Currency and Stock Markets. Daily Insights

[stoch]

Markets look completely unprepared for dovish NFP report


US equity indices continue to cling to key levels that currently separate the bearish and bullish markets. For the SP500 index, this level is 4000 points, around which it has been hovering since the end of February. On Thursday, futures for US stocks are trading moderately lower, as are European stock indices. The dollar index, after a brief rise to the level of 106 points, corrected on Wednesday and continues to moderately decline on Thursday. Employment data from the ADP agency exceeded expectations, but only slightly, with an increase of 242K jobs compared to the forecast of 200K. Due to the positive surprise in employment data, demand for risk assets remains subdued, so risks for tomorrow's report are also shifting towards a positive surprise.

However, considering that the chances of a 50 b.p. rate hike at the upcoming Fed meeting are already 74.9%, there is little room for further selling in case of a strong report:

A much greater effect will be caused by job growth below the forecast of 200K - a shift in expectations could be significant and the hypothesis that the February improvement in data was another temporary aberration may start to gain ground. In that case, the dollar will face strong headwinds, and risk assets, including the cryptocurrency market, may rebound due to retreat of bond yields.

Fed Chair Powell, speaking to the House of Representatives on Wednesday, generally said the same things as he did in the Senate on Tuesday. In addition, he hinted that the JOLTS job openings report, the NFP report for February, and the CPI next week will be key data that will affect the FOMC's March decision.


JOLTS data showed that the number of job openings decreased to 10.824 million, with the previous reading revised up to 11.234 million:

The consensus was for 10.5 million. The layoff rate decreased from 2.6% to 2.5%, the lowest level since January 2021, but still above the historical average of 1.9%. The job openings/unemployed ratio decreased to 1.9, but it is still above the level that would characterize a balanced labour market. However, Oxford Economics noted that the share of those surveyed decreased to 32% from 64.3% in July 2022, meaning that there is an increased risk that the JOLTS report distorts the real situation in the labour market, particularly it may overstate labour shortage.

According to the ADP report, employment in the US increased to 242K from 119K in February, which exceeded the expected 200K. The report noted that there is active hiring, which is good for the economy and workers, but wage growth is still quite high and that moderate slowing of wage growth itself is unlikely to lead to a rapid reduction in inflation in the near term. At the same time, job holders showed a 7.2% (prev. 7.3% m/m) which is the slowest pace of growth in the past 12 months, and the proportion of workers who changed jobs was 14.3% (prev. 15.4% m/m). The ADP report comes out before the employment report is released on Friday, but recently it has been showing low predictive power in providing an accurate estimate of new jobs. Regarding the employment report, Pantheon Macroeconomics noted: "Our model is based on solid employment data from Homebase and does not take into account ADP figures; this model correctly predicted January and indicates employment growth of 200K in February".



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

The Fed set to ease monetary policy in response to banking sector tensions, propping up risk assets as US economy is still in good shape




Over the weekend, American politicians took steps to restore trust in the US banking system and prevent bank runs, but unfortunately two pretty big banks couldn't be saved. In the next few days, the markets will be primarily focused on the performance of US banks, and over the next week, they'll be looking to the government for additional measures. Expectations for the Fed rate have sharply changed, and the spread between long-term and short-term bond yields has started to narrow. Essentially, this indicates that expected inflation has decreased and the risk of recession in the US has increased. Demand for safe havens should remain high this week, with traders keeping an eye on low-yielding JPY and CHF.

Following the second-largest bankruptcy in US history on Friday, American politicians took steps to restore trust in the US banking system. The Federal Reserve, US Treasury, and Deposit Insurance Corporation announced two key measures. The first measure is that all uninsured depositors in Silicon Valley Bank will be fully reimbursed. This solves the problem of uninsured depositors (in this case, in venture capital/technology) potentially losing their deposits and withdrawing money from other banks with high levels of uninsured deposits (reports suggest that 96% of deposits in SVB were uninsured). The second key measure is that the Federal Reserve announced a new liquidity program - the Bank Term Funding Program (BTFP). This will allow qualified financial institutions to access dollar liquidity in exchange for placing US bonds, agencies, or mortgage-backed securities as collateral. Importantly, the collateral value will be accepted at face value, meaning that the Fed will temporarily bear the bank losses from Treasury depreciation. This solves the problem of SVB, which needed to sell securities to cover deposit outflows - this led to losses and capital reduction.

Investors today will be keeping a close eye on the stocks of US banks to see if the measures taken were enough to restore trust. Unfortunately, the picture doesn't look too good:

Over the weekend, another bank, Signature Bank in New York, was also declared bankrupt by US authorities. The clear takeaway for the market is that the Federal Reserve won't be able to raise rates by 50 basis points on March 22 if it's introducing new liquidity measures for the US banking system at the same time.
Right now, the market has lowered its expectations for the FOMC rate for this month to +25bp, and some experts predict unchanged rates. In fact, the price for the December 2023 FOMC meeting is now 75bp lower than it was in the middle of last week.

For the currency market, this means that the first major financial crisis in the US since 2008 has led to a significant reduction in the US yield curve, which has negatively affected the dollar. The same thing is happening now. The US economy is in good shape and, for now, the beginnings of a financial crisis are seen by the market as something that can be quickly isolated with Fed liquidity injections. That's why risk assets, despite the decline, are holding up pretty well, and the most speculative segment - cryptocurrencies - has even risen in anticipation that the Fed will radically change course in the near future, either by no longer raising rates or by cutting them.

DXY will likely trade together with the US banking sector index, particularly the regional banking sector index, today. Risks indicate a drop towards 103.50 and potentially down to 102.50 this week.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Stock markets plunge on Deutsche Bank worries as contagion risks grow


The stock market is once again under pressure as worries about the banking crisis increase again, this time mainly on the European continent, after a brief respite. The STOXX 50, DAX, and French CAC 40 are all down more than 2%. The trigger for the correction was a surge in concerns over Deutsche Bank's position - the cost of default insurance on the bank's bonds jumped from 142 to 193 points on Friday. This was preceded by news that the bank intends to redeem Tier 2 subordinate bonds, which raised concerns about the bank's ability to service its debts (this type of bond offers perpetual income) and caused outrage in the subordinated debt market (AT1 bonds), which was the source of volatility for the entire EU banking sector a few days ago.

Source: Bloomberg

The risk-off sentiment has also spread to the American continent, with Treasury yields across the maturity spectrum falling and hitting a local low. The yield on the 10-year bond fell to 3.28%, the lowest since the beginning of September 2022. The derivatives markets which have federal funds rate as underlying asset, now completely rule out the possibility of a rate hike in May.

Defensive assets rose sharply on Friday, with gold once again testing the $2,000 per ounce level. This time, the breakout move is likely to push the price higher than the previous local maximum. The potential target for buyers could be $2,050 per ounce. Oil prices also collapsed, signalling a rise in recessionary sentiment. Both main benchmarks lost more than 3% in the moment.

Regarding the economic calendar for today, data on orders for durable goods added pessimism to the US economy, with a decrease of 1%, against a forecast of 0.6% compared to the previous month. Recall that Powell stated at the press conference that stress in the banking sector would be reflected in a slowdown in economic activity and faster inflation decline, so market sensitivity to incoming data, particularly negative surprises, may be reduced as investors may discount negative deviations. The PMI indices for the economies of the European bloc produced a mixed impression: activity in the manufacturing sectors of countries once again fell below expectations, while the positive momentum in the service sector persisted, so the corresponding indices exceeded expectations.

On the American market, the focus is back on the financial sector of the S&P 500: the price has dropped to the support level (500 points).

Next week, it's important to keep an eye on whether the price can hold below the level, as in case of successful consolidation, a technical signal may trigger further selling and then this sector will continue to generate risk aversion.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Stock market rebound may help the Fed to gain confidence in its tightening course



News related to Deutsche Bank shook financial markets on Friday, but the trend on Monday suggests that the market overreacted with panic: SPX futures topped 4000 points, gold fell by more than 1.5%. Shares of American banks, which are probably some of the best proxies for broad market volatility, bounced back in pre-market trading, ensuring that Monday's trading will be driven by a search for yield. The catalyst for the rebound is believed to be the news that the FDIC has approved the purchase of SVB Financial by another US bank. Together with full deposit insurance, the purchase of a troubled bank significantly reduces the risks of a domino effect in the US banking sector, which until recently "hung like a stone around the market's neck."

Earlier, an official from the Fed stated that the situation with SVB Financial is unique, hinting that if the threat of "contagion" can be prevented, the central bank can return to its main task at the moment - combating inflation.

The interest rate differential between EU and US bonds continues to change unfavourably for the dollar, as the Fed leans towards a gradual tightening of its program, while ECB officials continue to express concern about inflation and pedal the topic of prolonged policy tightening. Thus, ECB official Nagel spoke about QT on Monday, saying that its pace should be accelerated closer to the summer.

It is well known that the interest rate differential on short-term bonds explains large portion of exchange rate movements in the short term, and EURUSD is no exception. Since the beginning of March, the interest rate differential on 2-year bonds between the US and Germany has decreased by more than 30 basis points, but the strengthening of EURUSD has not been significant:

One of the main reasons for the "lag" in the EURUSD rate from the dynamics of the corresponding differential may be the reluctance to part with the dollar due to high volatility and the recent surge in bearish sentiment. In other words, demand for the dollar as a protective asset may now be holding back its depreciation, and if the risks of new episodes of bank stress dissipate, EURUSD is likely to grow at a "leading" pace.

However, along with the increase in risk appetite, expectations for aggressive actions by the Fed at upcoming meetings will be simultaneously revised. Powell said that the recent risk-off worked like a rate hike (credit spreads widened, yields on high-yield bonds rose, increasing the cost of borrowing), therefore an increase in risk appetite will have the opposite effect and should add work to the Fed. Overall, this can be seen already: along with the market rally, the chances of a Fed rate hike in May have doubled, from 17 to 35%:

It is obvious that the prospects of a prolonged market rally under such conditions are not visible.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

As banking system shocks subside the focus shifts to central banks’ battle with inflation


The dollar index struggles to bounce back up after dropping to 102.50 level, in line with the earlier idea that the Fed is avoiding clear policy recommendations, while the ECB is showing more readiness to raise rates. This shifts the interest rate differential in the direction that works against the US currency.

European indices bounced up more than 1% on Wednesday, almost recovering to pre-SVB Financial correction levels:

UBS and Deutsche Bank stocks, which are indicators of the Eurozone's perception of banking stress, continued to rise today, up 2.49% and 3.94% respectively. It's a pretty positive sign that market participants are becoming more confident that shocks in the banking system are successfully isolated and their impact is diminishing.

Significant declines in US crude oil and gasoline inventories according to EIA data supported oil prices, with WTI and Brent rising to two-week highs. Crude oil inventories fell by more than 7 million barrels (forecast +0.1 million), while gasoline inventories fell by 2.9 million (forecast -1.61 million). The inventory drop suggests increased demand from refineries and fuel distributors, such as gas stations, which in turn positively characterizes the dynamics of consumer demand, a key driver of economic expansion.

The reduction of concerns about banking stress in the US and EU will inevitably intensify search for yield (rotation from quality to risk), and therefore a narrowing of credit spreads (lower borrowing costs). As shown in the chart below, the spread between investment-grade bonds and high-yield bonds, after rising in mid-March, has stabilized and is likely to soon begin to decline:

As a result, there will also be an increase in inflation risks (thanks to credit expansion), which will inevitably reactivate hawkish rhetoric from the Fed as inflation is still quite high. That's why it may make sense to approach the current rally with great caution and consider the possibility of short positions on risk assets or profit-taking ahead of upcoming speeches by the Fed officials, especially Powell.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Optimism gradually gives way to caution?



The US stock indices closed slightly down on Tuesday, despite a decrease in risk-free rates after the release of US job market data (JOLTS report). The S&P 500 and Dow indices fell by 0.58 and 0.59%, while the technology sector stocks (which are more defensive assets) lost slightly less - 0.37%. At the same time, bond yields (risk-free rates) reacted downwards after the data was released - the two-year rate lost more than 18 basis points in the moment, while the 10-year rate lost about 12 basis points.
To understand what a decrease in bond yields along with a negative reaction in the stock market means, two scenarios need to be considered:

1. Bond yields are falling, and stock prices are rising:

This scenario is characterized by capital inflows into both bonds and stocks. It is clear that this happens when expectations shift towards monetary policy easing and the expectation of firm income growth or a decrease in uncertainty. For this to happen, moderately negative information (aka "bad news - good news") is necessary, which should trigger a monetary stimulus that is expected to be sufficient to provide expansion.

2. Bond yields are falling, and stock prices are also falling:

This same scenario rather characterizes the capital outflow from stocks into bonds (rotation between asset classes), i.e., a flight from risky assets into defensive ones. This also happens when expectations shift towards monetary policy easing, but at the same time, expectations regarding firm income growth worsen or uncertainty increases. This is usually facilitated by the release of excessively weak economic indicators ("bad news - bad news"), and there is concern that the central bank may provide insufficient stimulus when changing policy.

Yesterday's JOLTS report, which, as I previously mentioned, is currently in focus for the Federal Reserve due to the increased importance of the labour market in inflation forecasts, surprised with a sharp decline in job openings from 10.5 to 9.9 million, with a forecast of 10.4 million:

The sharp reduction in excess job openings indicates that employers are less willing to compete for workers (which should slow down wage growth and then inflation) and that firms' expectations regarding demand for their goods/services may have worsened, causing them to reduce hiring rates.

Considering the leading nature of this indicator and the sharp negative change, the market's reaction to the report in stocks and bonds yesterday may well be the first sign of a shift towards caution. For this scenario to gain traction, market participants may prefer to wait for reports on service activity today (with a focus on hiring components) and Non-Farm Payrolls on Friday. If wage growth did indeed slow significantly in March, concerns about an economic downturn could increase, and the market may experience a sell-off that will "demand" interventions from the central bank (hints of an end to the tightening cycle or rate cuts).

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

Bearish Economic Reports Put US Equity Markets at Risk of Downturn

Equity market investors are getting increasingly nervous and risk-averse as the US economy continues to surprise with bearish economic reports this week. On Tuesday, it was the JOTLS data and the ISM manufacturing report, on Wednesday, the ADP employment report and PMI in the non-manufacturing sector were released, all four of which failed to meet modest forecasts, and in some cases were significantly worse than expected (such as JOLTS), although there are currently no signs of an impending recession in the data. Overall, it can be said that the data sharply limited the potential for equity market rally and made it more vulnerable to a downturn as concerns about a slowdown in the economy intensified, but at the same time there is hope that the Federal Reserve will take decisive action to delay the onset of a slowdown.

According to the ISM, activity in the US non-manufacturing sector grew at a slower pace in March compared to the previous month. The corresponding index fell from 55.1 to 51.2 points, which is significantly lower than the forecast of 54.5 points. New orders sub-index led decline, falling from 62.6 to 52.2 points:

This index is a leading indicator for price and hiring plans in the sector, and its sharp slowdown suggests that firms may be more cautious about raising prices in the near future and reduce demand for labour.

In turn, the hiring sub-index fell from 54 to 51.2 points, indicating slower growth in demand for labour in March compared to February and confirming the trend in JOLTS and ADP data: the US labour market imbalance, which has been generating inflation throughout the last year, began to gradually weaken in the end of the first quarter.

The ADP agency reported that the US economy added only 145,000 jobs in March, compared to the forecast of 200,000. The previous figure was slightly revised upwards to 261,000. Wage growth slowed down for both those who held on to their jobs and those who were willing to switch. The chief economist of ADP said that labour market data for January showed that the economy may have started to slow down.

The US stock market showed mixed dynamics yesterday, but labour market data probably increased market fragility and made it more susceptible to sharp corrections. Treasury yields hit lows for this year, with the 10-year Treasury yield breaking through the 3.3% level, the lowest since September 2022.

The price of gold is rising and approaching historic highs. The increase may be partly due to the fact that BRICS countries are increasing their non-dollar reserves to reduce the influence of the US through dollar reserves. The main factor behind the rally is, of course, the increased expectations of a recession in the global economy and expectations of a decline in real interest rates, which have a negative correlation with gold prices.

Data on the Chinese economy supported oil prices. Activity in China's services sector continued to expand in March, with the corresponding index rising from 55 to 57.8 points. The composite index rose from 54.2 to 54.5 points, indicating that the pace of expansion in the sector is gradually picking up.

Today's focus is on data on initial and continuing jobless claims. In addition, markets may pay attention to comments from Fed representative Bullard.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

US CPI report boosts hunt for yield but rates markets remain cautious



The report on inflation in the US boosted risk appetite on Wednesday, causing a sharp decline in the dollar. Overall inflation in the US slowed to 5% per year, which was better than the forecast of 5.2%. The dollar index lost about half a percent yesterday, dropping to around 101.50. Today, the correction continued - EURUSD rose above 1.10, and GBPUSD rose above 1.25. The content of the FOMC protocol was somewhat discouraging, as it stated that members of the Open Market Committee expect a moderate recession by the end of the year, but risk assets shrugged off the negative news quite quickly - after a "red" session on Wednesday, US stock indices rebounded on Thursday, with the S&P 500 up 0.6%, DOW up 0.4%, and Nasdaq up more than 1%.

The currency market was apparently more interested in the inflation report than the interest rate market. Interestingly, the dynamics were different - the dollar fell, while the yield on treasury bonds, after a brief downward movement, returned to levels prior to the release of the CPI report:

The treasury bond market (the largest in the US) and the dollar are inversely proportional - when investors sell bonds, they increase demand for the dollar, and vice versa. The decline in the dollar in the absence of an increase in bond prices (or a decrease in their yields) apparently indicates a purely currency phenomenon of the weakening of the dollar: investors in American assets gradually prefer to seek yield abroad, which increases the supply of dollars and lowers its exchange rate against other currencies.


However, one should be very cautious: although overall inflation in the US is slowing down, core inflation has changed little over the past four months, which cannot but worry the Federal Reserve. In March, it reached 5.6% (in line with the forecast). If not for the situation with SVB Financial, such behaviour of inflation would have served as a basis to raise the rate by 50 basis points at the upcoming meeting. There is something to think about...

Data on the Chinese economy today additionally fuelled demand for risky assets, as they demonstrated a serious surprise. China's exports unexpectedly grew by 14.8% year on year in March, which is a sharp deviation from market forecasts of a 7% reduction:

This also fundamentally changes the outlook for the expansion of the Chinese economy this year, as exports have been in a downward trend over the past five months. The growth in exports in March was due to the same drivers as in previous months, only this time the impact of these drivers turned out to be unexpectedly strong. The overall indicator grew due to the export of electronic components and products, which, in nominal terms, ranks first in China's export structure. Exports in this category grew by 12% in annual terms, and its contribution to overall exports remained stable at 58%. Electronics exports recorded growth for the first time since October 2022.

Imports decreased slightly by 1.4% year on year, but still recorded a monthly growth of 15.3%. Imports of electronic components, which should be considered as part of processing trade and is an indicator of future export growth, decreased by 16% year on year. Its contribution to overall imports also decreased from an average of 38% in 2022 to 35% in March. Presumably, this is due to a substitution effect from the increase in energy imports since 2022.



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

US Bond Yields Rise Despite Dovish Retail Sales Figures


The chances of the Federal Reserve keeping its policy unchanged in May have increased after the release of US production inflation data for March. Overall production inflation unexpectedly turned negative in March: prices fell by 0.5% in a month, although it was forecasted that they would remain at the same level:

The market enthusiastically received another signal that price pressure in the US economy is abating, and as a result, the probability that the Fed will abandon the idea of raising rates in May has increased. Key US stock indices gained more than 1% on Thursday, but Nasdaq stood out, closing the session with a 2% increase. Since growth stocks, which dominate the technology sector, have a longer duration, they should be more sensitive to changes in expected inflation. Therefore, the greater rise of the index yesterday suggests that investors are betting on further inflation reduction. Meanwhile, the bond market suggests that investors are not yet overly concerned about a recession in the economy: demand for bonds has not only not increased recently, but has even slightly decreased, as can be seen from the rise in Treasury yields. Even a 1% monthly decline in retail sales, as shown in the report on Friday, turned out to be unconvincing: bond yields rose, and the 10-year Treasury yield crossed the 3.5% mark. Apparently, the market does not fully share the Fed's concerns about an impending recession. Credit spreads, which reflect investors' preference for high-yielding bonds over protective bonds, although still higher than the March lows, continue to decline after the US banking sector shock:

There are still almost three weeks left before the Fed meeting, and futures on interest rates show that risk appetite may still increase: the chances that the Fed will still raise rates in May are almost 67%, but slightly decreased after yesterday's PPI report (from 71%):

However, there is still a growing weakness in the US labour market: initial jobless claims are consistently increasing, with yesterday's data showing an increase of 239K (forecast 232K). The situation with long-term claims has improved slightly, with the number falling to 1.81 million (forecast 1.814 million).

The inflation report in France pleased euro buyers as it contained another hawkish surprise: year-on-year inflation slowed in March, but not as quickly as the ECB would like - 5.7% versus a forecast of 5.6%.

In the near future, the market is likely to continue to expect no changes in the Fed's policy in May, which will provide additional support to the market, especially to the assets which offer higher yields. Dollar should remain under pressure, despite uptick after retail sales data.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

 

[stoch]

NY Empire State Manufacturing Index Surprises with Acceleration in April


The NY Empire State Manufacturing Index surprised with its acceleration in April, as the main index not only did not decrease according to the forecast from -11.5 to -18.0 points, but even jumped to 10.8 points, which is the highest point of expansion since July 2022:

The forecasts of 34 experts ranged from -25 to -11.5 points, with a median forecast of -18 points, so the change in the indicator became the second most unexpected in the history of observations (the first was in one of the post-COVID months).
The leading indicator of new orders changed the most sharply in a positive direction - from -21.7 to 25.1 points. In second place was the shipments index, which changed from -13.1 to 23.9 points.

The weak point of the report was the employment data - the hiring index remained at -8 points for the third month in a row, and the average workweek index fell by -6.4 points. The data confirmed the worrying trend that emerged in early March: at that time, the number of job openings sharply decreased (JOLTS data), and the growth of initial claims for unemployment benefits accelerated:

Yesterday was another positive day in risk asset markets, and today the rally continues, while the dollar is on the defensive. As expected, the upward correction of the dollar did not develop, and EURUSD found support near 1.09. Sentiments significantly improved after today's economic data from China exceeded expectations, pushing talks of a recession to the background for a while. China's GDP grew by 4.5% in the first quarter of 2023, which is significantly higher than the forecast of 4.0%, also indicating a sharp acceleration compared to the previous quarter (2.9%). Retail sales in March grew by 10.6% in annual terms, with a forecast of 7.4% (a two-year high), and the pace of industrial production growth was the highest in 5 months. Unemployment, according to a population survey, dropped to a 7-month low.

The UK labour market data significantly strengthened the position of the pound ahead of the upcoming Bank of England meeting. The number of employed increased by 169K in March, which was significantly higher than the forecast of 50K. However, the unemployment rate did not meet expectations and increased to 3.8% with a forecast of 3.7%. The key point of the report was the 5.9% increase in wage growth in annual terms, which was 0.8% higher than forecast. Taking into account that consumer spending correlates with income growth (there is a linear relationship between them, but the coefficient is less than 1, since a portion goes to savings), we can expect consequences for inflation, which means that the Bank of England may need to exert more effort to keep price pressure under control. GBPUSD strengthened by about half a percent today and buyers are likely to test the 1.25 zone again. From a technical point of view, the pair has broken out of the formed flag and has the potential to rise to the 1.265 level, where the trend line passes:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.