Major indexes were all underwater, in and out of bear market territory as worries about growth and concerns over inflation weighed heavily on investor and consumer sentiment. Companies continue to warn over the impacts of elevated inflation, including rising costs of labor, materials, energy, and transportation which are taking a big bite out of profits. And data are also showing signs of slowing growth. Treasuries retained a haven bid. Investors also sought refuge in Treasuries amid the volatility in stocks. A plunge in the May Philly Fed index and a slide in existing home sales to two-year lows, a drop in the leading index, and erosion in jobless claims all exacerbated fears over the economy. Comments from the Fed’s George show the FOMC on course for more 50 bps hikes.
Overnight: Japan rose at a pace above 2% for the first time in more than 13 years, China’s central bank cut five year LPR by 15 bp. The 5-year Loan Prime Rate was reduced a record amount to 4.45% from 4.6% previously. Most had expected the PBOC to trim the rate by 5-10 bp, according to a Bloomberg survey, and the move is hoped to support the struggling property sector as it will reduce mortgage cost and may revive demand, despite Covid lockdowns. For new mortgages the new lower rate will apply immediately – existing mortgages won’t be impacted until next year at the earliest. Still, the announcement will help to bolster confidence in China’s struggling economy and counterbalance some of the headwinds to the global economy. UK retail sales rebounded in April, with sales up 1.4% m/m, after contracting -1.4% m/m in the previous month.
- USDIndex has slumped to 102.80 from a peak of 103.15. – worst week since early February against majors, weighed down by a retreat in Treasury yields and fatigue after the currency’s breathless 10%, 14-week surge.
- Equities – Hang Seng and CSI 300 are currently up 2.2% and 1.7% respectively. Nikkei and ASX closed with gains of 1.3% and 1.2% after another decline in Wall Street.
- Yields 10-year lifted 2.0 bp to 2.86%, Germany’s 10-year has moved up 3.5 bp to 0.98%, while bonds found support in Japan, Australia, New Zealand, with the curve flattening.
- Oil is holding above $110 per barrel.
- Gold up to $1848.
- FX markets – USDJPY retests 128 mark once again, EURUSD holds at week’s highs at 1.0593, GBPUSD slipped 0.11% to $1.2436, but up 1.49% for the week.
Today – The calendar includes BoE Pill and ECB’s Lane speech and EU consumer Confidence for May.
Biggest FX Mover @ (06:30 GMT) VIX (-2.36%) – Found a floor at 28.32. MAs have flattened, MACD signal line & histogram are negatively configured, RSI & Stochastics are OS turning higher currently. H1 ATR 0.34, Daily ATR 3.22.
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Andria Pichidi
Market Analyst
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