anticipate a rise in output during 2022 as a whole, while only 10% expect a decline.” Composite reading also came in at 53.6. BOE has conducted a survey and its results show that firms are planning to raise prices in the next 12 months to the tune of around 5%. The companies justify their intention by saying that it is necessary in order to cover rising costs. This is a classical example of costs being transferred from producers to consumers and it will attribute to the inflation pressures.

AUD

Caixin manufacturing PMI returned into expansion territory in December by coming in at 50.9 vs 50 as expected. It printed 49.9 in November. Government measures, mainly a cut of 5bp in 1 year Loan Prime Rate, managed to assist SME companies and the reading reflects it. The report shows that supply was strong and that demand rebounded. Input costs rose at a slower pace while employment index was still in the negative territory as firms remain cautious about hiring amid uncertainties relating to the virus. Services followed suit and improved to 53.1 from 52.1 in November despite concerns regarding Omicron. Composite was thus increased to 53 from 51.2 the previous month.

This week we will have inflation data from China, expected to show a modest tick up.

Important news for AUD:

Wednesday :

• CPI (China)

NZD

First dairy auction of the year showed GDT index rise 0.3% after falling -1.5% at the mid-December auction. This puts it at 9 auctions with rising prices out of the last 10 auctions. A rise in prices of New Zealand’s biggest export is a great boost to the economy.

CAD

December employment report provided us with another strong data point for the Canadian economy. Headline number saw 54.7k jobs added vs 24.5 as expected. The unemployment rate ticked down to 5.9% while participation rate remained at 65.3%. All of the jobs added were full-time jobs (123k) while part-time jobs declined (-68k). A small dent to the stellar report was brought by the average hourly earnings which rose at a pace of 2.7% y/y compared to 3% y/y rise in November. BOC will happily stay on its course for the Q2 rate hike after the report showed tight labor market conditions.

JPY

Final manufacturing PMI for December was slightly improved to 54.3 from 54.2 as preliminary reported. Markit notes that “firms continued to note moderate growth in both production and new orders” while “Delivery delays and material shortages remained a dampener on production and sales.” Services reading was upgraded to 52.1 from 51.1 as preliminary reported which lifted composite reading to 52.5 from 51.8 as preliminary reported. Tokyo headline CPI for the month of December came in at 0.8% y/y thus making it the highest reading in almost two years. Rising energy prices were the main culprit for the rise in the reading as ex-fresh food, energy category stayed at -0.3% y/y.

CHF

SNB total sight deposits for the week ending December 31 came in at CHF722.8bn vs CHF722.3bn the previous week. EURCHF has spent almost the entire week below the 1.04 level, however SNB concluded that time to fight Swissy strength is not now. They are saving their ammo and biding their time so that when they do make a bigger intervention in the market it will yield desired results. Inflation for December stayed unchanged at 1.5% y/y while core CPI ticked up to 0.8% y/y from 0.7% y/y the previous month. SNB will stay firmly on its course after the latest inflation reading.

[katetrades]

Forex Major Currencies Outlook (Jan 17 – Jan 21)

This week we will have a BOJ meeting, followed by inflation data from the UK and Canada as well as employment data from the UK and Australia, coupled with Q4 GDP data from China.

USD

World Bank came out with 2022 projections of global GDP growth and shrank it to 4.1% from 4.3%. US GDP for 2022 was downgraded to 3.7% from 4.2% previously. They project global GDP for 2023 to rise at 3.2%. Possible surge in Omicron cases that leads to the overwhelming of health systems could shave off additional 0.7pp from projected numbers.

Fed Chairman Powell made testimony in front of the Senate and reiterated the Fed’s stance. Asset purchases will finish in March and rate hike cycle will begin around that time. Powell added that the Fed may begin reducing the size of the balance sheet near the end of the year if the economy continues accelerating as expected and it will be done “sooner and faster” than last time. On the inflation front, chairman stated that Fed will fight to defend price stability adding that inflation may stay elevated through the H1.

Inflation report for December showed headline number at 7% y/y as expected. The last time it was at 7% Volcker was Fed chairman and yield on UD10y was 14%! It was back in 1982. In comparison, current yield on US10y is around 1.75%. Core inflation reading came in at 5.5% y/y vs 5.4% y/y as expected. Used car prices rose 3.5% y/y with a jump in clothing prices of 1.7% y/y. Housing and food categories also contributed to price increases while decreases were seen in the fuel category. The headline figure suggests that Fed will need to step up and proceed with faster tightening. St. Louis Fed president Bullard was talking about 4 rate hikes after the report while Cleveland Fed president Mester, both are well known hawks, called for faster tightening policy.

Retail sales for December showed a decline across the categories. Headline number showed a drop of -1.9% m/m vs 0% m/m as expected. Control group, the reading used for GDP calculation, dropped even deeper as it came in at -3.1% m/m. Omicron fears contributed to the miserable result. There is also a possibility that surging inflation led to the fall in disposable income, therefore reflecting in lower spending.

EUR

Industrial production in the Eurozone for the month of December rose 2.3% m/m vs 0.5% m/m as expected and dropped -1.5% y/y vs 0.6% y/y as expected. Previous month’s readings were heavily downgraded, thus making the headline numbers look less impressive. German and French reading dipped slightly while the Spanish and Dutch readings improved. However, there are positives in the reading, mainly production and backlog of orders continue to rise. This indicates that the issue is on the supply side, that is supply chain disruptions and labour shortages due to restrictions. Germany reported GDP for the entire 2021 at 2.7%. There are still concerns that Q4 GDP has dropped.

GBP

November GDP surprised positively by coming in at 0.9% m/m vs 0.4% m/m as expected. Additionally, October reading was revised up to 0.2% m/m from 0.1% m/m. The UK is on the path for another quarter of GDP growth and GDP has now surpassed pre-pandemic levels. The reading has increased chances of BOE rate hike in February with implied probability of hike hovering around 75%. Services output advanced 0.7%, industrial production rose 1% while construction output jumped 3.5%. Prime minister Johnson is facing growing discontent within the UK voters for the way he handles covid situation as well as for the growing number of scandals. Latest scandal included party in Downing Street during the lockdown in May of 2020. He has apologized for his transgression but his popularity took another hit. Labour Party leader characterized Prime minister’s excuse as was “ridiculous” and “offensive.”

This week we will have employment, inflation and consumption data.

Important news for GBP:

Tuesday :

• Claimant Count Change
• Unemployment Rate

Wednesday :

• CPI

Friday :

• Retail Sales

AUD

Australian trade balance for November came in at AUD9.42bn, down from AUD10.78bn the previous month. Although global demand subsided due to emergence of Omicron variant, exports still managed to increase 2%. Lifting of restrictions led to increase in domestic demand which contributed to imports rising 6%. Inflation data from China for the month of December showed CPI at 1.5% y/y vs 1.8% y/y as expected and down from 2.3% y/y in November. PPI recorded a second consecutive month of prices rising at slower pace and came in at 10.3% y/y vs 12.9% y/y in the previous month. December trade balance data from China showed surplus rising to $94.6bn due to a plunge in imports (19.5% vs 31,7% in November). Exports were stable at 20.9% vs 22% the previous month. 2021 was a great year for China’s trade as trade surplus widened to a new record high of $ 676.4bn on the back of exports rising almost 30%.

This week we will have employment data from Australia as well as GDP, production and consumption data from China.

Important news for AUD:

Monday :

• GDP (China)
• Industrial Production (China)
• Retail Sales (China)

Thursday :

• Employment Change
• Unemployment Rate

NZD

Kiwi had a decent week thanks to the weak data coming from the US and subsequently weak USD, so NZDUSD rallied around 90 pips. Concerns regarding potential China shutdown due to the omicron outbreak caused it to be much weaker against the safe haven JPY and NZDJPY dropped almost 150 pips for the week.

CAD

CAD has enjoyed a tremendous week. Helped by rising oil and lumber prices as well as weak USD it has rallied more than 150 pips against the USD during the week and more than 250 pips from the highs of the week. USDCAD pair has ticked its monthly low, however further falls cannot be excluded.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday :

• CPI

Friday :

• Retail Sales

JPY

BOJ survey showed that 78.8% of households expect prices to rise in the year ahead while 80.8% expect prices to rise 5 years ahead. The survey may influence BOJ decision next week and we could see a drop of reference to downside inflation risks. BOJ has raised its assessment for all 9 regions compared to October of 2021 as economic activity picks up across the country followed by the removal of restrictions.

This week we will have BOJ meeting. There will be no changes to the rate or yield curve control, however we may see changes to the inflation expectations.

Important news for JPY:

Tuesday :

• BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending January 7 came in at CHF724.6bn vs CHF722.8bn the previous week. Increase in SNBs activity probably led to EURCHF climbing over the 1.04 level and staying there.

[katetrades]

Forex Major Currencies Outlook (Jan 24 – Jan 28)

FOMC and BOC meetings will dominate the week which will also see a preliminary PMI data from the EU, the UK and Japan as well as preliminary Q4 GDP data from the US and inflation data from the US, Australia and New Zealand.

USD

Building permits in December came in at 1.873m vs 1.71m as expected and 1.717m in November for almost a 10% monthly rise! Housing starts came in at 1.702m vs 1.678m the previous month adding to the strength of the housing sector. The yield on 10y treasuries touched the 1.9% level during the week, the first time it went that high since 2019. Calls are being made for 2% in the short-term and 2.25% by the end of the year. Market probability of a March hike now stands at 88.2%

This week we will have preliminary Q4 GDP reading, Fed’s preferred inflation metric PCE and FOMC meeting. There is a possibility that FOMC members decide to end QE program and thus prepare ground for a March hike.

Important news for USD:

Wednesday :

• Fed Interest Rate Decision

Thursday :

• GDP

Friday :

• PCE

EUR

The first data of the year is ZEW survey which showed German current conditions fall to -10.2 from -7.4 at the end of 2021. Uncertainty around the current German economy is mounting, however the outlook component jumped to 51.7 from 29.9 back in December. The jump indicates that investors are seeing brighter conditions for the economy in H2. Similar situation is with the Eurozone expectations reading which came in at 49.4, up from 26.8 the previous month. German PPI reading rose 5% m/m, thus making it the biggest rise since the end of World War II. In response to the mounting price pressures yield on 10y German bonds reached 0% for the first time since 2019.

Final inflation data for Eurozone in the month of December was unchanged from preliminary reading with headline at 5% y/y and core at 2.6% y/y. ECB meeting minutes revealed increased importance of wage growth in forming a monetary policy. ECB President Lagarde stated that ECB is not forced to follow Fed.

This week we will have preliminary PMI data for January.

Important news for EUR:

Monday :

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

Employment report for the month of December showed claimant count change drop by -43.3k. ILO unemployment rate slid to 4,1% from 4.2% in November. Wages continued to slide as well penning this as a mixed report. Labor market getting tighter, the fall in the unemployment rate increases chances of a February hike, however wage pressures slowly subsiding and falling below inflation numbers indicating that BOE will not raise interest rates at the pace that markets are pricing in.

Inflation data for December showed headline number climbing to 5.4% y/y from 5.1% y/y in November with core coming in at 4.2% y/y vs 4% y/y the previous month. Another data point speaking in favor of February rate hike. Retail sales dropped -3.7% m/m and -0.9% y/y with ex-fuel category dropping -3.6% m/m and -3% y/y. All of the readings were in healthy positive territory the previous month although they were revised down. The reading indicates devastating effect of inflation on consumer spending combined with impact of Omicron and post-Christmas shopping. BOE will stay on a hiking track to fight inflation.

The swap market is pricing in around 90% chance of a hike at the February meeting with four rate hikes expected this year. If BOE decides to hike rates in February it would lift the base rate to 0.50%, which is the threshold necessary for allowing a reduction of the balance sheet.

This week we will have preliminary PMI data for January.

Important news for GBP:

Monday :

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

December employment report showed employment change at 68.4k vs 30k as expected. The unemployment rate dropped to 4.2% from 4.6% the previous month for the lowest reading since 2008. Participation rate stayed the same at 66.1% which enhances the impressiveness of the drop in the unemployment rate. Full-time jobs contributed with 41.5k with part-time jobs adding additional 23.3k. Some banks suggest that with such a tight labor market RBA may act and hike rates in August of 2022, however Governor Lowe explicitly stated numerous times that they wish to see wage growth above 3% before acting on rate hikes.

Q4 GDP came in at 1.6% q/q and 4% y/y, thus beating the expectations of 1.1% q/q and 3.6% y/y. This puts overall 2021 GDP at 8.1%. The reading is elevated due to the low base in 2020 which saw GDP rise only 2.2%. Industrial production in December came in at 4.3% y/y for the third consecutive month of faster rises putting the reading for the entire 2021 at 9.6% y/y. The biggest contributors were industries for “new energy” cars and industrial robots while on the service side it was activities in telecommunications. Retail sales grew measly 1.7% y/y in December, dragged down by the slumping car sales. In 2021 retail sales grew impressive 12.5% y/y.

PBOC has cut its MLF (Medium-Term Lending Facility) by 10bp from 2.95% to 2.85%. Additionally, they cunt 7-days reverse repo rate, also by 10bp. Later during the week further cuts have been made. 1-year LPR (Loan Prime Rate) was cut by 10bp from 3.8% to 3.7% while 5-year LPR was cut by 5bp from 4.65% to 4.6%. All of the moves are intended to stimulate the lending and thus the economy. Lowering of rates cannot force banks to increase lending as they still see risks looming in the credit market so PBOC may be forced to ease more in the future.

This week we will have a Q4 inflation data.

Important news for AUD:

Tuesday :

• CPI

NZD

Second GDT auction in January brought a 4.6% rise in dairy prices. Whole milk prices rose 5.6% followed by butter prices with 5% rise. The reading will additionally improve New Zealand’s terms of trade.

This week we will have a Q4 inflation data.

Important news for NZD:

Wednesday :

• CPI

CAD

December CPI reading showed headline number ticking up to 4.8% y/y for the highest reading since 1991! The biggest contributors were “homeowners” home and mortgage insurance with 9.3% rise, passenger vehicles with 7.2% and food with 5.2% price rise. All three core measures increased as well with median and trimmed now at or above 3% while common is at 2.1% y/y. The report will increase chances of the rate hike at the incoming meeting.

This week we will have a BOC meeting. Markets are now pricing over 85% chance of a rate hike and with BOC quarterly business survey reaching record high level in Q4 the hike is crossing to almost certain.

Important news for CAD:

Wednesday :

• BOC Interest Rate Decision

JPY

Core machinery orders, a leading indicator of capital spending, 6-9 months in the future, surged 3.4% m/m and 11.6% y/y in November vs 1.5% m/m and 6.1% y/y as expected. The reading shows a positive sign that private firms are spending which in turn should lead to faster recovery for the economy.

BOJ has left the interest rate unchanged at -0.10% as well as targeted yield on 10y JGB at around 0% as was widely expected. They see risks for price outlook broadly balanced and for economic activity skewed to the downside. Inflation projections for 2022 and 2023 have been revised up to 1.1%. GDP for 2022 has also been revised up to 3.8% from 2.9% previously. BOJ governor Kuroda reiterated stance that the bank will no hesitate to ease further, adding that weak yen is not a bad thing for the economy. He also added: “We’re expecting long and short-term policy rates to remain at the current levels or fall even lower…Raising rates is unthinkable."

Prime Minister Kishida announced new restrictions for 13 prefectures, including Tokyo and its surrounding area. Restrictions will start on January 21 and will last all the way through February 13. The area under restrictions is responsible for almost 50% of GDP. There is also a possibility that even greater part of the country will be put under restrictive measures thus making even bigger blow to the economy.

CHF

SNB total sight deposits for the week ending January 14 came in at CHF724.5bn vs CHF724.6bn the previous week. Virtually no change in the reading as investors have pushed EURCHF above the 1.05 level.

[katetrades]

Forex Major Currencies Outlook (Jan 31 – Feb 4)

RBA, BOE and ECB are all meeting in huge week ahead of that will also see NFP on Friday coupled with employment data from Canada. Additionally, we will get preliminary Q4 GDP and January CPI data along with Q4 employment data from New Zealand.

USD

Fed has left rates unchanged at their January meeting as was widely expected. There was no speeding up of taper, it will end in early March. With inflation running at well above 2% and strong labor market committee members stated that it will be appropriate to start raising interest rates at the coming meetings. Fed funds rate remains primary tool for the tightening of monetary policy. Chairman Powell did not rule out hiking at every meeting adding that “Quite a bit of room to raise rates without hurting jobs”. He added that discussion about balance sheet reduction will be held at the next two meetings. Separately published document regarding balance sheet it was stated that “reducing the size of the Federal Reserve’s balance sheet will commence after the process of increasing the target range for the federal funds rate has begun”. Markets are now pricing in a rate hike in March at around 80%.

Advance reading of Q4 GDP came in at 6.9% vs 5.5% as expected. Personal consumption rose 3.3% vs 2% in Q3 and thus contributed 2.25bp to the reading. The biggest contributor was gross private domestic investment with 5.15bp. Inventories surprised with a 4.9bp contribution to the Q4 GDP. December PCE headline number ticked up to 5.8% y/y from 5.7% y/y in November while core PCE came in at 4.9% y/y vs 4.7% y/y the previous month. The IMF downgraded forecast for global GDP in 2022 to 4.4% from 4.9% projected in October. The virus, higher inflation, and high debt levels were key considerations. Failure to pass Build Back Better infrastructure project also contributed to the downgrade.

This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected to come at around 240k with the unemployment rate staying at 3.9% while earnings are expected to come above 5% y/y.

Important news for USD:

Tuesday :

• ISM Manufacturing PMI

Thursday :

• ISM Non-Manufacturing PMI

Friday :

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Preliminary PMI data from Eurozone were influenced by improvements in German readings and drops in French readings. Manufacturing managed to climb to 59 from 58 in December thanks to German reading coming in at 60.7. Services reading fell to 51.2 which is the lowest level since April of last year. The drop was influenced by Omicron outbreak but as Markit notes the fact that reading is still above 50 indicates that impact of the virus on the economy should not be severe. Composite reading came in at 52.4 assisted by German reading returning to expansion with a healthy 54.3. Markit notes that “prices for goods and services are rising at a joint-record rate as increasing wages and energy costs offset the easing in producers’ raw material prices, dashing hopes of any imminent cooling of inflationary pressures.” Business have reported that input prices are rising at a much slower pace, slowest since April, which should ease inflation pressures.

German Ifo survey showed a break in the six-month downtrend for business climate and expectations categories. They came in at 95.7 and 95.2, up from 94.8 and 92.7 in December respectively. Current situation category continued to deteriorate and came up at 96.1, down from 96.9 the previous month. Bright spots are on the horizon, as Ifo economist notices, same as in the preliminary PMI reports, that there is easing in supply shortages in both industrial sector and in raw materials.

This week we will have preliminary Q4 GDP and January CPI data as well as ECB meeting. No changes in rate and policy are expected but wording will be monitored for information on how the bank plans to navigate stimulating the economy with fighting the inflation.

Important news for EUR:

Monday :

• GDP

Wednesday :

• CPI

Thursday :

• ECB Interest Rate Decision

GBP

UK preliminary PMI data showed manufacturing drop to 56.9 from 57.9 the previous month and services slide to 53.3 from 53.6 in December. Markit noted that "Business confidence in the outlook also picked up, driving sustained solid jobs growth. With inflationary pressures remaining elevated at near-record levels, this all adds to the likelihood of the Bank of England hiking interest rates again at its upcoming meeting.” Similar to the Eurozone reading there are signs of supply chain issues resolving which should lead to lower input costs for business and lower costs for consumers (lower inflation).

This week we will have a BOE meeting. A 25bp rate hike is expected which will lift bank rate to 0.50%. The BoE said they will stop reinvestments of maturing bonds (QE) when the Bank rate hits 0.5%, thus we see quantitative tightening starting from this meeting.

Important news for GBP:

Thursday :

• BOE Interest Rate Decision

AUD

Inflation data for Q4 showed headline CPI rising 1.3% q/q and 3.5% y/y vs 0.1% q/q and 3.2% y/y as expected. Trimmed mean reading, it is a core inflation readings which RBA targets to be in 2-3% y/y range, came in at 1% q/q and 2.6% y/y vs 0.7% q/q and 2.4% y/y. The numbers are elevated but still well within RBA’s range, therefore they will not have impact on the incoming monetary policy meeting. Additionally, RBA’s main concern is wage growth. Data for Q4 wages will not be available until the end of February.

This week we will have a RBA meeting and later on a Statement on Monetary Policy. The meeting will bring and end to bond purchases, planned to go through at least mid-February.

Important news for AUD:

Tuesday :

• RBA Interest Rate Decision

NZD

Q4 inflation data printed 1.4% q/q and 5.9% y/y. Both came in higher than expected with yearly figure now at a 31-year high. RBNZ will not be deterred from its rate hike path. Some analysts call for at least 7 rate hikes while others scream for a 50bp hike at the February 23 meeting.

This week we will have Q4 employment data.

Important news for NZD:

Tuesday :

• Employment Change
• Unemployment Rate

CAD

BOC delivered a mild surprise for investors by keeping the rate unchanged at 0.25%. Although there was a reduced chance of a rate hike since we wrote our call for a rate hike, markets were still giving it around 70% chance. Bank members now see that overall economic slack is absorbed and have removed exceptional forward guidance on interest rate. They see Omicron as a threat to the activity in Q1 but expect economy to continue strongly and see GDP for 2022 at 4%. Inflation is expected to reach 5% in H1 of 2022 due to supply constraints. Governor Macklem stated that BOC will need to raise interest rates in order to fight inflation and that they will go on a path of rate hikes. It seems that they are waiting to see how Fed will act and take clues from them. March 2 is the next meeting and we expect BOC to deliver a rate hike.

This week we will have employment data.

Important news for CAD:

Friday :

• Employment Change
• Unemployment Rate

JPY

Preliminary PMI data for January show manufacturing improving to 56.6 from 56.3 the previous month on the back of stronger growth seen in output, new orders (export orders as well) and backlog of orders. Output prices see stronger inflation, while input prices show weaker inflation as input costs are starting to subside. Services PMI, on the other hand, recorded a sharp drop to 46.6 from 52.1 in December. The drop was caused by the Omicron outbreak and all components of the reading are declining. Composite was dragged to 48.8 by the drop in services reading and only bright spot are new export orders which point to a stronger growth.

CHF

SNB total sight deposits for the week ending January 21 came in at CHF724.8bn vs CHF724.5bn the previous week. It is a bit surprising that SNB is standing on the sidelines when EURCHF has breached the multi-year lows. Most likely they are biding their time waiting to strike when they will be able to make the most with the least amount of intervention.

[katetrades]

Forex Major Currencies Outlook (Feb 7 – Feb 11)

After two highly eventful weeks full of central bank meetings, we will have a quiet week ahead of us dominated by inflation data from the US and Q4 GDP data from the UK, thus leaving investors time to contemplate recent events and formulate their strategies.

USD

Atlanta Fed president Raphael Bostic stated in an interview with Yahoo Finance that 50bp rate increase in March is not preferred policy action. He still sees 3 rate hikes in 2022. Kansas City Fed president Esther George, a voting member in 2022, stated that current very accommodative stance of monetary policy is out of sync with the economic outlook, adding that it could be appropriate to more earlier on balance sheet reduction. She is a well known hawk.

NFP headline number in January surprised to the upside coming in at 476k vs 150k as expected. Participation rate increased to 62.2% from 61.9% in December which caused the unemployment rate to tick up to 4% from 3.9% the previous month. Wages were the highlights of the show as they rose 0.7% m/m and 5.7% y/y. This will add more to the demand-pull inflation and it will show up in the next week’s reading. Additionally, this data point cements Fed rate hike in March. A question about a 50bp will start popping up again. Probability of a 25bp rate hike at March meeting according to FedWatch Tool is at 80.8% while a 50bp rate hike probability rose to 19.2%.

This week we will have inflation data. Both readings are expected to continue rising with headline number printing 7.2% y/y and core number printing 5.9% y/y.

Important news for USD:

Thursday :

• CPI

EUR

Preliminary Q4 GDP reading showed the Eurozone economy expanding by 0.3% q/q and 4.6% y/y. The impact of the Omicron did not derail the economy as much as feared and proved that Europeans are learning to live with the virus. Growth was seen in France, Italy and Spain, while German economy contracted and negatively impacted overall GDP. According to seasonally adjusted data GDP growth for 2021 was at 5.2%.

German retail sales for December fell -5.5% m/m. A combination of post-holiday shopping and increasing inflation weighs on consumers and we may expect similar results from other EU countries. Stark contrast in inflation data saw German reading fall to 4.9% y/y from 5.3% y/y in December due to the reversal of VAT base effects from the calculation, reminder VAT was scrapped when pandemic began and then reintroduced in January of 2021. Expectations were for a bigger drop in inflation, 4.3% y/y. On the other hand, French reading ticked up to 2.9% y/y from 2.8% y/y the previous month, however still well below the German reading. Finally, preliminary EU inflation data for January came in at 5.1% y/y vs 4.4% y/y as expected and up from 5% y/y in December. The main culprit for the record high reading were energy prices which rose 28.6% y/y. Core inflation, on the other hand, came in at 2.3% y/y vs 1.9% y/y as expected, down from 2.6% y/y in December. Core numbers indicate that there is not muc spillover effect from the surging energy prices.

ECB left rates unchanged and came out with a virtually unchanged statement. The only difference from December’s statement was that Governing Council is now prepared to adjust its instruments “in either direction”. PEPP will end in March and APP purchases will end shortly before the rate hikes begin. Q1 growth will be slower due to restrictions caused by Omicron, particularly services sector. Later year growth will increase on the back of domestic demand. Then a true hawkish shift came in at the press conference. ECB president Lagarde started by saying that inflation will be elevated for longer than expected adding that it may be significantly higher than expected this year. She did not exclude a possibility of a rate hike later in the year. EURUSD rose almost 100 pips on her comments and continued to rise as market participants see rate hikes incoming by the year-end. March meeting is seen as a turning point for the monetary policy with some analysts calling for ending of APP program in June and first hikes in September. Others even see a hike in December following the one from September or just one in December.

GBP

BOE has delivered what all of the investors were expecting and raised interest rates by 25bp to 0.50%. The vote for rate hikes was split 5-4 but the 4 members voted for a 50bp interest rate hike to 0.75%. Members stated that rate hike is necessary due to the tightness of labor market and signs of greater persistence of domestic cost pressures. Inflation peak is now seen at around 7.25% in April. With the rate now at 0.50% BOE will start the first phase of balance sheet reduction, which consists of not reinvesting proceeds from matured bonds. A very hawkish BOE that will continue to raise rates at the March meeting. Governor Bailey has added at the conference that impact of Omicron will be short-lived. He also had an interesting remark that basically comes down to workers should not be pushing for higher wages right now. He meant it as a way to curb inflation but his comments came out as very insensitive. Later on her added: “I am not saying don’t give your staff a pay rise, this is about the size of it”.

This week we will have a preliminary Q4 GDP reading.

Important news for GBP:

Friday :

• GDP

AUD

RBA February meeting saw cash rate remain at 0.10% and an end to their QE program as we stated previous week. Bond purchases (QE) will conclude on February 10. The accompanying statement said “The Omicron outbreak has affected the economy, but it has not derailed the economic recovery.” Board members recognized that inflation has increased recently, however they think it is too early to conclude that it is sustainably within the target band of 2-3% for core CPI. Additionally they pose the question persistent the pick-up in inflation will be once problems on the supply-side get resolved. Members have reiterated their stance that “will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range". They added that wage growth is modest and that they expect a gradual rise in wages. As a reminder, governor Lowe stated repeatedly that they wish to see wages rise north of 3% before considering increasing rates. Regarding the balance sheet reduction statement says “The Board will consider the issue of the reinvestment of the proceeds of future bond maturities at its meeting in May.”

Both official and Caixin manufacturing PMI data showed that sector is struggling at the beginning of the year. Data in January came in at 50.1 and 49.1 respectively, falling from 50.3 and 50.9 in December. Growing covid cases and China’s zero-covid policy are putting pressure on the sector with Caixin reading returning into contraction and printing the lowest number since February of 2020.

NZD

Employment data for the Q4 were mixed. The unemployment rate slipped to 3.2% from 3.4% in Q3 and it is now at the lowest level since 1986. Digging into the details we can see that participation rate slipped down to 71.1% from 71.2% in the previous quarter. Wages continued to rise with average hourly wages increasing 3.8% q/q and private wages going up by 2.8% q/q. However, employment change stalled as it grew by 0.1% q/q and 3.7% y/y in Q4 compared to 2% q/q and 4.2% y/y in Q3. This reading will strengthen the chance of a rate hike by RBNZ at their meeting on February 23. There was another strong global dairy auction that saw GDT Price Index rise 4.1%. This makes a second consecutive auction of rises over 4% improving New Zealand’s terms of trade at a fast pace.

CAD

Employment report for January presented us with a picture of economy heavily impacted by Omicron. Restrictions in most provinces led to employment change coming in at -200k vs -125k as expected. Other data are not encouraging as well with participation rate dropping to 65% from 65.4% in December and the unemployment rate jumping to 6.5% from 6% the previous month. Wages also declined coming in at 2.4% y/y vs 2.7% at the end of the last year. Now that the restrictions have been lifted we will see improvement in February reading which will strengthen BOCs determination to raise rates at March meeting. November GDP figure came in at 0.6% m/m vs 0.4% m/m as expected. October reading was at 0.8% m/m.

JPY

Industrial data from Japan showed a slowdown in December by coming in at -1% m/m, however projections for the new year are much brighter. Retail sales also slumped by -1% m/m in December but with potential for another state of emergency around the country looming, chances of it getting stronger are low.

CHF

SNB chairman Jordan stated that some of the inflation is transitory and that bank expects it to come down in the coming months, however central banks must make sure that it does not become permanent which requires a careful monitoring of the situation. He added that strong Swissy is limiting inflation and that he sees no signs of wage price cycle. Retail sales in December fell -2% m/m and -0.4% y/y. November y/y reading was at 5.3%. A combination of post-holiday shopping and increasing inflation weighs on consumers.

[katetrades]

Forex Major Currencies Outlook (Feb 14 –Feb 18)

Retail sales from the US and the UK, coupled with inflation data from the UK, China, Canada and Japan along with employment data from the UK and Australia will be the high points of the week.

USD

Inflation numbers for the start of the year saw headline number jump to 7.5% y/y for a 40-year high. Additionally disturbing is that on a monthly basis inflation continued to increase (0.6% m/m vs 0.5% m/m in December). Core reading now rose to 6% y/y while a nasty surprise was seen in the real weekly earnings which came in at -0.5%, after last month’s reading was revised down to -0.3% from 0.1% as previously reported. All categories except for lodging away from home and gasoline saw increases in prices. This report will put pressure on Fed to hike by 50bp at March meeting and probability of a 50bp rate hike at March meeting according to FedWatch Tool jumped to 44.3%, rose to almost 95% and finished the week at around 65%. Yield on a 10y treasury bond briefly touched 2% after the inflation report came out. St Louis Fed president Bullard, most hawkish member, stated that Fed should hike by 100bp at the next three meetings and teased with the idea that rate hikes can come in between meetings. Late on Friday report came out that Russia will attack Ukraine within 48 hours which brought risk off mood in the markets and caused USD to rally. Oil, gold and VIX also rallied but the biggest winner was JPY.

This week we will have consumption data.

Important news for USD:

Wednesday :

• Retail Sales

EUR

Dutch central bank president and member of the ECB Governing Council Klaus Knot said in an interview that he expects first rate hikes in Q4 of 2022. That would mean an end to bond purchases by September. He is a well known hawk and currently they are having an upper hand in the ECB. ECB president Lagarde stated that inflation will remain high in the short term, but current price pressures will likely subside before becoming entrenched. She added “any adjustment to our policy will be gradual.” Her comments were assessed as “damage control” after market interpreted her press conference last week as very hawkish.

European Commission published latest forecasts and they project inflation to be at 3.5% in 2022 vs 2.2% as projected before, however they see 2023 inflation to fall to 1.7%, below their target of 2%. Inflation is expected to reach its peak at 5% in Q1 and the fall from there, it will stay above 3% until Q4. Growth was reduced to 4% from 4.3% for 2022, but it is expected to rise to 2.7% in 2023 from 2.4% as previously expected.

GBP

Preliminary Q4 GDP data came in at 1% q/q same as the downward revised Q3 reading and 6.5% y/y vs 7% y/y in the previous quarter. Personal consumption rose 1.2% q/q, business investment improved and rose 0.9% q/q vs -0.8% q/q in Q3. Government spending was also a big contributor to the reading by rising 1.9% q/q. Finally, net exports also contributed to the Q4 reading. UK’s economy finished the year on a down note as December’s GDP slipped -0.2% m/m due to the Omicron related constraints. A bigger drop was expected but it was mitigated by the higher health spending.

This week we will have employment, inflation and consumption data.

Important news for GBP:

Tuesday :

• Claimant Count Change
• Unemployment Rate

Wednesday :

• CPI

Friday :

• Retail Sales

AUD

Retail sales data for the Q4 showed a record high of 8.2% q/q rise. Lifting of covid restrictions in two biggest states coupled with holiday shopping sent the reading to new record levels. RBA governor Lowe continued to preach patience. He stated that they need to wait and see how data develops while acknowledging the a risk to waiting, to which he added the counter risk of acting to soon. GDP is estimated to be around 4.25% in 2022 and 2% in 2023. Gradual pick up in wages is expected. It is acceptable to have inflation running above 3% for some time and it is plausible to have rate hikes later in the year if the data supports it. So far their main concern was wage growth and it continues to be. Wages will need to move north of 3% in order for rate hikes to occur.

Caixin services PMI for the month of January came in at 51.4, down from 53 in December. The report shows slower increases in business activity as well as new orders while export sales fell at quickest rate for 15 months. Additionally, inflation pressures were up compared to the previous month. Composite reading came in at 50.1, barely in the expansion territory as Omicron related restrictions led to drops in production, transportation and sales of goods.

This week we will have employment data from Australia as well as inflation data from China.

Important news for AUD:

Wednesday :

• CPI (China)

Thursday :

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales in January showed an improvement to 3% m/m and 5.7% y/y from 0.4% m/m and 4.2% y/y the previous month. RBNZ inflation expectation data showed inflation in one-year ahead rising to 4.4% which would be a 31-year high. Expectations in the previous quarter were for them to be at 3.7%. RBNZ target for inflation is 1-3% and new inflation projection moved further away from their target. Rate hike on February 23 is imminent and priced in and from a technical standpoint NZDUSD is posed to go down due to the USD strength.

CAD

BOCanada Governor Macklem reiterated that they are on the rate hike path. He sounded hawkishly stating that the policy rate may need to go to neutral level (2.25%) in order to address the price pressures.

This week we will have inflation data.

Important news for CAD:

Wednesday :

• CPI

JPY

December wages and spending data were a downer. Real wages fell -2.2% y/y for the highest drop in 18 months. Nominal wages came in at -0.2% y/y, thus falling for the first time since January of 2021. Household consumption was down -0.2% y/y thus making it a fifth consecutive month of falling personal consumption. Declines were led by fuel, light and water charges while there was an increase in consumption of education. BOJ has decided to keep the yields on 10y JGB capped at 0.25%. Starting February 14 they will buy unlimited amount of bonds at fixed rate of 0.25%.

This week we will have a preliminary Q4 GDP reading. Expectations are for it to go into contraction of almost 1%.

Important news for JPY:

Tuesday :

• GDP

CHF

SNB total sight deposits for the week ending February 4 came in at CHF725bn vs CHF724.9bn the previous week. With ECB president Lagarde sounding so hawkish at the press conference SNB did not need to do anything. They just let the markets drag EURCHF pair toward the 1.06 level. Labour market continues to tighten even further with the unemployment rate in January slipping down to 2.3% from 2.4% in December. Inflation data in January showed a small tick in headline number (1.6% y/y vs 1.5% y/y in December) while core reading stayed unchanged at 0.8% y/y.

[katetrades]

Forex Major Currencies Outlook (Feb 21 – Feb 25)

RBNZ meeting, preliminary PMI data from the EU and the UK coupled with wages data from Australia will dominate the week ahead of us. Monday is a holiday in the US so banks will be closed and liquidity will be thinner.

USD

Retail sales had a strong start to a new year. They came in at 3.8% m/m vs 2.5% m/m as expected. Control group, it is used for GDP calculation, came in at 4.8% m/m. It is important though to note that retail sales are not adjusted for inflation, so when prices of goods rise if people buy the same amount of goods as previous month, retail sales will print a higher number. Non-store retailers, online, showed the biggest rise followed by furniture stores and auto dealers. On the other hand, sales declined at gasoline stations and for sporting goods. After the FOMC minutes showed that there was no serious talk about a 50bp rate hike in March CME’s FedWatch Tool now puts a probability of a 25bp rate hike at 71.2%.

This week we will have second estimate of Q4 GDP as well as Fed’s preferred PCE inflation data.

Important news for USD:

Thursday :

• GDP

Friday :

• PCE

EUR

February ZEW survey showed improvement in German current conditions as well as expectations reflecting the excitement about leaving the pandemic restrictions behind and indicating growing optimism among the investors. EU expectations, on the other hand, slipped for the first time in three months. Second reading of EU Q4 GDP was unchanged at 0.3% q/q and 4.6% y/y.

This week we will have preliminary PMI data for February.

Important news for EUR:

Monday :

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

Employment report showed claimant counts dropping by -31.9k in January. The ILO unemployment rate for December held steady at 4.1% while the 3-month employment change, up until December, came in at 38k indicating tight labour market conditions. Average weekly earnings ticked up to 4.3% from 4.2% the previous month. Inflation in January ticked up to 5.5% y/y from 5.4% y/y in December, a new 30-year high, with core rising a bit higher to 4.4% y/y vs 4.2% y/y the previous month. Month-over-month figure was -0.1% m/m which may indicate that price pressures will slowly start to ease. BOE has said that April will represent peak in inflation, at above 7%. They will continue with the rate hike in March after these reports.

This week we will have preliminary PMI data for February.

Important news for GBP:

Monday :

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

RBA meeting minutes from the February meeting showed board’s willingness to be patient and monitor how the various factors impact inflation. They acknowledged that inflation had picked up more quickly than expected, but it was too early to conclude that it was sustainably within the target band. They still see inflation moderating when supply issues get resolved. Employment report for January showed employment change at 12.9k vs 0k as expected. The unemployment rate remained at 4.2% while participation rate ticked up to 66.2% from 66.1% in December giving additional strength to the report. Full-time employment fell -17k and it will take away some shine from the report while part-time employment rose 29.9k. Markets were completely unfazed by the report as Russia-Ukraine tensions were dominating.

PBOC has injected 300bn yuan via a 1 year Medium-term Lending Facility (MLF) and left rate unchanged at 2.85% as was widely expected. 1 year and 5 year Loan Prime Rates (LPR) will be set on February 20. Inflation data for January saw CPI drop to 0.9% y/y from 1.5% y/y in December and PPI continue to decline and come in at 9.1% y/y, down from 10.3% y/y the previous month. The government effects of fighting high input costs are yielding results as PPI returned to the levels last seen in July of 2021.

This week we will have wages data. RBA wants to see them north from 3% in order to start raising interest rates.

Important news for AUD:

Wednesday :

• Wage Price Index

NZD

The second February auction saw dairy prices rise by 4.2%. This is a third consecutive auction where dairy prices are rising by more than 4%. Terms of trade keep on improving. PPI for Q4 came below expectations, potentially signalling easing of inflation pressures. Input PPI came in at 1.1% q/q vs 1.6% q/q as expected and in Q3 while output PPI came in at 1.4% q/q vs 2.3% q/q as expected. It was at 1.8% q/q in the previous quarter.

This week we will have RBNZ meeting as well as Q4 retail sales. Rate hike of 25bp to 1% is fully priced in.

Important news for NZD:

Wednesday :

• RBNZ Interest Rate Decision

Thursday :

• Retails Sales

CAD

Inflation data in January set a new record held by December’s reading which indicates how fast and far inflation is moving. Headline CPI came in at 5.1% y/y vs 4.8% y/y the previous month. All core readings returned new highs with common at 2.3% y/y, median at 3.3% y/y and trimmed at 4% y/y. BOC stated that it is ready to raise interest rates and with inflation running rampant we can pencil in March meeting as certain. Now the question arises if it will be a 25bp raise or a 50bp raise.

JPY

Preliminary Q4 GDP reading came in a bit weaker than expected at 1.3% q/q vs 1.4% q/q and 5.4% y/y vs 5.8% y/y as expected. Both of the previous readings were revised higher so that can explain small misses to the estimates. Private consumption improved to 2.7% q/q from -0.9% q/q in Q3 and was higher than 2.2% q/q as expected. Business investment also improved to 0.4% q/q from -2.4% q/q the previous quarter. Net exports contributed to GDP reading with 0.2pp. GDP deflator, an indication of inflation, fell to -1.3% from -1.2% in Q3 thus showing well known deflationary pressures. Inflation will increase in the coming months due to base effects, but it is still very well below levels seen in other economies around the globe. Inflation is moving in the opposite direction from the rest of the world. January CPI came in at 0.5% y/y, down from 0.8% y/y in December while ex fresh food and energy category dropped to -1.1% y/y, a new decade low. High energy prices are the only thing keeping the headline number in positive territory.

CHF

SNB total sight deposits for the week ending February 11 came in at CHF725.1bn vs CHF725bn the previous week. Virtually unchanged as markets expect two rate hikes this week from ECB and thus pushed EURCHF toward the 1.06 level during the wee. The announcement of imminent Russian invasion of Ukraine on last Friday lead to Swissy strength, as safe haven. If the situation escalates it may lead to unwanted Swissy strength so SNB will be pressed to act.

[katetrades]

Forex Major Currencies Outlook (Feb 28 – Mar 4)

RBA and BOC meetings are in play with BOC almost certainly raising rates in the week ahead of that will also see preliminary CPI reading from the EU for February. It will all be capped by the NFP on Friday.

USD

Geopolitical action saw Russian President Vladimir Putin recognize independence of two separatist entities in south east Ukraine, Donetsk and Lugansk People’s Republics (DLPR). The US, EU, UK, and Canada have reacted by widening the sanctions. The Nord Stream 2 pipeline project, which is designed to transmit Russian gas directly to Germany, was targeted first. Foreign participation in Russia’s sovereign debt issued after 1 March was banned as well as Russia’s two financial institutions, were blocked with financial sanctions. Additionally, new sanctions were applied to a number of high ranking individuals. This was considered to be just the first part of actions against Russia. On the early Thursday morning, during the Asia trading session, Russia’s has started military operations in Ukraine. This has led to jumps in gold and oil with Brent crossing the $100 mark and WTICrude reaching the $100 milestone later in the day. Natural gas prices exploded as well. Stock markets were down across the globe and yield on the 10 y US treasury fell to 1.85% as risk off mood gripped the markets and flight to safety ensued. The probability of a 25bp rate hike at the March meeting, according to the CME FedWatch Tool, is at 82.8%.

This week we will have ISM PMI data as well as the NFP on Friday. Headline number is expected to be around 350k with the unemployment rate staying the same and wages rising 0.5% m/m.

Important news for USD:

Tuesday :

• ISM Manufacturing PMI

Thursday :

• ISM Non-Manufacturing PMI

Friday :

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Preliminary PMI data showed strong improvements in the services sector across the Europe. Eurozone services PMI came in at 55.8 vs 51.1 in January on the back of strong readings from both Germany and France. It managed to lift composite reading also to 55.8 level. Manufacturing reading stalled a bit and came in at 58.4, down from 58.7 the previous month and it is at an elevated level. A drop in German reading lead to the drop in the Eurozone reading, however French reading improved to 57.6 from 55.5 the previous month. A rise in services reading is a very welcoming sign, indicating that Europe has weathered the Omicron crisis, however as Markit notes: “service sector input cost inflation accelerated to a record high reflecting rising wages and soaring energy costs. The resulting overall rate of input cost inflation seen across both sectors rose to the second-highest on record”, mounting price pressures are set to keep inflation elevated in the coming months. The report will bring some upward revisions to Q1 GDP and should cause ECB to take a more hawkish stance. ECB member and governor of Central Bank of Austria Holzman, a well known hawk, stated that ECB should take more cautious approach and keep the stimulus for longer now that Russia’s military action occurred.

This week we will have preliminary CPI reading for the month of February. Preliminary French reading surprised to the upside and came in at 3.6% y/y so we may get higher number than 5.2% y/y as expected.

Important news for EUR:

Wednesday :

• CPI

GBP

February PMI data (preliminary) showed that consumers left Omicron scare behind them and increased their spending on leisure, travel and entertainment. Services reading came in at a very high 60.8 vs 55.2 as expected and up from 54.1 in January. This has helped push composite up to 60.2 from 54.2 the previous month. Markit warns about growing price pressures seen in the economy. Manufacturing PMI was unchanged at 57.3.

AUD

Wage growth index for Q4 came in at 0.7% q/q as expected and slightly missed on yearly figure (2.3% vs 2.4%). Wage growth is a closely watched indicator by RBA as they want to see it north of 3% y/y before considering raising interest rates. The reasoning is that wage growth is necessary for inflation to be sustained. Q4 inflation was 3.5% y/y which puts real wages (nominal – inflation) into negative territory.

This week we will have RBA meeting and a Q4 GDP reading. RBA will acknowledge that wages are rising but since they are still below their target they will not signal that they are in a hurry to raise interest rates.

Important news for AUD:

Tuesday :

• RBA Interest Rate Decision

Wednesday :

• GDP

NZD

RBNZ stayed through to its word and delivered a 25bp rate hike thus lifting the Official Cash Rate to 1%. In addition to a rate hike they have sounded very hawkishly in their statement stating that more tightening is needed as well as reduction of monetary stimulus. They have agreed to commence gradual reduction of their bond holdings accumulated during the Large Asset Scale Program (LASP). This will be done both passively, by stopping the reinvestment of proceeds from maturing bonds as well as actively, by outright selling the bonds. Bond sales will commence in July.

New projections see official cash rate at 2.57% in March 2023 vs 2.3% previously. Inflation is seen at 3.2% by March 2023 vs 2.9% previously with it reaching maximum of 6.6% q/q in Q1 of 2022. OCR is seen at 3.35% in March 2025, much higher than previous peak of 2.6% back in November. They stated that employment is now above its maximum sustainable level and that when discussing whether to move the OCR up by 25 or 50 basis points. “many members saw this as a finely balanced decision” Governor Orr added that rate hikes of 50bp cannot be ruled out in the future as rate needs to go up significantly. Message was as hawkish as it gets and NZD is now buy-on-dips.

CAD

The escalation of crisis in Ukraine brought concerns regarding availability of Russia’s oil supply which in turn raised oil prices, however CAD did not profit much from it. USDCAD was propelled up on the money flows into USD, acting as a safe haven. CAD profited against EUR and finally broke under the support of 1.4377.

This week we will have a Q4 GDP reading and BOC meeting. BOC is set to start its interest rate hiking path at the March meeting and deliver a 25bp increase.

Important news for CAD:

Tuesday :

• GDP

Wednesday :

• BOC Interest Rate Decision

JPY

Preliminary PMI data for the month of February showed serious declines in Japanese economy. Manufacturing dropped to 52.9 from 55.4 in January, services plunged to 42.7 from 47.6 the previous month and pulled with it composite to 44.6, down from 49.9 at the beginning of the year. This is the lowest services reading since May of 2020, it shows Japan’s struggles in containing the Omicron wave as new restrictions have been reimposed. Employment index showed weaker decline while business outlook declined, although still at a very healthy level. The report cites supply chain constraints and rising input costs for the drop to a 5-months low for the manufacturing reading. February inflation data for the Tokyo area saw headline number rise to 1% y/y from 0.5% y/y in January. This is the highest it is been since December of 2019. The main culprit for the rise were surging energy costs as ex-fresh food, energy component of the inflation improved slightly to -0.6% y/y from -0.7% y/y the previous month, but it is still deeply deflationary.

CHF

SNB total sight deposits for the week ending February 18 came in at CHF725.2bn vs CHF725.1bn the week before. A miniscule increase indicating that SNB is happy with EURCHF being at the current levels.

[katetrades]

Forex Major Currencies Outlook (Mar 7 –Mar 11)

ECB meeting, inflation data from the US and China as well as GDP data from the UK and Japan will be highlights of the week ahead of us.

USD

ISM Manufacturing PMI for the month of February came in at 58.6 vs 58 as expected and up from 57.6 in January. New orders index jumped to 61.7 with production improving to 58.5. Backlog of orders surged to 65 with new export orders also surging. Prices slipped to 75.6 from 76.1 indicating potentially better situation regarding supply chains disruptions. The only dent on a hugely impressive report was employment index which dropped to 52.9 from 54.5 in January, However, the reading is still above 50 so there is no big concern there. Additionally, the only industry that reported a decrease from January was Wood Products. Non-manufacturing was not as impressive as it came in at 56.5 vs 61 as expected. Business activity and new orders dropped around 5 index points while employment index fell into contraction (48.5). Inventories, backlogs of orders, new export orders and prices paid all rose indicating stronger foreign demand as well as growing price pressures.

Fed Chair Jerome Powell confirmed a 25bp rate hike at the March meeting on the back of high inflation and strong labor market. On the balance sheet reduction he stated that it will “commence after the process of raising interest rates has begun, and will proceed in a predictable manner primarily through adjustments to reinvestments".The yield on 10y T-Note fell to 1.687% as flight to safety and risk off mood dominated the markets at the beginning of the week but it rebounded later on going as high as 1.9% only to finish the week around 1.79%.

We had another strong jobs report with headline number coming in at 678k vs 400k as expected. The unemployment rate has dropped to 3.8% from 4% in January, indicating that labour market has potentially reached full employment. Even the participation rate improved to 62.3% giving strength to the drop in the unemployment rate. On the other hand, average earnings data has missed expectations and came in weaker than expected (flat m/m and 5.1 y/y). Leisure and hospitality added 178k with food service and drinking places adding 124k. They are low-paying jobs so they brought the average earnings down.

This week we will have inflation data that could get very close to 8% or even surpass that level.

Important news for USD:

Thursday :

• CPI

EUR

Final Eurozone PMI for the month of February were revised lower on the back of downward revisions to German and French reading. Italy and Spain surprised positively to the upside. Services reading was a mirror image of the manufacturing reading. It was revised down due to revisions in German and French readings while Italy and Spain surprised to the upside. Composite was also dragged down from the preliminary reported figure.

Preliminary CPI data showed headline reading jump to 5.8% y/y vs 5.4% y/y as expected on the back of increases in energy and food prices. Core reading came in at 2.7% y/y vs 2.5% y/y as expected. Both EU and German reading showed inflation accelerating at 0.9% m/m vs 0.3% m/m in January. With energy pricing rising out-of-hand, WTICrude above $110, we can expect inflation to continue increasing in the coming months and putting pressure on ECB to act.

This week we will have ECB meeting. There was hawkishness in minutes from the previous meeting, however with Russia-Ukraine situation escalating further we cannot see ECB moving towards tightening as stagflation risks increase. PEPP program should end and APP purchases should be increased by €20-40bn at the meeting.

Important news for EUR:

Thursday :

• ECB Interest Rate Decision

GBP

The UK’s February manufacturing PMI was revised up to 58.0 from 57.3 as preliminary reported. It is the first rise in two months. Services reading, on the other hand, was revised down to 60.5 but it is still very well into expansionary territory. Omicron related restrictions were cancelled and it led to big jump in business activity as well as in new orders. Composite was at 59.9.

This week we will get January GDP data and it is expected that the UK strongly started in new year.

Important news for GBP:

Friday :

• GDP

AUD

RBA March meeting did not bring any new information. The rate was left unchanged at 0.10% as widely expected. Board members have reiterated their willingness to be patient and affirmed that they are not prepared to increase the cash rate until inflation is sustainably within the 2-3% target range. They have acknowledged wage growth, however they are still low and members expect them to gradually rise towards the desired 3% level. Q4 GDP data came in at 3.4% q/q vs 3% q/q as expected due to the strong rebound in household consumption (6.3% vs -4.8% in Q3).

Official PMI data from China showed a struggling but resilient economy. Manufacturing ticked up to 50.2 from 50.1 in January while expectations were for it to slip into contraction with 49.9. Non-manufacturing fared much better and came in at 51.6, thanks to big jump in construction reading and it propelled composite to 51.2. Caixin manufacturing also managed to escape the contraction and came in at 50.4 vs 49.1 as expected. The report shows that business confidence started to pick up while new order rose above the 50 level (50.7, up from 49.3 the previous month) indicating that demand is pushing the recovery up. Caixin services dropped to 50.2 from 51.4 the previous month and that left composite barely hanging in the expansion territory at 50.1.

This week we will get trade and inflation data from China.

Important news for AUD:

Monday :

• Trade Balance (China)

Wednesday :

• CPI (China)

NZD

GDT auction brought another impressive result. Change in index came in at 5.1% for a fourth consecutive auction of dairy price increases above 4%. Average price has crossed the $5000 mark. Terms of trade for New Zealand in Q4 were -1% q/q and considering latest dairy auctions that number will turn into a positive in Q1 of 2022. Combined with aggressive hiking path by RBNZ we see NZD going higher.

CAD

BOC has delivered a rate hike of 25bp now lifting the rate to 0.50% as was widely expected. Unlike New Zealand and the UK, BOC decided to continue reinvesting proceeds from maturing bonds until they find appropriate time to start balance sheet reduction. Members have noted the war in Ukraine as a new source of instability that will lead to inflation worries around the world as well as additional supply disruptions which will weigh on global growth. Economic growth in Q4 in Canada has been stronger than expected indicating that economic slack has been absorbed and that Q1 will also be stronger than expected. The bank members see policy rate as primary tool of monetary policy and agree that rates will need to rise further as economy expands and price pressures remain. In regards to reduction of balance sheet and timing of rate hikes bank members stated “The resulting quantitative tightening (QT) would complement increases in the policy interest rate. The timing and pace of further increases in the policy rate, and the start of QT, will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target.”

Q4 GDP came in at 6.7% annualized vs 6.3% as expected and showed a growth of 1.6% q/q vs 1.3% q/q as expected. Investments in business inventories and gross fixed capital formation contributed to the jump while net external demand was a drag on growth with growth in imports outpacing growth of exports.6

This week we will get a February employment report.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

Preliminary January data were a mixed bag. Industrial production declined at the start of the year and came in at -1.3% m/m and -0.9% y/y. On the other hand, retail sales recorded another drop on the month (-1.9% m/m) but improved for the year, coming in at 1.6% y/y for the fourth consecutive month of increases. Social restrictions made it hard for consumers to spend more. Capex data for the Q4 showed a smaller than expected increase. It came at 3.4%, up from 1.2% in Q3, but less than 4.3% as expected. Corporate profits were also down compared to the Q3 as covid struggles were gripping the economy.

This week we will have a final Q4 GDP reading.

Important news for JPY:

Wednesday :

• GDP

CHF

Q4 GDP data came in at 0.3% q/q vs 0.4% q/q as expected and 3.7% y/y. Private consumption came in at just 0.3% q/q vs 2.7% q/q in Q3 with net exports negatively contributing to the reading. Government consumption was up 1% q/q vs -0.4% q/q in the previous quarter and that helped keep the reading positive. Retail sales rebounded strongly in January coming in at 5.1% y/y vs -0.4% y/y in December indicating that consumers started the year on a strong foot. SNB total sight deposits for the week ending February 25 were unchanged at CHF725.2bn. Inflation has crept in into Switzerland with February reading showing headline at 2.2% y/y vs 1.8% y/y as expected and core at 1.3% y/y vs 0.9% y/y as expected. Higher fuel prices and housing rents were the main contributors.

[katetrades]

Forex Major Currencies Outlook (Mar 14 – Mar 18)

Fed meeting will be front and centre followed by BOE and BOJ meetings, consumption data from the US and China and employment data from the UK and Australia.

USD

Inflation in February has set a new record high by coming in at 7.9% y/y. The good news is that it did not surpass expectations. The bad news is that monthly figure came in at 0.8% m/m indicating that new record high will be set in the coming months. Talks about inflation rising over 9% y/y in the near-term are mounting. Core reading came in at 6.4% y/y vs 6% y/y in January with a 0.5% m/m increase. The 10y breakeven, which represents the difference between the nominal yield and the yield of the inflation-protected security, reached a new record high of around 2.96% on March 8. Yield on 10y has returned above the 2% level.

This week we will have consumption data as well as the big Fed meeting. Chairman Powell already announced that Fed will raise interest rate by 25bp. This will mark the beginning of a rate hike cycle and the first rate hike since December of 2018. We will also get new dot plot projections.

Important news for USD:

Wednesday :

• Retail Sales
• Fed Interest Rates Decision

EUR

ECB has left key rates unchanged at their March meeting as was widely expected. On the QE front, APP purchases will be €30bn in May and €20bn in June before being stopped in Q3. Interest rate hikes will be done gradually and only after APP purchases end which leaves possibility for a rate hike in Q4. At the press conference, ECB President Lagarde stated that that conflict between Russia and Ukraine is the main source of uncertainty. She emphasized lower expected growth and higher expected inflation. According to ECB GDP in 2022 is now seen at 4.2% vs 4.6% in their previous forecast. On the inflation front, HICP for 2022 is now seen at 5.1% vs 3.2% as expected in December. That is over 50% increase in expected inflation! Core inflation for 2022 is expected to be around 2.6%. HICP for 2023 is seen at 2.1%, up from 1.8% as previously seen indicating that ECB expects inflation to slow down. Decision to continue with the tightening despite Russia’s escalation give hawkish feel.

GBP

January GDP data showed that the UK had a strong start to 2022. GDP came in at 0.8% m/m vs 0.2% m/m as expected. Services were up 0.8%, production was up 0.7% while construction posted the biggest gain of the three with 1.1%. Goods trade balance posted a record high deficit of -£26.5bn, more than doubling previous month’s deficit of £-12.3bn, on the back of exports tumbling -15.8% y/y while imports surged 21.8% y/y.

This week we will have employment data as well as BOE meeting. We expect BOE to raise interest rate by 25bp at this meeting.

Important news for GBP:

Tuesday :

• Claimant Count Change
• Unemployment Rate

Thursday :

• BOE Interest Rate Decision

AUD

Chinese trade balance data for the period January-February posted new record surplus in USD terms by coming in at $115.95bn. Exports have risen 16.3% y/y while imports rose 15.5% y/y. Trade volumes of certain export items have declined, however inflation caused overall exports to grow. Inflation data for February showed CPI come in at 0.9% y/y as expected and unchanged from January reading, however there was a 0.6% m/m jump which may cause concern. PPI continued to decline, but at a slower pace than expected. It came in at 8.8% y/y vs 8.7% y/y as expected, down from 9.1% y/y in January. Monthly jump was 0.5%, a rather big monthly rise.

“Two Sessions” meeting, the biggest annual political meeting, saw Chinese GDP penned at 5.5%, which is a 30-year low and set employment as the biggest challenge in 2022. Additionally, China is facing a triple threat of shrinking demand, disrupted supply and weakening expectations, stated by Premier Li. Inflation is expected to be below 3% for the year.

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Tuesday :

• Industrial Production (China)
• Retail Sales (China)

Thursday :

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales, which comprise almost 70% of total retail sales, had a dreadful month and fell -7.8% m/m. Yearly figure was able to make a small gain of 1.1% y/y. NZDUSD had an up and down week finishing almost at the same level where it started it. NZDJPY, on the other hand, had a good week with pair rising around 150 pips since the week started.

This week we will have Q4 GDP data.

Important news for NZD:

Wednesday :

• GDP

CAD

February employment report was a complete success. After January report was heavily distorted due to the Omicron outbreak February employment change came in at 336.6k, more than double the 160k as expected. Of all the jobs added 121.5k were full-time jobs while 215.1k were part-time jobs. The unemployment plunged a full percentage point to 5.5% from 6.5% in January and participation rate increased to 65.4% from 65% the previous month. To top the stellar report, wages rose 3.3%. BOC will be delighted with the report and they will remain on course for additional 25bp rate hike at their next meeting.

This week we will have inflation data.

Important news for CAD:

Wednesday :

• CPI

JPY

Some good data from Japan regarding wages. Nominal wages in January rose 0.9% y/y while real wages rose 0.4% y/y thus posting first positive reading in almost 6 months. Final Q4 GDP reading saw revisions to the downside. GDP came in at 1.1% q/q and 4.6% y/y, down from 1.3% q/q and 5.4% y/y as preliminary reported. Both private consumption and business investment were revised to the downside while contribution of the net external demand remained unchanged. The economy was not as strong as hoped in Q4, but it will serve as a lower base for the Q1 reading. Household spending in January was a bright spot as it rose 6.9% y/y for the first increase since July.

This week we will have BOJ meeting. No changes to rate or monetary policy are expected.

Important news for JPY:

Friday :

• BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending March 4 came in at CHF725.7bn vs CHF725.2bn the previous week. EURCHF has reached parity at the start of the week and SNB is well aware that it cannot fight the market now in order to keep the pair at desired level. They have, however, came out and reiterated their readiness to intervene if deemed necessary.

[katetrades]

Forex Major Currencies Outlook (Mar 21 – Mar 25)

After a big week that brought more clarity on central bank policies the week ahead of us will be quiet from the economic data standpoint with SNB rate decision, preliminary PMI from the EU and the UK as well as inflation from the UK being the highlights as investors digest central bank’s decisions and prepare to position themselves for Q2.

USD

Retail sales in February showed that surging gas prices start to impact consumers’ disposable income. Headline number was up 0.3% m/m vs 0.4% m/m as expected. Control group, it includes autos, food and energy and is used for GDP calculation as it has good correlation with overall consumer spending, came in at -1.2% m/m vs 0.4% m/m as expected. There was a big revision to the prior months’ control group reading (6.7% m/m vs 4.8% m/m as preliminary reported), however it may represent a prelude to a negative trend. Ex autos and gas category fell -0.4% m/m as majority of spending went into gasoline.

Fed chair Powell stayed true to his word given under an oath in his Congress testimony and raised interest rate by 25bp. This is the first rate hike since December of 2018 new range is now 0.25-0.50%. New projections in the Dot Plot showed the median rate at the end of 2022 at 1.9% vs 0.9% in December. This represents seven hikes in 2022! Expectations for 2023 and 2024 are at 2.8% which is above the Fed’s long-term neutral rate. The Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting. Additionally, they are ready to adjust the stance of monetary policy as appropriate. St. Louis Fed president Bullard wanted a 50bp rate hike at March meeting stating that “The combination of strong real economic performance and unexpectedly high inflation means that the Committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation”. If the tensions between Russia and Ukraine ease we could see a 50bp hike in May.

Summary of projections sees GDP at 2.8% in 2022 and 2.2% in 2023. The unemployment rate is seen at 3.5% for both 2022 and 2023 while in the longer run it is expected to be 4%. Core PCE inflation is expected to be at 4.1% in 2022, December production saw it at 2.7% and then drop to 2.6% in 2023. Prior to the Fed meeting the yield on 10Y T-note went as high as 2.196% and up to 2.226% post Fed meeting before dropping down below the 2.15% level. The 2-10y yield curve flattened post meeting as the 2y rose faster to reflect new rate hike projections.

EUR

Results of the ZEW survey for March were abysmal. Current conditions for the German economy dropped to -21.4 from -8.1 in February while expectations plunged to -39.3 from 54.3 the previous month. Notes accompanying report show that stagflation is expected in the coming months as all sectors of the economy have been impacted. Eurozone final CPI for February came in at 5.9% y/y vs 5.8% y/y as preliminary reported. Both monthly and core readings were unchanged at 0.9% m/m and 2.7% y/y respectively. ECB President Lagarde stated that it is increasingly likely that inflation will stabilise at 2% over the medium-term. Inflating energy prices reflected in Eurozone’s trade balance for January which posted a record deficit of -€27.2bn with energy imports increasing staggering 133% y/y.

This week we will have preliminary March PMI readings and a deterioration in numbers is expected.

Important news for EUR:

Thursday :

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

The employment report added another proof for the tightness of the labour market. The ILO unemployment rate dropped to 3.9% from 4.1% in January while wages, both with bonus and without bonus, showed improvements (4.8% and 3.8% vs 4.6% and 3.8% respectively). Claimant count change dropped by additional 48.1k pulling the claimant count rate with it to 4.4%.

BOE has delivered a 25bp as was expected, now bringing the rate up to 0.75%. The vote showed much less confidence in a rate hike path than at the previous meeting. It was a 8-1 vote in favour of a 25bp hike with MPC member Cunliffe voting to keep the bank rate at 0.50%. Remember, last time the rate was hiked vote was 5-4 in favour of a rate hike with 4 members voting for a 50bp hike. MPC members stated that “some further modest tightening in monetary policy may be appropriate in the coming months”. Markets have interpreted it to mean uncertainty about the path of future rate hikes and GBP dropped about 100 pips after the release. We see additional rate hike in May, to bring the rate up to 1%, after which there will be a pause and reassessment of “developments in the light of incoming data and their implications for medium-term inflation, including the economic implications of recent geopolitical events”.

This week we will have preliminary March PMI readings as well as inflation and consumption data.

Important news for GBP:

Wednesday :

• CPI

Thursday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

Friday :

• Retail Sales

AUD

RBA meeting minutes from the March meeting saw members reiterate that they will not increase the cash rate until actual inflation is sustainably within the 2-3% target band. Members have acknowledged pick up in inflation, however it is too early to say that it will be sustainably within the target band. They have stated that the war Ukraine is a major new source of uncertainty. February employment report was a stellar success. Employment change came in at 77.4k, more than double of 37k as expected. The unemployment rate fell to 4% from 4.2% in January while participation rate rose to 66.4% from 66.2% the previous month. To top off the report, 121,9k jobs added were full-time jobs while part-time jobs fell by -44.5k. AUDUSD has crossed the 0.73 level on strong jobs report and some banks stared to call for a rate hike at a June meeting despite what RBA stated. We still think that RBA will not move before wage growth goes over 3%, as they stated multiple times.

China is fighting with new covid outbreak and there are lockdowns for the Shenzhen and the entire province of Jilin. The population of Jilin province is roughly 24 million while the city of Shenzen hosts around 18 million people. February data were encouraging. Industrial production came in at 7.5% ytd vs 3.8% ytd as expected, retail sales were up 6.7% ytd vs 3.5% ytd as expected. PBOC members were satisfied with data and decided to leave MLF rate unchanged at 2.85%. Chinese officials made a shift and promised to keep the stock market stable which prompted a rally in the stock market with Hang Seng index jumping 9%.

NZD

Q4 GDP data, a very dated data since we are closing down on Q1 of 2022, came in at 3% q/q and 3.1% y/y. The data showed a healthy rebound from the Q3 that was impacted by covid restrictions. Leading the way were services which expanded by 6.7% with goods-production industries rising by 6.5% while primary industries contracted by 2.2%.

CAD

Inflation continues to run hot in Canada and it confirms that BOC will not take the foot of the gas pedal in regards to the rate hikes. February data show headline inflation rising to 5.7% y/y vs 5.5% y/y as expected and up from 5.1% in January. Headline inflation rose 1% m/m due to surging energy prices followed by rise in food prices and household appliances. All three of the core measures rose with median coming in at 3.5% y/y, common at 2.6% y/y and trimmed at 4.3% y/y. Retail sales is January rose by 3.2% m/m vs 2.4% m/m as expected. The increase was led by higher sales at motor vehicle and parts dealers Sales were up in 9 of 11 sub sectors, representing 85.5% of retail trade.

JPY

BOJ meeting was another snooze fest. Both the rate (-0.10%) and the monetary policy were left unchanged as widely expected. The overall assessment of the economy was downgraded however, economy is likely to recover as impact of virus subsides. They have noted that exports are increasing but that they are stifled by the supply constraints. The bank members highlighted new risks from the Ukraine crisis and how it can have destabilising impact on financial markets as well as sharply pushing up raw material costs. Inflation data for February saw headline number rise to 0.9% y/y on the back of surging energy prices, however “core-core” reading, ex-frsh food and energy came in at abysmal -1% y/y.

CHF

SNB total sight deposits for the week ending March 11 came in at CHF728bn vs CHF725.2bn the previous week. There was a noticeable jump from the previous week as EURCHF hit parity on Monday. After that, the pair is hovering around the 1.02 mark.

This week we will have SNB meeting. No changes to monetary policy or rate are expected.

Important news for CHF:

Thursday :

• SNB Interest Rate Decision

[katetrades]

Forex Major Currencies Outlook (Mar 28 – Apr 2)

The week ahead of us, last week of the Q1, will be dominated by NFP release as well as inflation data from the US and the EU.

USD

Talks about a 50 bp rate hike in May are mounting as Chairman Powell stated that they are ready to hike by more than 25 bp, if appropriate. Prospect of a 50bp rate hike has been supported by a fair amount of FOMC members. FedWatchTool now sees the probability of the event at 70.5%. Yield on 10y T-note was up to 2.489%, however the 2-10y spread went as low as 0.137 before stabilizing around 0.21.

This week we will have Fed’s preferred inflation measure PCE and NFP data on Friday. Headline number is projected at around 475k, while the unemployment rate should tick down to 3.7% with wages rising about 0.2% m/m.

Important news for USD:

Thursday:

• PCE

Friday:

• Nonfram Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Preliminary PMI readings for the Eurozone, German and France in the month of March had a common team of smaller than expected slowdowns and mounting price pressures led by surging input prices index. French services reading deviated from the trend as it improved compared to the February reading (57.4 vs 55.5 the previous month) and dragged with it composite up to 56.2 from 55.5 in February. Eurozone manufacturing came in at 57, services at 54.8 and composite at 54.5. The numbers are still elevated but with ongoing Russia – Ukraine situation and with backlog of orders declining we can see them dropping in the coming months.

Ifo report for March showed German business climate deteriorating to 90.8 from 98.5 in February and now barely holding above the level from January of 2021. Expectations plummeted even faster coming in at 85.1, down from 98.4 for the lowest reading since May of 2020, at the heart of first Covid wave. Ifo economist, Klaus Wohlrabe, stated that firms are facing bigger and bigger price pressures and are planning to increase prices. He added that supply chain issues have worsened since February.

This week we will have preliminary inflation data for the month of March and continuation in trend is expected with a rise to 6.4% y/y for the headline reading and 3.2% y/y for the core reading.

Important news for EUR:

Friday:

• CPI

GBP

Inflation shows no signs of slowing down. Headline number for the month of February came in at 6.2% y/y vs 5.9% y/y as expected and up from 5.5% y/y in January with 0.8% m/m increase. Core reading came in at 5.2% y/y vs 5% y/y as expected and up from 4.4% y/y the previous month. The reading is highest in 30 years. It was led by higher energy prices, however food prices also contributed strongly with a 1% m/m rise. Inflation should continue rising and reach its peak in April. BOE will be forced to continue with hiking rates to achieve price stability and probability of a 50bp rate hike at the next meeting increased substantially after the report.

Preliminary PMI data for the month of March showed a divergence between sectors. Manufacturing fell to 55.5 from 58 in February while services rose to 61 from 60.5 the previous month. Composite has followed manufacturing and slipped to 59.7 from 59.9 in February. Retail sales for February both missed expectations and were weaker than in January. Sales were down in non-store sales (-4.8%) and in food stores (-0.2%), with large falls in alcohol and tobacco stores. The readings indicate that mounting energy costs are starting to weigh in on consumer. Spring Budget statement showed a cut in projection for a 2022 GDP to 3.8% from 6% while GDP for 2023 is seen at 1.8%. The fuel duty has been cut until March of 2023 to help people cope with the surging fuel prices.

AUD

China has signaled its support for the economy in the previous week, however there were no changes to the rates. The 1-year loan rate is still at 3.7% while the 5-year is at 4.6%. Expectations are now that we will see a cut in reserve requirement as a way to stimulate the economy. City of Tangshan that boasts a population of more than 7 million people has been put into full lockdown. The city is located in a Hebei province, renowned for steel production, so the lockdown can negatively impact both supply chains and commodity prices.

This week we will have official PMI data for the month of March from China.

Important news for AUD:

Thursday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

NZD

Trade balance data for the month of February showed improvement compared to the January reading and lead to a smaller deficit of -NZD385m vs -NZD1126m the previous month. Exports rose significantly as dairy prices continued to rise while imports declined somewhat, although there was still increase in import of petroleum and petrol products.

CAD

Preliminary manufacturing sales for the month of February rose 3.7% m/m. CAD has enjoyed a strong week on the back of rising oil prices and taking Russia’s place in exports. USDCAD has dropped below the 1.25 level at the end of the week.

JPY

Preliminary PMI data for the month of March showed improvement as manufacturing rose to 53.2, services to 48.7 and composite was pulled almost to the expansion level with 49.8. However, when we dig into the details of the report we see that main culprit for the rise in the reading are input prices. The report notes “Input prices rose at the fastest pace since August 2008 with businesses attributing the rise to surging raw material prices, notably energy, oil and semiconductors amid deteriorating supplier performance.” Additionally, new export orders have continued to plummet with manufacturing ones turning from growth to decline. Inflation data for the Tokyo area in the month of March were up from February numbers across the readings. Headline came in at 1.3% y/y, ex fresh food came in at 0.8% y/y while ex fresh food and energy came in at -0.4% y/y.

CHF

SNB total sight deposits for the week ending March 18 came in at CHF728.9bn vs CHF728bn the previous week. There was a small increase in the deposits but nothing noticeable as markets pushed EURCHF pair away from the parity toward the 1.03 level by the mid-week. SNB has published its 114 annual report for the year 2021 and it showed that total intervention in the markets was CHF21.1bn, more than five times lower than CHF109.7bn in 2020.

SNB has decided to leave policy rate unchanged at -0.75% as widely expected. The usual comments about Swissy being highly valued and bank’s readiness to intervene if need arises were present. New inflation forecasts see it now at 2.1% for the 2022 before dropping to 0.9% in 2023 and 2024. Accompanying statement showed that “SNB assumes that energy prices will remain high for the time being, but that there will be no acute energy shortages in the major economic areas. It also anticipates that the global economic recovery will continue overall despite the war in Ukraine, albeit somewhat subdued. The higher commodity prices will lift inflation further in the short term.” They now see 2022 GDP growth at 2.5% and assess that risks for growth, for both global economy and Swiss economy, are considerable and skewed to the downside.

[katetrades]

Forex Major Currencies Outlook (Apr 4 – Apr 8)

We will be entering first full week of Q2 with RBA meeting and FOMC minutes from the March meeting as highlights of the week.

USD

President Biden announced that SPR will be tapped for the amount of 1 million barrels per day. The program should last for 6 months, which means 180 million barrels in total. This move will decrease oil prices in the short run, however, it will not resolve the bigger structural issues concerning supply and demand. It seems more as a political move to gain favour for the mid-term elections.

We had yet another strong employment report. Headline number came in at 431k while previous month’s reading was revised up almost 80k to 750k. The unemployment rate dropped to 3.6% with participation rate ticking to 62.4% and moving in the right direction. Wages have continued to improve and add additional shine to the bright report. Hourly earnings rose 0.4% m/m and 5.6% y/y. Another strong report will nudge Fed toward 50bp rate hike in May.

The yield on 10y T-note went as high as 2.55% and then proceeded to fall for the rest of the week while the 2-10s curve inverted on Thursday for a short period before going back to positive spread. Inversion of 2-10s yield curve is considered to be the harbinger of recession in 6-12 months time. Important caveat is that inversion occurred when 10y was falling below the 2y indicating that 2.5% yield could be the top at the moment. FedWatchTool sees probability of a 50bp rate hike in May at 76.6%.

This week we will have ISM Non-Manufacturing PMI as well as the FOMC Minutes from the March meeting.

Important news for USD:

Tuesday:

• ISM Non-Manufacturing PMI

Wednesday:

• FOMC Minutes

EUR

Sentiment data from the EU showed decline induced by the Russia – Ukraine conflict. Economic sentiment dropped to 108.5 from 114, industrial sentiment to 10.4 from 14 while consumer confidence plunged to -18.7 from -8.8 the previous month. Only positive was services sentiment that rose to 14.4 from 13 in February on the back of recent reopening.

Preliminary inflation data for March shows scorching hot inflation. Spain reported CPI rise of 9.8% y/y, Italy of 6.7% y/y vs 5.7% y/y in the previous month while Germany reported CPI at 7.3% y/y vs 5.1% y/y in February and astonishing 2.5% m/m increase in prices. German inflation should continue going higher in the coming months and a double digit inflation cannot be ruled out. France reported a 4.5% y/y increase in prices, from 3.6% y/y the previous month. For the Eurozone the reading came in at 7.5% y/y vs 6.6% y/y as expected and up from 5.9% in February and 2.5% m/m, same as German reading. Energy and food prices were the main contributors. Core was up to 3% y/y from 2.7% y/y the previous month. ECB will find itself in a hot seat after these reports to raise interest rates at least to zero. Higher interest rates could negatively impact growth in the Eurozone thus leading to stagflation (low growth and high inflation).

GBP

BOE Governor Bailey stated that evidence of growth slowdown are becoming apparent and that it is still appropriate to tighten monetary policy in current circumstances. Markets interpreted his comments as a nod that monetary policy will not be as aggressive as thought. Q4 GDP was revised to 1.3% q/q from 1% q/q as preliminary reported on the back of rising exports and service industries that were boosted by the removal of restrictions.

AUD

Over the weekend industrial profits from China for the period of January-February 2022 came in at 5% y/y vs 4.2% y/y in December. Additionally, Shanghai has entered lockdown. All three PMI measures dropped below the 50 level in March. Manufacturing came in at 49.5 vs 49.9 as expected, non-manufacturing was at 48.4 vs 53.2 as expected and drops in both readings dragged composite to 48.8. Newly introduced covid restrictions subdued economic activity and led to declines in output and new new orders. There are signs that this drop is only temporary and that we should see a rebound in April when restrictions are retracted. Caixin manufacturing followed the official PMI and dropped into contraction with 48.1 vs 50.4 the previous month. The report shows drops in new orders and new export orders while input costs continue to surge.

This week we will have RBA meeting. Wages have still not reached RBAs target necessary for a rate hike, however we will see if recent strong job reports will make them change their narrative.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

NZD

Consumer confidence in the month of March came in at 77.9, down from 81.7 in February. This represents a new low for the reading and ANZ notes “a perfect storm of Omicron, rising living costs, a retreating housing market and rising interest rates soured the mood”. Additionally, inflation expectations have risen to 6%.

CAD

January GDP came in at 0.2% m/m as expected as Canadian economy continued to grow entering the New Year. CAD has followed oil closely this week and finished it down in a 150 pips range for the week against USD. Next week’s employment report can be catalyst for CAD strength as it pushes BOC toward a 50bp rate hike.

This week we will have employment report which is expected to moderate after a blockbuster one in February.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

At the start of the week BOJ announced that it will conduct unlimited bond buying operations from March 29 to March 31 in order to defend the yield target of 0.25%. This is the second such operation this year, as previous one was done on February 10. BOJ’s announcement had a detrimental effect on JPY with currency dropping around 200 pips against the majors with USDJPY touching the major level of 125.

CHF

SNB total sight deposits for the week ending March 25 came in at CHF731.5bn vs CHF728.9.bn the previous week. This is a decent sized increase, first in a while, as SNB wishes to move EURCHF as far as possible from the parity. Inflation continued to increase in March and came in at 2.4% y/y vs 2.2% y/y in February with core printing 1.4% y/y vs 1.3% y/y the previous month.

[katetrades]

Forex Major Currencies Outlook (Apr 11 – Apr 15)

Three major central banks, ECB, RBNZ and BOC, will hold their April meetings this week with latter two expected to deliver rate hikes. That would be coupled with inflation data from the US, the UK and China as well as employment data from the UK and Australia.

USD

ISM Non-manufacturing PMI in March rebounded to 58.3 from 56.4 in February. New orders made a huge positive jump along with the employment index which returned back to expansion after it showed contraction the previous month. Business activity continues to improve as well, however prices paid component also rises on the back of higher energy and commodity prices thus bringing more inflationary pressures.

Yield on the 10y started the week at around 2.4% while FedWatchTool saw the probability of a 50bp rate hike at the May meeting at around 70% when the week started. Fed Governor Brainard, a known dove, came out with hawkish comments stating “Currently, inflation is much too high and is subject to upside risks. The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.” When a well known dove agrees with a typical hawkish stance the markets pay close attention and more weight is added to her words. She also added that talks about rapid BSR will likely be held at the May meeting. The dollar has gained around 100 pips across the markets on the back of her comments with yields on a 10 rising to 2.66%. FedWatchTool saw an increase in the probability of a 50bp rate hike at the May meeting to 76.6%.

FOMC minutes showed that many members would preferred a 50bp rate hike at March meeting. Additionally, minutes showed that members announced “commencement of balance sheet runoff at a coming meeting”. Regarding the amount of BSR “Participants generally agreed that monthly caps of about $60 billion for Treasury securities and about $35 billion for agency MBS would likely be appropriate”. Minutes resulted in lower yields on a 10y note, however the 2-10y spread improved to 15.2bp. FedWatchTool saw additional increase in the probability of a 50bp rate hike at the May meeting to 81%.

This week we will have inflation data expected to rise above 8% as well as consumption data.

Important news for USD:

Tuesday:

• CPI

Thursday:

• Retail Sales

EUR

Final services PMI for the month of March showed improvement in Eurozone reading to 55.6 from 54.8 as preliminary reported on the back of improvement in German reading. Composite was also improved to 54.9 from 54.5 as preliminary reported. Services reading improved thanks to the loosening of covid restrictions, however it will have a rocky path ahead. Rising input costs coupled with worsening of supply issues and uncertainty around Russia-Ukraine conflict will weigh heavily on the business activity in the coming months.

This week we will have ECB meeting. We expect to see announcement of ending APP purchases in Q3. March minutes showed members’ view that APP had fulfilled its stated objective. Additionally, we expect more clarity to forward guidance on policy normalisation (raising rates toward 0%). It seems that both hawks and doves found common ground and are willing to proceed with policy normalisation so we may see September emerging as a target for the first rate hike.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

GBP

Removal of covid restrictions and as Markit notes “stronger demand arising from the return to offices, alongside a resurgence in the travel, leisure and entertainment sectors.” led to final services PMI reading in March print 62 and pulls up with it composite reading to 60.9. There are, however, dark clouds over the services sector as optimism fell to the lowest level in 17 months.

This week we will have February GDP data, employment data as well as inflation and consumption data.

Important news for GBP:

Monday:

• GDP

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

RBA has left the cash rate unchanged at 0.10% as was widely expected, however there were some changes in the wording that investors interpreted as a gradual shift toward a tighter monetary policy. Guidance on cash rate was changed to “The Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates.” The talk about patiently waiting has been omitted. Additionally, they have stated that they will closely monitor incoming employment and inflation data and make decisions based on that. AUDUSD shot past the 0.76 level after the announcement. We will have an employment report next week, inflation data at the end of the month while wage growth data will be published in mid-May. We believe that RBA will wait for the wages report before deciding to act, so that excludes May meeting and puts emphasis on the June 7 meeting. Australian elections will be held in late May so that is additional factor to exclude May meeting and set June meeting as the first possible for a rate hike.

Effects of China’s zero-covid policy are clearly seen in Caxin’s PM data for March. Services reading plunged to 42.2 from 50.2 in February and dragged down with it composite reading to 43.9 vs 50.1 the previous month. Asian Development Banks has already downgraded projections for Chinese 2022 GDP to 5%. The data raises probability of additional monetary easing by the PBOC.

This week we will have employment data from Australia as well as inflation and trade balance data from China.

Important news for AUD:

Monday:

• CPI (China)

Wednesday:

• Trade Balance (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Kiwi had a strong start to the week with NZDUSD rising around 130 pips before reversing on Tuesday and giving it all back. Fed minutes pushed the pair even lower and it finished the week down some 70 pips from where it started. However, with RBNZ firmly on the rate hike path this could be case for buying the dips when price on charts presents the opportunity.

This week we will have RBNZ meeting. We will see continuation of rate hikes. Majority expects a 25bp rate hike, but a 50bp rate hike cannot be ruled out.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

CAD

Canada produced another very strong employment report. Employment change in March came in at 72.5k, after a staggering 336.6k in February. The unemployment rate dropped to 5.3% from 5.5% thus making it the lowest unemployment rate in history of the reading which started in 1976. The rate was shaved while the participation rate stayed consistent at 65.4%. Wages were up 3.7% while full-time employment came in at 92.7 k and part-time employment at -20.3k. This will just give credence to the 50bp rate hike next week while also open the door for additional 50bp rate hikes in the future. Canada is set to announce a ban on foreign purchases of real estate in order to cool off the bubble building in the housing sector. The ban will refer to the period of two years.

This week we will have BOC meeting. A 50bp rate hike seems to be fully discounted by the markets as output gap is closed and employment is above pre-pandemic levels. There will be talks about QT as Canada had the biggest QE response after pandemic struck.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Nominal wages in the month of February rose 1.2% y/y but were eaten away by inflation and were flat in real terms. Still, they were much stronger than expected and thus represent positives for the economy. Household spending improved only 1.1% y/y vs 2.7% y/y as expected. BOJ Governor Kuroda characterised JPY’s fall as rapid which could indicate that recently reached USDJPY level of 125 represents top for the pair and bottom for the JPY.

CHF

SNB total sight deposits for the week ending April 1 showed a much bigger jump in deposits than in the previous months. The reading came in at CHF737.2bn vs CHF731.5bn the previous week. It is interesting that such a jump is seen when EURCHF moved away from parity. However, it seems that SNB deems the current level as too close to parity and finds it necessary to ramp up the intervention. Seasonally adjusted unemployment rate in March stayed unchanged at 2.2%.

[katetrades]

Forex Major Currencies Outlook (Apr 18 – Apr 22)

Preliminary PMI data from Eurozone and the UK coupled with inflation data from Canada and New Zealand along with Q1 GDP reading, production and consumption data from China will be the most watched economic releases of the week.

USD

March inflation data posted a new 40-year high and showed CPI rise to 8.5% y/y vs 7.9% y/y in February and 1.2% m/m vs 0.8% m/m the previous month. Core CPI came in at 6.5% y/y vs 6.6% y/y as expected but up from 6.4% y/y in February. Gasoline was the main contributor with a whopping 18% y/y increase with energy overall rising 11% y/y. Used vehicles dropped -3.8% m/m which may be a harbinger of inflation nearing the peak. With oil prices falling due to lower demand and SPR release we may see gasoline prices slowing down and dragging the inflation down.

Retail sales in March posted a gain of 0.5% m/m vs 0.6% m/m as expected with February reading being revised up to 0.8% m/m from 0.3% m/m as reported. Sales at gasoline stores led the way with big surge in gasoline prices. Electronic store sales and clothing followed suit. The drops were seen in non-store and car sales. Yield on 10y Treasuries has started the week at a high of 2.78% and then proceeded up to 2.83%. FedWatchTool sees the probability of a 50bp rate hike in May at 91%.

EUR

ECB has left key interest rates unchanged as expected. The Governing Council has reiterated that APP will conclude in Q3. Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June. The statement said that rate hikes will come “some time” after the end of APP. The Governing Council will continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time even after the key ECB interest rates have been rates. Principal payments of PEPP will be reinvested until at least the end of 2024. Optionality, flexibility and data dependence when deciding on future moves has been emphasized. At the press conference ECB President Lagarde clarified the phrase “some time” as ranging from a week to few months.

This week we will have preliminary PMI readings for April.

Important news for EUR:

Friday:

• Manufacturing PMI (EU, Germany, France)
• Services PMI (EU, Germany, France)
• Composite PMI (EU, Germany, France)

GBP

March employment report showed more tightness in the labour market. Claimant count change came in at -46.9k with the ILO unemployment rate slipping to 3.8%. Average wages, regular and ex bonus, are rising due to skill shortages and are trying to keep up with the speeding inflation. They came in at 5.4% y/y and 4% y/y respectively. The employment is above the pandemic levels and the unemployment rate returned to levels seen before the pandemic. Inflation data posted a new record high in the 30 years that data is recorded. Headline number came in at 7% y/y vs 6.7% y/y as expected and up from 6.2% y/y in February with a 1.1% m/m increase. Core came in at 5.7% y/y vs 5.4% y/y as expected and up from 5.4% y/y the previous month. Gas and electricity price increases were the main contributors.

This week we will have preliminary PMI readings for April as well as consumption data.

Important news for GBP:

Friday:

• Manufacturing PMI
• Services PMI
• Composite PMI
• Retail Sale

AUD

March employment report can be assessed as a decent one. Employment change came in at 17.9k vs 40k as expected. Both the unemployment rate and participation rate where unchanged at 4% and 66.4% respectively. The unemployment rate is at its 14-year low. Another big positive from the report is that all of the jobs added were full-time (20.5k). Part-time employment came in at -2.6k. Signs of a tight labour market are persistent. We think that RBA will wait for data from the CPI reading in two weeks as well as wage growth data on May 19 before deciding to act. Elections will be held in late May so we stick with our call that although inflation will be high they will not act before June.

Inflation in China started to accelerate in March and came at 1.5% y/y vs 1.2% y/y and up from 0.9% y/y in February. The number is still very low compared with other countries around the word, excluding Japan, so it should not deter PBOC from acting to further ease monetary policy conditions and spur the economy. PPI came in at 8.3% y/y, larger than 7.9% y/y as expected, but still down from 8.8% y/y in February. Trade balance data showed a big decline in trade surplus as it came in at $47.4bn vs $115.95bn the previous month. Exports were down to 14.7% y/y while imports shrunk -0.1% y/y indicating deterioration in domestic demand caused by reintroduction of covid restrictions, exacerbating supply chain disruptions and Russia – Ukraine conflict. ING analyst Iris Pang stated that a drop in imports cannot be attributed to those factors alone and according to her the main culprit is oil imports. They plunged 8.1% y/y.

This week we will have minutes from the RBA meeting as well as Q1 GDP reading, production and consumption data from China.

Important news for AUD:

Monday:

• GDP (China)
• Industrial Production (China)
• Retail Sales (China)

Tuesday:

• RBA Meeting Minutes

NZD

RBNZ has stepped up and delivered a 50bp rate hike, thus bringing the OCR to 1.5%. NZD gained on the announcement but as the details of how board members assessed the situation arrived NZD’s fortunes reversed. Members noted that 50bp rate hike now provides more flexibility to the policy ahead in light of the highly uncertain global economic environment. Although the committee confirmed that further increases in the OCR are needed in order to meet their mandate it seems that they are front loading the rate hikes now and then waiting to see how things in global economy and at home will develop before acting again. Markets have characterized this as a “dovish hike” and that sent NZD down. Minutes of the meeting also show that members expect inflation to peak at around 7% in H1 of 2022.

This week we will have Q1 inflation data.

Important news for NZD:

Thursday:

• CPI

CAD

BOC delivered a much anticipated 50bp rate hike and brought cash rate to 1%. Unlike the RBNZ statement that was delivered few hours earlier it did not show any signs of dovish rhetoric. They will cease buying government bonds on April 25 thus effectively starting the QT program. BOC members opted to let assets mature and since almost half of their holding mature in less than two years it will represent a fast reduction in their balance sheet. New projections see CPI averaging 6% during H1 of 2022 and then gradually declining to 2.5% in the H2 of 2023 and 2% level as we get into 2024. Projections for GDP see it at 4.25% in 2022, 3.25% in 2023, and 2.25% in 2024. Opening statement of Monetary Policy Report Press Conference presented three main messages. First, the Canadian economy is strong. Second, inflation is too high. Third, higher interest rates are needed as they are main policy instrument to bring inflation down to 2%. The third point may indicate that we could see additional 50bp rate hike at June meeting.

This week we will have inflation data.

Important news for CAD:

Wednesday:

• CPI

JPY

The ongoing covid difficulties have led BOJ to downgrade assessment for 8 out of 9 regions while leaving the outlook for ninth unchanged. PPI data for March showed a rise of 9.5% y/y vs 9.3% y/y as expected. Additionally, wholesale index in March is at 112, which is the highest reading in 40 years. Price pressures are mounting everywhere in Japan except in the CPI numbers which remain conspicuously low. Core machinery orders, a proxy used for capex in the next 6 months, plunged in February almost 10% (-9.8% m/m). This could mean that business decided to delay investments during the pandemic induced restrictions which will have negative impact on GDP for the year.

CHF

SNB total sight deposits for the week ending April 8 came in at CHF739.4bn vs CHF737.2bn the previous week. SNB continued to intervene in the markets as the EURCHF got closer to the parity, finishing the week at around 1.015 level.

[katetrades]

Forex Major Currencies Outlook (Apr 25 – Apr 29)

BOJ meeting coupled with Q1 GDP and inflation data from the US, the EU and Australia will be highlights of the week ahead of us. Also this will be a week filled with earnings reports.

USD

St Louis Fed President James Bullard, the most hawkish Fed president by far, stated in an interview that he would not rule out a 75bp rate hike but the base case is for a 50bp rate hikes. He stated desire to get to neutral rates expeditiously and get above neutral rates as early as Q3. Inflation is way high to their liking. Both the IMF and the World Bank have downgraded global GDP forecast for the 2022. IMF cut it to 3.6% from 4.4% in January citing war in Ukraine as the main reason followed by the prolonged lockdowns in China. Inflation was also added to the list of concerns as it will lead to central banks rising interest rates and thus stifling growth.

Interest rate futures steepened and we have 225bps in hikes are now priced in for this year, implying that three of the remaining six policy meetings this year will bring a 50bp increase. Chairman Powel was quoted saying “I would say that 50 basis points will be on the table for the May meeting.” and markets now see the 50bp rate hike as a done deal. Treasuries continued to be sold heavily at the start of the week and yield on 10y got very close to 3%. It peaked at 2.977%.

This week we will have an advanced reading of Q1 GDP as well as Fed’s preferred PCE inflation data.

Important news for USD:

Thursday:

• GDP

Friday:

• PCE

EUR

Preliminary PMI data for April from Eurozone saw declines in manufacturing but increases in services sector. Those increases in services managed to push composite higher. Manufacturing PMI came in at 55.3 vs 56.5 the previous month. French reading managed to improve compared to the previous month, but the German reading was much weaker due to increasing supply chain frictions and rising input costs. Services came in at 57.7 vs 55 as expected and up from 55.6 in February. Both Germany and France showed improvement in services sector thanks to effects of reopening. Composite came in at 55.8 vs 54.9 in February. ECB member Kazaks has advocated for an end to APP in July and a rate hike in the same month. His calls were echoed by Vice President Luis de Guindos which gave EUR a boost through the week.

This week we will have a preliminary Q1 GDP and April inflation readings.

Important news for EUR:

Friday:

• GDP
• CPI

GBP

Retail sales data for March disappointed. Headline number fell by -1.4% m/m and with a downward revised February reading to -0.5% m/m it marks two consecutive months of falling data. Retail sales were up only 0.9% y/y. The main drop was seen in the online sales, however with consumer confidence dropping to almost the lowest on record and with surging energy prices the question is how much more can consumer take? BOE is on path to raise rates one or two more times before pausing.

Preliminary PMI data for April saw services deteriorate to 58.3 from 62 in February and drag with them composite to 57.6 from 60.9 the previous month. Mounting inflation pressures through surging input prices put a strain on demand and dragged the readings down. Manufacturing managed to eek a small gain and rose to 55.3 from 55.2 the previous month.

AUD

Minutes from the RBA April meeting painted a more hawkish picture. There was a mention that in the light of the recent events “likely timing of the first increase in interest rates" has been brought forward. The bank remains data dependent and statement “Over coming months, important additional evidence will be available on both inflation and the evolution of labour costs” undoubtedly puts inflation and wages data as the most important data poinys. We will get inflation data for Q1 next week and it is expected for it to move further away from bank’s 2-3% range. Wages will be published on the May 18 and we do not see them rising above the bank’s desired level of 3%. They will get closer to it and it may prompt some action from the central bank. We see June meeting as the date for the first rate hike.

Q1 GDP data from China came in at 1.3% q/q vs 0.6% q/q as expected and 4.8% y/y vs 4.4% y/y as expected. Data for March were much less rosy. Industrial production did beat expectations by coming in at 5% y/y vs 4.5% y/y as expected, however retail sales were hammered and came in at -3.6% y/y vs -1.6% y/y as expected. Harsh lockdowns have crippled the consumption.

This week we will have Q1 inflation data from Australia, very important for the RBA’s decision on rates going forward, as well as official PMI data from China.

Important news for AUD:

Wednesday:

• CPI

Saturday:

• Manufacturing PMI (China)
• Services PMI (China)
• Composite PMI (China)

NZD

RBNZ Governor Orr stated in his speech that bank’s main challenge is to orchestrate a “soft landing” over the next couple of years, avoiding a recession. He added that policy is geared toward containing mounting inflation expectations. More rate hikes are expected to come in the coming quarters in order to contain those rising inflation expectations in the medium term within bank’s target range of 1-3%. GDT auction saw a drop in prices of -3.8%. This is a third consecutive auction of falling prices after a long string of rising auctions and this one reported a first significant drop.

Q1 inflation data came in at 6.9% y/y vs 7.1% y/y as expected and up from 5.9% y/y in Q4. On quarterly level it came in at 1.8% q/q vs 1.4% q/q in the previous quarter. RBNZ’s core measure came in at 4.2% y/y vs 3.2% y/y in Q4. Targeted band for core is 1-3%. At their last meeting RBNZ has raised by 50bp

CAD

Inflation in Canada continued to rise. March headline reading printed a whopping 6.7% y/y vs 6.1% y/y and 5.7% y/y in February and a 1.4% m/m. This is the highest inflation reading since 1991. All eight of the major price components showed an increase when compared to the previous month with transportation leading the way followed by food and shelter. Core measures also brought increases with trim printing 4.7% y/y, median 3.8% y/y and common 2.8% y/y. With inflation heading north BOC will stay on its 50bp rate hike path and CAD is loving it, gaining against all of the major currencies.

JPY

BOJ Governor Kuroda stated that yen’s rapid weakening can have negative impact, weak yen is a positive for the economy as a whole while its impact is not evenly distributed among sectors and corporate sizes. He reiterated that it is appropriate to continue with monetary easing and that it is still too early to talk about the exit from the stimulus policy. 10y JGB’s have been rapidly approaching the 0.25% level and JPY has been weakening as a result since investors see that BOJ will defend that level. And they did on Wednesday April 20 when they announced unlimited purchases of 10y JGBs at a fixed rate of 0.25% adding that purchases will continue for the entire week until April 26. Preliminary PMI data showed services at 50.5, returning to expansion territory for the first time after four months of contractions. Manufacturing came in at 53.4 with composite at 50.9.

This week we will have a BOJ meeting. There will be no changes to monetary policy. The bank will publish its outlook report showing new projections of lower growth and higher inflation.

Important news for JPY:

Thursday:

• BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending April 15 came in at CHF740.1bn vs CHF739.4bn the previous week. A small increase as the EURCHF pair is moving further away from the parity level and is now hovering at around the 1.02 level.

[katetrades]

Forex Major Currencies Outlook (May 2 – May 6)

We have a huge week ahead of us with Fed, BOE and RBA meetings. Fed and BOE are raising rates while there is a slightly higher than 50% chance that RBA will do the same. Additionally, there will be NFP as well as employment data from New Zealand and Canada.

USD

Advance reading of Q1 GDP came in at -1.4% vs 1.1% as expected. Consumer spending and non-residental business investment have lead the way with former printing 2.7% vs 2.5% in Q4 and latter increasing 9.2% vs 2.9% the previous quarter. Net trade was the biggest drag on the growth subtracting 3.2pp from the result followed by inventories which deducted 0.84pp from the growth. Inflation was staggering 8%. Fears of stagflation, low growth and high inflation will mount, however lack of foreign demand is the main culprit for the weak reading. Domestically economy is going strong as indicated by consumption and investment.

PCE inflation data for the month of April came in at 6.6% y/y vs 6.3% y/y in March. However, core reading eased slightly to 5.2% y/y vs 5.3% y/y the previous month. This is the first reading since February of 2021 that core CPI declined compared to the previous month. The yield on 10y notes has started the week at 2.88% and finished it over 2.9%. Probability of a 50bp rate hike in May according to FedWatchTool is now seen at 96.5%.

This week we will Fed meeting as centre stage followed by NFP data on Friday and ISM PMI data in distant third. A 50bp rate hike is fully priced in so the language about Balance Sheet Reduction and further pace of rate hikes will be the most important. NFP is expected to print around 400k with the unemployment rate staying at 3.6%.

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI
• Fed Interest Rate Decision

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

Ifo survey in April showed improvements across the board. Business climate improved to 91.8 from 90.8 in March with both current conditions and expectations rising (97.2 and 86.7 from 97.1 and 85.4 respectively). Ifo economist state that economy proved to be resilient after first shock of Russian invasion in Ukraine. Additionally, although supply chain problems dominate the economy the mood of the economy has stabilized.

Preliminary reading of Q1 GDP came in at 0.2% q/q vs 0.3% q/q as expected and 5% y/y vs 4.6% y/y as expected. Germany was the only major economy whose reading beat the forecasts on the back of stronger investments while France, Italy and Spain printed lower readings. France barely avoided going into negative with reading printing 0% q/q while Italy contracted -0.2% q/q. Preliminary CPI reading for the month of April showed headline number tick to 7.5% y/y as expected from 7.4% y/y in March. The cause for concern for ECB is that core reading came in at 3.5% y/y vs 3.2% y/y as expected and up from 2.9% y/y the previous month. Inflation is not showing signs of slowing down which may be another nudge toward July rate hike.

GBP

BOE is expected to raise rates by 25bp. This will lift the rate to 1%. Previously bank members stated that when rate reaches 1% it may be appropriate to start selling bonds as part of QT. However, with financial conditions being unstable the bank may postpone outright sales of bonds and provide us with new guidance.

This week we will have a BOE meeting.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision

AUD

Q1 inflation data were hotter than expected. Headline number came in at 2.1% q/q and 5.1% y/y, higher than 1.7% q/q and 4.6% q/q as expected and much higher than 1.3% q/q and 3.5% y/y in the Q4 of 2021. This is the highest inflation reading in over 20 years. Price increases have been broadly spread between components. Trimmed mean, which represents core reading and is RBA’s preferred inflation data point, came in at 1.4% q/q and 3.7% y/y. RBA’s target for the core inflation is 2-3% y/y. Now that core inflation has jumped out of the target there are growing calls for a rate hike next week. RBA still wishes to see wage growth north of 3%, data will be available on May 18 and with Federal elections on May 21, June meeting seems to be the safer option. Markets are, however, pricing in at least a 15bp rate hike.

PBOC has cut RRR (Reserve Requirement Ratio) by 1% in order to stimulate the economy. New RRR is at 8%, down from 9% previously. Industrial profits in March printed a 5% y/y increase, same as in February.

This week we will have RBA meeting. More than half of market participants see the bank raising interest rates by 15bp to 0.25% in order to keep the pace with rising inflation.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

NZD

The ANZ Business Outlook Index came in at -42.0 in April vs -41.9 the previous month. This marks the tenth straight month of negative reading, cause by mixed activity indicators and intense inflation pressures. Kiwi has been smashed around during the week due to a one-two punch of China lockdowns and crushing USD strength.

This week we will have employment data.

Important news for NZD:

Wednesday:

• Employment Change
• Unemployment Rate

CAD

BOC Governor Macklem spoke at the parliament stated bank’s intent to use interest rate hikes to fight the rising inflation adding that they will be adamant at it. He stated that business have hard time filling in demand. In the Q&A section he stated that additional 50bp rate hike will be considered at the June meeting. Later on, in the Senate hearing he was quoted saying “…But we do need to raise interest rates to moderate that spending growth and get inflation back to target.”

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

BOJ continues with loose monetary policy. At their May meeting they have kept the rate unchanged at -0.10% and yield on 10y JGB at 0%. They have reiterated their willingness to defend 0.25% level as the upper limit on 10y JGB and stated it will purchase bonds in order to preserve that level every day. The statement showed clarification on bond purchases “Bank will offer to purchase 10-year JGBs at 0.25 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted.” The bank members stated their resolve to keep the monetary policy stimulative in order to fight the impact of pandemic, while aiming to keep market stability. New forecasts see core CPI at 1.9% in 2022, so close to the 2% target. Core CPI will then retreat toward 1.1% level which is projected for both 2023 and 2024. Governor Kuroda stated in a press conference that risks for the economy are skewed toward the downside but they will become balanced in time. He added that inflation will not be sustained at 2% level as energy prices fall, indicating that he still thinks inflation is transitory.

CHF

Trade balance in February almost halved that from January and came in at CHF2.99bn. Imports rose staggering 23% on the back of rising energy costs while exports posted a healthy 5% increase. SNB total sight deposits for the week ending April 22 came in at CHF742.6bn vs CHF740.1bn the previous week. A bit higher increase than recently. SNB is gradually helping market move EURCHF from parity and they pushed it over the 1.02 level. SNB Chairman Jordan stated that higher inflation does not justify rate hike increases. He added that inflation is expected to decline in foreseeable future.