Tag: USD

  • US Deficit Jitters Roil Markets as Yields Surge, Dollar Sinks, Bitcoin Hits Record

    US Deficit Jitters Roil Markets as Yields Surge, Dollar Sinks, Bitcoin Hits Record


    The dominant driver in global markets at the moment is rising concern over the US fiscal deficit. 30-year yield surged toward 5.1% overnight, its highest level since October 2023. 10-year yield also breached the 4.6% mark for the first time in months. Equity markets responded accordingly, with major US indexes closing sharply lower. Gold has broken above 3330, supported additionally by geopolitical uncertainty. Bitcoin hit a new all-time high. Both reflected risk-hedging demand and a search for alternatives.

    In the currency markets, Dollar is suffering, now the worst performer among majors for the week. Meanwhile, commodity currencies like Aussie, Kiwi, and Loonie are struggling near the bottom of the FX board, a reflection of broader risk aversion. Yen leads the pack, joined by Swiss Franc and Euro, as investors seek safety outside the US. Sterling is trading in the middle.

    This spike in long-dated yields has sent a clear signal: investors are becoming increasingly uneasy about the US’s worsening debt profile and its implications for long-term stability. A poorly received 20-year bond auction only amplified these fears, fueling speculation that appetite for US debt is waning just as supply pressures are set to increase.

    On the trade front, tensions remain high. Japan’s Finance Minister Katsunobu Kato labeled recent US tariffs as “regrettable” and reiterated Tokyo’s position that no trade deal would be worthwhile unless automobile duties are scrapped. At the G7 meeting in Banff, Kato and US Treasury Secretary Scott Bessent agreed that the dollar-yen exchange rate should reflect market fundamentals. However, the lack of concrete progress raises doubts over any near-term breakthrough in US-Japan trade talks.

    Technically, US 10-year yield’s break of 4.592 resistance confirms resumption of whole rally from 3.886. Near term outlook will stay bullish as long as 4.388 support holds. Further rally should be seen to 100% projection of 3.886 to 4.592 from 4.124 at 4.830. Further selloff in US treasuries could keep US stocks and Dollar pressured.

    In Asia, at the time of writing, Nikkei is down -0.94%. Hong Kong HSI is down -1.05%. China Shanghai SSE is down -0.13%. Singapore Strait Times is down -0.42%. Japan 10-year JGB yield is up 0.031 at 1.552. Overnight, DOW fell -1.91%. S&P 500 fell -1.61%. NASDAQ fell -1.41%. 10-year yield rose 0.115 to 4.596.

    Looking ahead, Eurozone PMI flash, Germany Ifo business climate, and UK PMI flash will be the main focus in European session. ECB will also release monetary policy meeting accounts. Later in the day, US jobless claims and PMI flash will be the main feature.

    BoJ’s Noguchi: Must tread carefully with step-by-step policy normalization

    BoJ board member Asahi Noguchi emphasized the importance of a “measured, step-by-step” pace in raising interest rates, stressing the need to carefully assess the economic impact of each hike before proceeding further.

    Noguchi also addressed the upcoming interim review of BoJ’s bond tapering strategy, indicating that he sees no need for any major adjustments to the current plan, which runs through March 2026.

    He noted that the central bank should approach its long-term reduction in the balance sheet with flexibility, taking the time needed to ensure stability while maintaining the capacity to respond to “sudden market swings”.

    Any emergency increase in bond purchases, he noted, would be strictly conditional and “only be implemented during times of severe market disruption.”

    Japan’s PMI composite falls to 49.8, private sector contracts again

    Japan’s private sector activity fell back into contraction in May, with PMI Composite declining from 51.2 to 49.8. Manufacturing output edged higher from 48.7 to 49.0, but remained below the neutral 50 mark. The services sector, however, lost more momentum, with its PMI falling from 52.4 to 50.8.

    The decline in composite output reflects weakening domestic and external demand, as new business volumes fell for the first time in nearly a year.

    S&P Global’s Annabel Fiddes noted that elevated uncertainty around trade policy and foreign demand weighed heavily on business confidence, which sank to its second-lowest level since the pandemic’s onset.

    Australia’s PMI Composite slips to 50.6; firms cite election drag on demand

    Australia’s private sector showed signs of slowing in May, with PMI Composite falling from 51.0 to a 3-month low of 50.6. Manufacturing index held steady at 51.7. But services weakened from 51.0 to 50.5, its lowest level in six months.

    According to S&P Global’s Andrew Harker, the sluggishness may be tied in part to election-related uncertainty, which “contributed to slower growth of new orders”. Still, firms remained cautiously optimistic, continuing to hire at a “solid pace”. With the political noise expected to ease, attention will turn to whether demand picks up in the months ahead.

    EUR/USD Daily Outlook

    Daily Pivots: (S1) 1.1286; (P) 1.1324; (R1) 1.1369; More…

    EUR/USD’s rally from 1.1064 is in progress and intraday bias stays on the upside. Correction from 1.1572 could have completed at 1.1064 already. Further rise should be seen to retest 1.1572 high first. Firm break there will resume larger up trend. Next near term target will be 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927. On the downside, break of 1.1217 minor support will delay the bullish case and turn intraday bias neutral again.

    In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0818) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:00 AUD Manufacturing PMI May P 51.7 51.7
    23:00 AUD Services PMI May P 50.5 51
    23:50 JPY Machinery Orders M/M Mar 13.00% -1.60% 4.30%
    00:30 JPY Manufacturing PMI May P 49 49 48.7
    00:30 JPY Services PMI May P 50.8 52.4
    06:00 GBP Public Sector Net Borrowing (GBP) Apr 17.7B 16.4B
    07:15 EUR France Manufacturing PMI May P 48.9 48.7
    07:15 EUR France Services PMI May P 47.7 47.3
    07:30 EUR Germany Manufacturing PMI May P 49 48.4
    07:30 EUR Germany Services PMI May P 49.5 49
    08:00 EUR Eurozone Manufacturing PMI May P 49.4 49
    08:00 EUR Eurozone Services PMI May P 50.4 50.1
    08:00 EUR Germany IFO Expectations May 88.3 87.4
    08:00 EUR Germany IFO Current Assessment May 87 86.4
    08:00 EUR Germany IFO Business Climate May 87.7 86.9
    08:30 GBP Manufacturing PMI May P 46.2 45.4
    08:30 GBP Services PMI May P 50 49
    11:30 EUR ECB Meeting Accounts
    12:30 CAD Industrial Product Price M/M Apr -0.50% 0.50%
    12:30 CAD Raw Material Price Index Apr -2.20% -1%
    12:30 USD Initial Jobless Claims (May 16) 230K 229K
    13:45 USD Manufacturing PMI May P 50.2
    13:45 USD Services PMI May P 50.8
    14:00 USD Existing Home Sales Apr 4.10M 4.02M
    14:30 USD Natural Gas Storage 118B 110B

     



    Source link

  • US Assets Remain Under Pressure; Sterling Gains Muted Despite Hot CPI

    US Assets Remain Under Pressure; Sterling Gains Muted Despite Hot CPI


    Dollar’s selloff moderated slightly during European session, but pressure on US assets remains firmly in place. DOW futures are down more than -300 points, while the 10-year Treasury yield has surged back above the 4.5% mark. Market sentiment continues to reflect unease over the US fiscal outlook and uncertainty surrounding the Trump administration’s trade stance. With the G7 finance ministers’ meeting underway, any hint that Washington may be aiming for a weaker currency will be closely scrutinized.

    In the UK, despite a hotter-than-expected CPI report, Sterling failed to extend gains beyond Dollar and weakened against most other majors. A particularly striking detail in the report was the 5.4% surge in services inflation, which surpassed BoE’s own forecast of 5.0%. On a monthly basis, services prices jumped 2.2% the largest monthly rise in 34 years.

    This supports recent remarks from BoE Chief Economist Huw Pill, who argued that the pace of policy easing may be too fast given the structural persistence in wage and price-setting behavior. The CPI report has clearly dampened market expectations for a summer rate cut, with odds of an August move now down to 40%, compared to 60% before the data release.

    In the broader currency markets, Dollar remains the weakest performer so far today, trailed by Sterling and the Loonie. At the other end, Yen leads the pack amid safe-haven demand, followed by Swiss Franc and Euro. Aussie and Kiwi are trading in the middle.

    In Europe, at the time of writing, FTSE is up 0.06%. DAX is down -0.28%. CAC is down -0.58%. UK 10-year yield is up 0.066 at 4.771. Germany 10-year yield is up 0.046 at 2.654. Earlier in Asia, Nikkei fell -0.61%. Hong Kong HSI rose 0.62%. China Shanghai SSE rose 0.21%. Singapore Strait Times closed flat. Japan 10-year JGB yield fell -0.002 to 1.521.

    UK CPI surges to 3.5% in April, core jumps to 3.8%

    UK inflation came in hotter than expected in April, with headline CPI rising 1.2% mom versus expectation f 1.1% mom. Annual CPI accelerated from 2.6% yoy to 3.5% yoy, above the 3% mark for the first time since March 2024.

    Core CPI, which strips out energy, food, alcohol and tobacco, climbed sharply from 3.4% yoy to 3.8% yoy, its highest level since April 2024.

    Breakdowns show a sharp jump in both goods and services inflation. Goods inflation accelerated from 0.6% yoy to 1.7% yoy, while services inflation climbed from 4.7% yoy to 5.4% yoy , highlighting the strength of domestic price pressures.

    Japan’s US-bound exports fall -1.8% yoy as tariffs and strong Yen Bite

    .Japan’s export growth slowed to just 2.0% yoy in April, marking the weakest pace since October 2024.

    Notably, shipments to the US fell -1.8% yoy — the first decline in four months — as demand for automobiles, steel, and ships weakened. Exports of automobiles alone dropped -4.8% yoy by value, impacted by a stronger Yen and reduced demand for high-end models.

    The decline coincides with the imposition of 25% US tariffs on Japanese auto, steel, and aluminum exports, alongside the 10% blanket levy applied to most trade partners under the current US trade regime.

    Trade with Asia remained more resilient, with exports rising 6.0% yoy. However, shipments to China dipped -0.6% yoy.

    On the import side, Japan saw a -2.2% yoy contraction, resulting in a trade deficit of JPY -115.8B.

    Seasonally adjusted figures show a -2.7% mom drop in exports and a -1.4% mom drop in imports, with the adjusted trade deficit widening to JPY -409B.

    Australia’s leading index falls to 0.2%, growth pulse fades

    Australia’s Westpac Leading Index slowed from 0.5% to 0.2% in April, signaling a loss in growth momentum.

    According to Westpac, the above-trend growth seen earlier this year has “all but disappeared,” primarily due to rising global trade uncertainty and weaker commodity prices.

    While these external pressures dominate, domestic factors such as a slowing labor market and only modest support from interest rate cuts are also contributing to the loss of momentum.

    The overall picture suggests a stalling in the already tepid recovery, with GDP growth expected to reach just 1.9% by the end of 2025, well below historical averages.

    Following RBA’s recent 25bps rate cut to 3.85%, Westpac expects a cautious pause at the next policy meeting on July 7–8. The central bank is likely to await further clarity from the Q2 inflation data due at the end of July before considering additional easing.

    GBP/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.3354; (P) 1.3375; (R1) 1.3414; More…

    Intraday bias in GBP/USD stays on the upside for the moment, with focus on 1.3433/42 key resistance zone. Decisive break there will confirm larger up trend resumption. Next near term target will be 61.8% projection of 1.2706 to 1.3442 from 1.3138 at 1.3593, and then 100% projection at 1.1.3874. On the downside, below 1.3333 minor support will delay the bullish case and turn intraday bias neutral first.

    In the bigger picture, up trend from 1.3051 (2022 low) is still in progress. Decisive break of 1.3433 (2024 high) will confirm resumption. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Nevertheless, sustained trading below 55 D EMA (now at 1.3124) will delay the bullish case and bring more consolidations first.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    22:45 NZD Trade Balance (NZD) Apr 1426M 500M 970M 794M
    23:50 JPY Trade Balance (JPY) Apr -0.41T -0.19T -0.23T -0.29T
    01:00 AUD Westpac Leading Index M/M Apr -0.01% -0.11% -0.15%
    06:00 GBP CPI M/M Apr 1.20% 1.10% 0.30%
    06:00 GBP CPI Y/Y Apr 3.50% 3.30% 2.60%
    06:00 GBP Core CPI Y/Y Apr 3.80% 3.60% 3.40%
    06:00 GBP RPI M/M Apr 1.70% 1.50% 0.30%
    06:00 GBP RPI Y/Y Apr 4.50% 4.20% 3.20%
    12:30 CAD New Housing Price Index M/M Apr -0.40% 0.10% 0.00%
    14:30 USD Crude Oil Inventories -0.9M 3.5M

     



    Source link

  • Dollar Selloff Accelerates on Fiscal, Trade, and FX Policy Risks

    Dollar Selloff Accelerates on Fiscal, Trade, and FX Policy Risks


    Dollar came under broad selling pressure in Asian session, with fresh technical signals suggesting that the near-term recovery has already run its course. Also, the selloff appears to be gathering pace on a range of fundamental concerns.

    One focus is on Capitol Hill, where the House of Representatives is expected to vote on a multitrillion-dollar spending and tax package backed by US President Donald Trump. The bill is projected by nonpartisan analysts to add US 3 to 5 Trillion to the national debt, further exacerbating fiscal sustainability concerns in the wake of the Moody’s downgrade last Friday.

    Simultaneously, ongoing trade negotiations with major partners — including the EU, Japan, and China — have hit apparent roadblocks, reintroducing geopolitical friction into already cautious markets.

    Adding to Dollar’s vulnerability is the backdrop of the G7 finance ministers’ meeting underway in Canada. With concerns that US officials may be quietly welcoming a weaker Dollar to cushion trade headwinds and debt concerns, any perceived shift in post-meeting communiqué could further undermine confidence in the greenback.

    In the currency markets, risk-off tone is building up. Swiss Franc leads as the strongest performer this week so far, followed by Euro and Yen. The Dollar is the weakest, with Loonie and Aussie close behind. Sterling and Kiwi are hovering in the middle.

    Technically, Gold’s rally accelerates along with the selloff in the greenback. The break of 3265.74 resistance solidifies the case that correction from 3499.79 has completed with three waves down to 3120.34. Further rise is expected as long as 55 4H EMA (now at 3215.81) holds. Retest of 3434.76/3499.79 resistance zone should be seen next.

    In Asia, at the time of writing, Nikkei is down -0.21%. Hong Kong HSI is up 0.50%. China Shanghai SSE is up 0.39%. Singapore Strait Times is down -0.31%. Japan 10-year JGB yield is up 0.006 at 1.529. Overnight, DOW fell -0.27%. S&P 500 fell -0.39%. NASDAQ fell -0.38%. 10-year yield rose 0.006 to 4.481.

    Looking ahead, UK CPI is the main focus in European session. Later in the day, Canada will release new housing price index.

    Fed’s Musalem warns tariffs still a threat despite US-China truce

    St. Louis Fed President Alberto Musalem cautioned that even with the 90-day trade truce between the US and China, the current level of tariffs could still have “significant” short-term effects on the economy.

    In a speech overnight, he warned that tariffs are likely to “dampen economic activity” and further weaken the labor market. At the same time, tariffs could raise inflation both directly, through higher import prices, and indirectly, by triggering broader cost increases in domestic goods and services.

    Musalem outlined two potential monetary policy responses depending on how persistent the inflationary effects of tariffs prove to be.

    If the price impacts are temporary and inflation remains controlled, then it may be appropriate for the Fed to “look through” the short-term inflation spike and consider easing policy to cushion the labor market.

    However, if inflation proves stickier and starts to unanchor long-term expectations, Musalem argued that restoring price stability should take precedence, even at the cost of weaker growth and higher unemployment.

    “History tells us that restoring price stability is more costly for the public… if inflation expectations are not well anchored,” Musalem said.

    Fed’s Bostic: Tariff impact to surface as front-running shielding fades

    Atlanta Fed President Raphael Bostic warned that the economic effects of recent tariffs may be set to emerge more visibly, as businesses begin to exhaust their earlier stockpiling and “front-running” strategies.

    Speaking on the sidelines of a conference, Bostic said that “a lot of the tariff impact to date has actually not shown up in the numbers yet,” but the strategies used to insulate against cost shocks — such as building up inventories — “are starting to run their course.”

    As these buffers fade, Bostic expects that changes in prices could follow soon, offering a clearer view of how tariffs will impact both inflation and consumer behavior. “We’re about to see some changes in prices, and then we’re going to learn how consumers are going to respond to that,” he noted.

    Given the heightened uncertainty, Bostic maintained a cautious tone on policy. “We should wait and see where the economy is going before we do anything definitive,” he said.

    Japan’s US-bound exports fall -1.8% yoy as tariffs and strong Yen Bite

    .Japan’s export growth slowed to just 2.0% yoy in April, marking the weakest pace since October 2024.

    Notably, shipments to the US fell -1.8% yoy — the first decline in four months — as demand for automobiles, steel, and ships weakened. Exports of automobiles alone dropped -4.8% yoy by value, impacted by a stronger Yen and reduced demand for high-end models.

    The decline coincides with the imposition of 25% US tariffs on Japanese auto, steel, and aluminum exports, alongside the 10% blanket levy applied to most trade partners under the current US trade regime.

    Trade with Asia remained more resilient, with exports rising 6.0% yoy. However, shipments to China dipped -0.6% yoy.

    On the import side, Japan saw a -2.2% yoy contraction, resulting in a trade deficit of JPY -115.8B.

    Seasonally adjusted figures show a -2.7% mom drop in exports and a -1.4% mom drop in imports, with the adjusted trade deficit widening to JPY -409B.

    Australia’s leading index falls to 0.2%, growth pulse fades

    Australia’s Westpac Leading Index slowed from 0.5% to 0.2% in April, signaling a loss in growth momentum.

    According to Westpac, the above-trend growth seen earlier this year has “all but disappeared,” primarily due to rising global trade uncertainty and weaker commodity prices.

    While these external pressures dominate, domestic factors such as a slowing labor market and only modest support from interest rate cuts are also contributing to the loss of momentum.

    The overall picture suggests a stalling in the already tepid recovery, with GDP growth expected to reach just 1.9% by the end of 2025, well below historical averages.

    Following RBA’s recent 25bps rate cut to 3.85%, Westpac expects a cautious pause at the next policy meeting on July 7–8. The central bank is likely to await further clarity from the Q2 inflation data due at the end of July before considering additional easing.

    USD/CHF Daily Outlook

    Daily Pivots: (S1) 0.8256; (P) 0.8309; (R1) 0.8337; More….

    USD/CHF’s downside accelerations suggests that corrective recovery from 0.8038 has already completed with three waves up to 0.8475. Intraday bias is back on the downside, and break of 0.8184 support will solidify this bearish case. Further break of 0.8038 will resume larger down trend to 61.8% projection of 0.9200 to 0.8038 from 0.8475 at 0.7757 next. On the upside, above 0.8347 minor resistance will delay the bearish case and turn intraday bias neutral again first.

    In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8765) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    22:45 NZD Trade Balance (NZD) Apr 1426M 500M 970M 794M
    23:50 JPY Trade Balance (JPY) Apr -0.41T -0.19T -0.23T -0.29T
    01:00 AUD Westpac Leading Index M/M Apr -0.01% -0.11% -0.15%
    06:00 GBP CPI M/M Apr 1.10% 0.30%
    06:00 GBP CPI Y/Y Apr 3.30% 2.60%
    06:00 GBP Core CPI Y/Y Apr ` 3.60% 3.40%
    06:00 GBP RPI M/M Apr 1.50% 0.30%
    06:00 GBP RPI Y/Y Apr 4.20% 3.20%
    12:30 CAD New Housing Price Index M/M Apr 0.10% 0.00%
    14:30 USD Crude Oil Inventories -0.9M 3.5M

     



    Source link

  • Loonie Lifts on Hot Core Inflation, But BoC Cut Still in Play

    Loonie Lifts on Hot Core Inflation, But BoC Cut Still in Play


    Canadian Dollar firmed modestly in early US trading after inflation data showed a sharper-than-expected pickup in core price pressures. While headline CPI slowed to 1.7% in April, the drop was largely due to a steep decline in energy prices. In contrast, underlying inflation picked up pace, with core measures such as CPI-median, trim, and common all rising more than expected, driven in part by higher grocery and travel costs.

    The market response was swift. Traders pared back expectations for a BoC rate cut at its June 4 meeting, with swaps now pricing in around a 48% chance, down from 65% prior to the release. Still, attention will now turn to Canada’s Q1 GDP report on May 30, which is likely to be the key data point in determining whether BoC will proceed with a cut or hold off amid resurging inflation pressures.

    In the currency markets, Loonie is currently leading gains for the day, followed by Swiss Franc and Yen. Meanwhile, Aussie is the day’s worst performer, weighed down by RBA’s dovish rate cut and downgrade in inflation and growth projections. Kiwi is the second weakest, and then Sterling. Euro and Dollar are positioning in the middle.

    Technically, however, USD/CAD is still bounded firmly inside range of 1.3898/4014. Further rise is still in favor and break of 1.4014 will resume the rebound from 1.3749 short term bottom to 1.4150 cluster resistance (38.2% retracement of 1.4791 to 1.3749 at 1.4147). However, firm break of 1.3898 will bring retest of 1.3749 low instead.

    In Europe, at the time of writing, FTSE is up 0.72%. DAX is up 0.46%. CAC is up 0.71%. UK 10-year yield is up 0.039 at 4.704. Germany 10-year yield is up 0.013 at 2.606. Earlier in Asia, Nikkei rose 0.08%. Hong Kong HSI rose 1.49%. China Shanghai SSE rose 0.38%. Singapore Strait Times rose 0.16%. Japan 10-year JGB yield rose 0.035 to 1.523.

    Canada’s headline CPI slows to 1.7% on energy, but core measures jump

    Canada’s headline consumer inflation eased to 1.7% yoy in April, down from 2.3% yoy in March, slightly above the expected 1.6% yoy. The deceleration was primarily due to a steep drop in energy prices by -12.7% yoy, with gasoline down -18.1% yoy and natural gas falling -14.1% yoy. On a monthly basis, overall CPI declined by -0.1% mom.

    However, the details beneath the surface were less comforting for policymakers. Excluding energy, inflation actually accelerated, with CPI rising 2.9% yoy compared to 2.5% yoy in March.

    Moreover, all three core inflation measures rose notably. CPI-median rose from 2.9% yoy to 3.2%, above expectation of 2.9% yoy. CPI trimmed rose from 2.8% yoy to 3.1% yoy, above expectation of 2.8% yoy. CPI common jumped from 2.3% yoy to 2.5% yoy, above expectation of 2.3% yoy.

    BoE’s Pill: Quarterly rate cuts may be too rapid given increasing intrinsic inflation persistence

    BoE Chief Economist Huw Pill explained his vote to keep the Bank Rate unchanged at the May MPC meeting as a “skip” rather than a pause in the broader easing cycle.

    In speech today, Pill said that while disinflation remains on track, the pace of quarterly 25bps cuts since last summer may be ” too rapid” given current inflation dynamics.

    He expressed particular concern that structural changes in wage and price-setting behavior have heightened the “intrinsic persistence” of inflation in the UK.

    As a result, Pill argued that a more cautious approach to monetary easing is warranted, reinforcing the need to slow the pace of rate reductions while continuing the broader policy normalization.

    ECB’s Schnabel: Disinflation on track, steady hand needed amid new shocks

    ECB Executive Board member Isabel Schnabel said the Eurozone’s disinflation process remains on track, but “new shocks” — particularly from trade tariffs — are presenting emerging risks.

    While tariffs may dampen inflation in the short term, Schnabel warned they pose medium-term upside risks, warranting a “steady hand” in monetary policy.

    She emphasized the importance of not overlooking “supply-side shocks” if they appear persistent, as doing so could risk “de-anchoring inflation expectations”.

    Schnabel also highlighted the Eurozone’s relative resilience following the tariff escalation on April 2, noting Euro’s appreciation and a shift in perception toward the region as a “safe haven.” She characterized this as a “historical opportunity” to strengthen the international role of Euro.

    ECB’s Knot: June rate cut possible, but not confirmed

    Dutch ECB Governing Council member Klaas Knot said today that a rate cut at the June meeting remains on the table but is far from a done deal.

    “I can’t exclude we will decide to have another rate cut in June, but I also can’t confirm it,” he told reporters, emphasizing that ECB must remain focused on medium- to long-term inflation risks rather than short-term fluctuations.

    Knot said the new staff projections next month will incorporate scenarios reflecting the impact of recent US trade policies and potential EU countermeasures.

    While the outlook may show lower inflation in 2025 and 2026, the bigger concern lies beyond that window, given the longer-term effects of tariff-related distortions. “It is more interesting to see what happens after that period,” he noted.

    RBA cuts rates to 3.85%, lowers 2025 growth and inflation forecasts

    RBA delivered a widely expected 25 bps rate cut, lowering the cash rate to 3.85%. In its statement, RBA said the risks to inflation had become “more balanced,” with headline inflation now within the target range and upside pressures “appear to have diminished” amid deteriorating global economic conditions.

    Still, the central bank remains cautious, citing significant uncertainty around both demand and supply dynamics, as well as the evolving impact of global trade tensions and geopolitical developments.

    The Board acknowledged a “severe downside scenario” and emphasized that monetary policy is “well placed” to respond decisively if global shocks materially affect Australia’s outlook. RBA flagged the unpredictability of global tariff policies and noted that households and businesses may hold back on spending amid heightened uncertainty. These concerns have contributed to a weaker outlook across growth, employment, and inflation.

    In its revised forecasts, RBA downgraded GDP growth for 2025 to 1.9% (from 2.1%) and for 2026 to 2.2% (from 2.3%). End-2025 headline CPI was revised down to 3.0% from 3.7%, with end-2026 projection lifted from 2.8% to 2.9%. Trimmed mean forecasts for the end-2025 and end 2026 were both cut slightly from 2.7% to 2.6%.

    RBA’s Bullock: Debated 25 vs 50bps cut debated; trade risks tilt toward disinflation

    Following RBA’s decision, Governor Michele Bullock revealed in the post-meeting press conference that the Board briefly considered holding rates but quickly moved to debate between 25 and 50 basis point reductions.

    Ultimately, the more measured 25bps cut was preferred, given that inflation is within target and unemployment remains resilient. Bullock emphasized that while easing was justified, “it doesn’t rule out that we might need to take action in the future.”

    Bullock also noted that the Board views recent global trade developments as broadly “disinflationary” for Australia. However, she cautioned that risks remain tilted both ways.

    “There is a risk to inflation on the upside, trade policies could lead to supply chain issues, which could raise prices for some imports, much as we saw during the pandemic,” she emphasized.

    China cuts loan prime rates for first time in seven months

    China’s central bank lowered its key lending benchmarks for the first time since October, delivering a long-anticipated move to support the economy.

    PBoC lowered the one-year loan prime rate by 10 bps to 3.0%. The five-year LPR, a key reference for mortgages, was also trimmed by 10 bps to 3.5%.

    The October 2025 easing was more aggressive at 25 basis points, but today’s cuts still mark a meaningful step in the ongoing monetary support cycle.

    The move comes as part of a broader policy package unveiled by PBOC Governor Pan Gongsheng and top financial regulators ahead of high-level trade talks in Geneva that have since led to a temporary truce between China and the US on tariffs.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.1180; (P) 1.1234; (R1) 1.1296; More…

    Range trading continues in EUR/USD and intraday bias remains neutral. On the upside, decisive break of 1.1292 resistance should indicate that correction from 1.1572 has already completed after defending 38.2% retracement of 1.0176 to 1.1572 at 1.1039. Intraday bias will be turned back to the upside for retesting 1.1572 next. However, sustained break of 1.1039 will bring deeper decline to 61.8% retracement at 1.0709 next.

    In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0818) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    01:15 CNY 1-Y Loan Prime Rate 3.00% 3.00% 3.10%
    04:30 CNY 5-Y Loan Prime Rate 3.50% 3.50% 3.60%
    04:30 AUD RBA Interest Rate Decision 3.85% 3.85% 4.10%
    06:00 EUR Germany PPI M/M Apr -0.60% -0.30% -0.70%
    06:00 EUR Germany PPI Y/Y Apr -0.90% -0.60% -0.20%
    08:00 EUR Eurozone Current Account (EUR) Mar 50.9B 35.9B 34.3B
    12:30 CAD CPI M/M Apr -0.10% -0.10% 0.30%
    12:30 CAD CPI Y/Y Apr 1.70% 1.60% 2.30%
    12:30 CAD CPI Median Y/Y Apr 3.20% 2.90% 2.90%
    12:30 CAD CPI Trimmed Y/Y Apr 3.10% 2.80% 2.80%
    12:30 CAD CPI Common Y/Y Apr 2.50% 2.30% 2.30%

     



    Source link

  • Aussie Dips on RBA’s Dovish Tilt, But Risk Sentiment Provides Cushion

    Aussie Dips on RBA’s Dovish Tilt, But Risk Sentiment Provides Cushion


    Aussie softened modestly following the RBA’s widely expected 25bps rate cut to 3.85%. But selling was contained as broader market sentiment remained supportive.

    While the move itself was no surprise, the updated economic forecasts leaned dovish, notably with headline CPI now seen at just 3.0% by year-end, down from the previous 3.7% projection. This downward revision in inflation opens the door for RBA to maintain a steady path of policy easing.

    More importantly, should global trade tensions re-escalate or downside risks materialize, especially from US tariff policy uncertainty, there is ample room for the central bank to accelerate its rate cuts.

    Despite the RBA’s dovish bias, Aussie found some footing amid steady risk sentiment. US equities shrugged off the initial shock from Moody’s credit rating downgrade, with major indexes finishing higher. Meanwhile, US 10-year yields also retreated from their earlier spike, indicating that investor appetite for Treasuries remains intact for now. Across Asia, sentiment was further bolstered by China’s latest easing move, with the PBoC cutting its key LPRs for the first time in seven months.

    Meanwhile, on the trade front, Japan is maintaining a firm stance in negotiations with the US. Top trade official Ryosei Akazawa reaffirmed that Tokyo would not rush into a deal at the expense of national interests. Japan continues to push for full tariff elimination, including automobiles, car parts, and metals. Talks with the US are ongoing at the working level, but no date has been set for a third ministerial meeting.

    Technically, AUD/NZD’s dip and break of 55 4H EMA today suggests that a short term top was formed at 1.0920, on bearish divergence condition in 4H MACD. Deeper retreat is now in favor to 38.2% retracement of 1.0649 to 1.0920 at 1.0816 to contain downside, at least on first attempt. However, firm break of 1.0816 will suggest near term reversal, and bring deeper fall to 61.8% retracement at 1.0753 instead.

    In Asia, at the time of writing, Nikkei is up 0.25%. Hong Kong HSI is up 1.29%. China Shanghai SSE is up 0.38%. Singapore Strait Times is up 0.19%. Japan 10-year JGB yield is up 0.039 at 1.527. Overnight, DOW rose 0.32%. S&P 500 rose 0.09%. NASDAQ rose 0.02%. 10-year yield rose 0.034 to 4.475.

    Looking ahead, Germany PPI is a focus in European session. Later in the day, attention will be on Canada CPI.

    RBA cuts rates to 3.85%, lowers 2025 growth and inflation forecasts

    RBA delivered a widely expected 25 bps rate cut, lowering the cash rate to 3.85%. In its statement, RBA said the risks to inflation had become “more balanced,” with headline inflation now within the target range and upside pressures “appear to have diminished” amid deteriorating global economic conditions.

    Still, the central bank remains cautious, citing significant uncertainty around both demand and supply dynamics, as well as the evolving impact of global trade tensions and geopolitical developments.

    The Board acknowledged a “severe downside scenario” and emphasized that monetary policy is “well placed” to respond decisively if global shocks materially affect Australia’s outlook. RBA flagged the unpredictability of global tariff policies and noted that households and businesses may hold back on spending amid heightened uncertainty. These concerns have contributed to a weaker outlook across growth, employment, and inflation.

    In its revised forecasts, RBA downgraded GDP growth for 2025 to 1.9% (from 2.1%) and for 2026 to 2.2% (from 2.3%). End-2025 headline CPI was revised down to 3.0% from 3.7%, with end-2026 projection lifted from 2.8% to 2.9%. Trimmed mean forecasts for the end-2025 and end 2026 were both cut slightly from 2.7% to 2.6%.

    China cuts loan prime rates for first time in seven months

    China’s central bank lowered its key lending benchmarks for the first time since October, delivering a long-anticipated move to support the economy.

    PBoC lowered the one-year loan prime rate by 10 bps to 3.0%. The five-year LPR, a key reference for mortgages, was also trimmed by 10 bps to 3.5%.

    The October 2025 easing was more aggressive at 25 basis points, but today’s cuts still mark a meaningful step in the ongoing monetary support cycle.

    The move comes as part of a broader policy package unveiled by PBOC Governor Pan Gongsheng and top financial regulators ahead of high-level trade talks in Geneva that have since led to a temporary truce between China and the US on tariffs.

    SNB’s Schlegel: Inflation outlook unclear, negative rates remain on the table

    SNB Chair Martin Schlegel warned that the outlook for Swiss inflation remains highly uncertain and reiterated that the central bank could not rule out a return to negative interest rates.

    Speaking at an event overnight, Schlegel said while such rates were an extraordinary measure, they had previously achieved their intended effect when used between 2014 and 2022.

    “The uncertainty is currently enormous,” Schlegel said, citing volatility in both USD/CHF and EUR/CHF, adding that “investors are seeking a safe haven in stormy times,” which has put upward pressure on the Swiss franc.

    Separately, Schlegel addressed concerns about global asset shifts, emphasizing that US treasuries remain foundational to global markets despite rising uncertainty. “There’s no current or foreseeable alternative to U.S. treasuries,” he said, citing their liquidity and dominance.

    BoE’s Dhingra: Vote for bigger rate cut a signal of economic direction

    BoE MPC member Swati Dhingra explained her decision to vote for a larger 50bps rate cut at the May 8 meeting as a deliberate signal about the UK’s economic outlook.

    Speaking in an FT interview, Dhingra said she wanted to send a “more categorical statement about where I think the economy is headed,” noting that using such a larger move sparingly increases its impact on market expectations.

    Her vote, along with Alan Taylor’s, diverged from the majority who supported a more measured 25bps cut.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6415; (P) 0.6440; (R1) 0.6482; More…

    AUD/USD dips mildly today but stays in range of 0.6356/6511. Intraday bias remains neutral and further rise is in favor. One the upside, break of 0.6511 will resume the rise from 0.5913 and target 61.8% retracement of 0.6941 to 0.5913 at 0.6548. However, firm break of 0.6356 will bring deeper pullback to 38.2% retracement of 0.5913 to 0.6511 at 0.6283 first.

    In the bigger picture, as long as 55 W EMA (now at 0.6438) holds, down trend from 0.8006 (2021 high) should resume later to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. However, sustained trading above 55 W EMA will argue that a medium term bottom was already formed, and set up further rebound to 0.6941 resistance instead.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    01:15 CNY 1-Y Loan Prime Rate 3.00% 3.00% 3.10%
    04:30 CNY 5-Y Loan Prime Rate 3.50% 3.50% 3.60%
    04:30 AUD RBA Interest Rate Decision 3.85% 3.85% 4.10%
    06:00 EUR Germany PPI M/M Apr -0.30% -0.70%
    06:00 EUR Germany PPI Y/Y Apr -0.60% -0.20%
    08:00 EUR Eurozone Current Account (EUR) Mar 35.9B 34.3B
    12:30 CAD CPI M/M Apr -0.10% 0.30%
    12:30 CAD CPI Y/Y Apr 1.60% 2.30%
    12:30 CAD CPI Median Y/Y Apr 2.90% 2.90%
    12:30 CAD CPI Trimmed Y/Y Apr 2.80% 2.80%
    12:30 CAD CPI Common Y/Y Apr 2.30% 2.30%

     



    Source link

  • Euro and Pound Rally on UK-EU Pact, Dollar Wobbles

    Euro and Pound Rally on UK-EU Pact, Dollar Wobbles


    Euro and Sterling surged today after the UK and EU unveiled a sweeping new agreement resetting their defence and trade relationship, the most substantial since Brexit in 2020. The comprehensive deal spans key sectors including security, energy, travel, trade, and fisheries. UK Prime Minister Keir Starmer hosted European Commission President Ursula von der Leyen in London for the high-stakes summit, highlighting the UK’s shift toward pragmatic diplomacy while respecting key post-Brexit red lines.

    The UK Labour government was quick to clarify that this reset does not mark a reversal of Brexit. Officials emphasized that the agreement avoids returning to the EU single market, customs union, or freedom of movement. Still, the new deal is being hailed as a boost to corporate confidence and may pave the way for fresh investment flows into the UK, especially following other trade breakthroughs this month with the US and India.

    While optimism lifted the Euro and Pound, US assets are under renewed pressure following last week’s credit downgrade by Moody’s. Dollar weakness was notable, with the greenback falling to the bottom of the major currency pack. Treasury yields, however, surged as bond markets reeled from the implications of a swelling fiscal deficit. 10-year yield broke through the key 4.5% level, while 30-year yield topped 5% for the first time in months.

    Part of the angst stems from fresh momentum behind President Donald Trump’s multitrillion-dollar domestic policy package. Passed by the House Budget Committee on Sunday, the bill includes major increases in immigration and defense spending, along with an extension of the 2017 tax cuts. It’s now headed for floor debate later this week. Markets are interpreting this as a structural shift toward higher deficits, particularly as tariff revenue is unlikely to fully compensate for lost tax income.

    In the currency markets, Euro leads the day’s gains, followed by Sterling and Aussie. Dollar is the weakest performer, trailed by Loonie and Swiss Franc. The Japanese Yen and New Zealand Dollar are trading more mixed.

    Technically, GBP/USD is now in focus as it approaches key resistance level at 1.3433 (2024 high) again. Decisive break of 1.3433 will confirm resumption of whole up trend from 1.0351 (2022 low). Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004.

    In Europe, at the time of writing, FTSE is down 0.44%. DAX is down -0.09%. CAD is down -0.74%. UK 10-year yield is up 0.059 at 4.706. Germany 10-year yield is up 0.057 at 2.645. Earlier in Asia, Nikkei fell -0.68%. Hong Kong HSI fell -0.05%. China Shanghai SSE closed flat. Singapore Strait Times fell -0.56%. Japan 10-year JGB yield rose 0.033 to 1.488.

    Fed’s Bostic leans toward one rut in 2025 as inflation expectations turn concerning

    Atlanta Fed President Raphael Bostic said on CNBC today that he currently favors just one interest rate cut this year, citing persistent inflation pressures and growing concern over shifting inflation expectations.

    “I worry a lot about the inflation side,” Bostic said, noting that recent data shows expectations are beginning to drift upward again “in a troublesome way”, which “will make our job harder.”

    Eurozone CPI finalized at 2.2% in April, core at 2.7%

    Eurozone headline CPI was finalized at 2.2% yoy in April. CPI core, which excludes energy, food, alcohol, and tobacco, accelerated, to 2.7%, up from 2.4% previously.

    Services remained the primary driver of inflation, contributing 1.80 percentage points to the overall figure, followed by food, alcohol and tobacco at 0.57 pp. Energy continued to exert a dampening effect, subtracting -0.35 pp.

    At the EU level, annual inflation was slightly higher at 2.4% yoy. Inflation disparities remained wide across the bloc, with France posting the lowest annual rate at 0.9% and Romania the highest at 4.9%.

    BoJ’s Uchida notes strain on consumers as food and import costs climb

    BoJ Deputy Governor Shinichi Uchida noted in parliamentary remarks that recent inflation has been driven primarily by higher import and food costs, particularly staples like rice.

    He acknowledged the burden on households, saying the price increases are “having a negative impact on people’s livelihood and consumption”. The bank remains prepared to continue raising rates if its current forecast holds.

    However, Uchida stressed the “extremely high uncertainty” around global trade policies and their economic consequences. Given these risks, he emphasized that the BoJ would assess whether the economy and inflation align with projections before taking further steps.

    China’s retail sales growth slows to 5.1% in April, misses expectations

    China’s economic data for April revealed a patchy recovery, with retail sales rising by 5.1% yoy, falling short of the 6.0% yoy forecast and slowing from March’s 5.9% yoy. Stripping out automobiles, consumer goods sales rose 5.6% yoy.

    National Bureau of Statistics spokesperson Fu Linghui remained upbeat, saying that consumption momentum continues to build and will remain a key driver of economic growth.

    On the production side, industrial output grew by 6.1% yoy, exceeding expectations of 5.7% yoy but decelerating from March’s robust 7.7% expansion. Meanwhile, fixed asset investment came in at 4.0% year-to-date, below the expected 4.4%.

    NZ BNZ services slips to 48.5, sector remains under pressure

    New Zealand’s services sector showed further signs of strain in April, with the BusinessNZ Performance of Services Index dipping from 48.9 to 48.5, well below the long-term average of 53.0.

    Key components of the survey highlighted persistent weakness: activity/sales was stagnant at 47.3. Employment slipped back into contraction territory at 48.2. New orders showed only marginal improvement, rising from 50.8 to 50.9.

    BNZ Senior Economist Doug Steel noted the PSI paints a more sobering picture than broader recovery narratives might suggest, highlighting that New Zealand’s services sector is underperforming relative to key global peers.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.1123; (P) 1.1171; (R1) 1.1212; More…

    Immediate focus is now on 1.1292 resistance in EUR/USD as rebound from 1.1064 resumes. Decisive break there will indicate that correction from 1.1572 has already completed after defending 38.2% retracement of 1.0176 to 1.1572 at 1.1039. Intraday bias will be turned back to the upside for retesting 1.1572 next.

    In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0818) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    22:30 NZD Business NZ PSI Apr 48.5 49.1 48.9
    22:45 NZD PPI Input Q/Q Q1 2.90% 0.20% -0.90%
    22:45 NZD PPI Output Q/Q Q1 2.10% 0.10% -0.10%
    23:01 GBP Rightmove House Price Index M/M May 0.60% 1.40%
    02:00 CNY Industrial Production Y/Y Apr 6.10% 5.70% 7.70%
    02:00 CNY Retail Sales Y/Y Apr 5.10% 6.00% 5.90%
    02:00 CNY Fixed Asset Investment YTD Y/Y Apr 4.00% 4.40% 4.20%
    04:30 JPY Tertiary Industry Index M/M Mar -0.30% -0.20% 0.00% 0.50%
    09:00 EUR Eurozone CPI Y/Y Apr F 2.20% 2.20% 2.20%
    09:00 EUR Eurozone CPI Core Y/Y Apr F 2.70% 2.70% 2.70%

     



    Source link

  • Risk Mood Softens as Moody’s US Downgrade and Mixed China Data Dent Confidence

    Risk Mood Softens as Moody’s US Downgrade and Mixed China Data Dent Confidence


    Global markets kicked off the week with a mild risk-off tone, driven by renewed concerns over US creditworthiness and mixed economic data out of China. Moody’s downgrade of the U.S. sovereign rating from Aaa to Aa1 late last Friday has cast a shadow over investor sentiment. Meanwhile, China’s latest data highlighted a fragile recovery with industrial output holding up but retail sales and investment disappointing. Still, losses in Asian equities have been relatively contained so far, suggesting caution more than panic.

    The more notable market movement is in US futures, where the DOW is down over 200 points in early trade. However, since US cash markets are yet to reopen, the true extent of investor reaction remains to be seen. Currency markets are relatively quiet, with Dollar trading on the soft side, but there’s no sign of a broad-based selloff. Nearly all major currency pairs and crosses are hovering within Friday’s ranges.

    Trade policy developments will continue dominate this week’s narrative. In a Sunday interview, US Treasury Secretary Scott Bessent reiterated the administration’s readiness to reinstate reciprocal tariffs at the April 2 rate on countries that fail to negotiate “in good faith.” However, he offered little clarity on what qualifies as “good faith” or when decisions might be announced.

    Bessent noted that the US is currently focused on its 18 most important trading relationships, and letters will be sent out to those nations deemed to be stalling or resisting negotiations. The threat of reactivating the more extreme tariff brackets imposed in April looms large and could provoke renewed volatility.

    On the economic calendar, RBA’s expected rate cut will headline central bank action. Meanwhile, inflation data from Canada, the UK, and Japan will offer fresh insight into price dynamics amid global tariff pressures. Retail sales from the UK, Canada, and New Zealand will help gauge consumer resilience. ECB’s meeting accounts may shed light on the internal debate ahead of its anticipated June rate cut.

    Technically, Bitcoin reversed quickly after initial surge earlier today. Upside momentum is also unconvincing as seen in D MACD. Break of 100692 support should confirm rejection by 109571 higher. Deeper pullback should at least be seen to 55 D EMA (now at 94361), with risk of near term bearish reversal.

    In Asia, Nikkei fell -0.73%. Hong Kong HSI is down -0.02%. China Shanghai SSE is up 0.02%. Singapore Strait Times is down -0.25%. Japan 10-year JGB yield is up 0.03 at 1.485.

    BoJ’s Uchida notes strain on consumers as food and import costs climb

    BoJ Deputy Governor Shinichi Uchida noted in parliamentary remarks that recent inflation has been driven primarily by higher import and food costs, particularly staples like rice.

    He acknowledged the burden on households, saying the price increases are “having a negative impact on people’s livelihood and consumption”. The bank remains prepared to continue raising rates if its current forecast holds.

    However, Uchida stressed the “extremely high uncertainty” around global trade policies and their economic consequences. Given these risks, he emphasized that the BoJ would assess whether the economy and inflation align with projections before taking further steps.

    China’s retail sales growth slows to 5.1% in April, misses expectations

    China’s economic data for April revealed a patchy recovery, with retail sales rising by 5.1% yoy, falling short of the 6.0% yoy forecast and slowing from March’s 5.9% yoy. Stripping out automobiles, consumer goods sales rose 5.6% yoy.

    National Bureau of Statistics spokesperson Fu Linghui remained upbeat, saying that consumption momentum continues to build and will remain a key driver of economic growth.

    On the production side, industrial output grew by 6.1% yoy, exceeding expectations of 5.7% yoy but decelerating from March’s robust 7.7% expansion. Meanwhile, fixed asset investment came in at 4.0% year-to-date, below the expected 4.4%.

    NZ BNZ services slips to 48.5, sector remains under pressure

    New Zealand’s services sector showed further signs of strain in April, with the BusinessNZ Performance of Services Index dipping from 48.9 to 48.5, well below the long-term average of 53.0.

    Key components of the survey highlighted persistent weakness: activity/sales was stagnant at 47.3. Employment slipped back into contraction territory at 48.2. New orders showed only marginal improvement, rising from 50.8 to 50.9.

    BNZ Senior Economist Doug Steel noted the PSI paints a more sobering picture than broader recovery narratives might suggest, highlighting that New Zealand’s services sector is underperforming relative to key global peers.

    ECB’s Lagarde attributes Euro strength to waning confidence in US policy amid uncertainty

    ECB President Christine Lagarde has described the Euro’s recent appreciation against Dollar as “counter-intuitive,” but ultimately a reflection of growing global unease over US political and economic direction.

    In an interview with La Tribune Dimanche, Lagarde said that parts of the financial markets appear to be “losing confidence” in the US, due to economic and financial chaos during the first 100 days of President Donald Trump’s term.

    By contrast, Lagarde highlighted Europe’s comparative stability, both economic and institutional, as a key driver behind the Euro’s unexpected strength.

    “Uncertainty is a constant [in the US],” she noted, while Europe is being recognized as “a stable economic and political region with a solid currency and an independent central bank.”

    That divergence in perceived reliability, she argues, has led markets to favor the Euro even in a climate where risk aversion would normally boost Dollar.

    RBA rate cut, inflation data from Canada, UK and Japan to highlight the week

    RBA is widely expected to deliver a 25 bps rate cut, bringing the cash rate down to 3.85%. While all of Australia’s big four banks agree on the need for further easing, there’s some divergence on the pace. NAB stands out with a bolder forecast, projecting a larger 50bps reduction.

    Looking ahead, ANZ anticipates two more cuts in July and August to bring the cash rate to 3.35% by then. Commonwealth Bank shares a similar view but sees the final cut coming in November. NAB expects a more dovish sequence, projecting three further cuts by year-end, followed by one more in early 2026. Westpac also forecasts two cuts in H2 2025.

    Yet, with global tariff negotiations still unresolved, particularly regarding China, Australia’s economic outlook remains highly fluid, leaving room for policy recalibration in the months ahead.

    On the data front, inflation will dominate. Canada, the UK, and Japan are all set to release April CPI figures.

    In Canada, headline inflation could be significantly distorted by the recent removal of the consumer carbon tax on energy products. As a result, attention will shift to the ex-energy components, which could offer clearer guidance for the BoC. Economists generally expect another rate cut in June, provided the CPI report shows subdued underlying pressures, especially as tariff effects begin to bite.

    In the UK, inflation is projected to rebound above 3%, largely due to previously flagged increases in energy prices and regulated items like water bills. BoE has already accounted for this temporary surge, so a surprise in either direction is unlikely to alter its current pace of easing, generally one 25bps cut per quarter.

    Japan’s CPI will also attract attention after Q1 GDP revealed a deeper-than-expected contraction, causing markets to dial back BoJ rate hike bets. Even if core inflation picks up again in April, BoJ is likely to remain on hold for now, especially given the dual headwinds of weak growth and global trade uncertainty. However, an upside surprise could test BoJ’s tolerance.

    Beyond inflation, retail sales from the UK, Canada, and New Zealand will provide insight into consumer resilience in face of tariff threats. Germany’s Ifo Business Climate and a batch of Chinese data, including retail sales, industrial production, and fixed asset investment, will also be in focus. Additionally, ECB will publish the minutes of its latest policy meeting, offering more clues on the anticipated June rate cut.

    Here are some highlights for the week:

    • Monday: New Zealand BNZ services, PPI; China industrial production, retail sales, fixed asset investment; Japan tertiary industry index; Eurozone CPI final.
    • Tuesday: China rate decision; RBA rate decision; Germany PPI; Eurozone current account; Canada CPI.
    • Wednesday: New Zealand trade balance; Japan trade balance; UK CPI; Canada new housing price index.
    • Thursday: Australia PMIs; Japan PMIs, machine orders; Eurozone PMIs, ECB accounts; Germany Ifo business climate; UK PMIs; Canada IPPI and RMPI; US jobless claims, PMIs, existing home sales.
    • Friday: New Zealand retail sales; Japan CPI; UK retail sales; Germany GDP final; Canada retail sales; US new home sales.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6382; (P) 0.6409; (R1) 0.6430; More…

    Intraday bias in AUD/USD remains neutral as range trading continues. Further rise is in favor as long as 0.6356 support holds. One the upside, break of 0.6511 will resume the rise from 0.5913 and target 61.8% retracement of 0.6941 to 0.5913 at 0.6548. However, firm break of 0.6356 will bring deeper pullback to 38.2% retracement of 0.5913 to 0.6511 at 0.6283 first.

    In the bigger picture, as long as 55 W EMA (now at 0.6438) holds, down trend from 0.8006 (2021 high) should resume later to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. However, sustained trading above 55 W EMA will argue that a medium term bottom was already formed, and set up further rebound to 0.6941 resistance instead.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    22:30 NZD Business NZ PSI Apr 48.5 49.1 48.9
    22:45 NZD PPI Input Q/Q Q1 2.90% 0.20% -0.90%
    22:45 NZD PPI Output Q/Q Q1 2.10% 0.10% -0.10%
    23:01 GBP Rightmove House Price Index M/M May 0.60% 1.40%
    02:00 CNY Industrial Production Y/Y Apr 6.10% 5.70% 7.70%
    02:00 CNY Retail Sales Y/Y Apr 5.10% 6.00% 5.90%
    02:00 CNY Fixed Asset Investment YTD Y/Y Apr 4.00% 4.40% 4.20%
    04:30 JPY Tertiary Industry Index M/M Mar -0.30% -0.20% 0.00% 0.50%
    09:00 EUR Eurozone CPI Y/Y Apr F 2.20% 2.20%
    09:00 EUR Eurozone CPI Core Y/Y Apr F 2.70% 2.70%

     



    Source link

  • Moody’s Downgrade Disrupts Calm from Tariff Truce, Dollar Faces New Test

    Moody’s Downgrade Disrupts Calm from Tariff Truce, Dollar Faces New Test


    Just as markets were finding their footing following a series of positive trade developments, Moody’s delivered a late-week shock by downgrading the US sovereign credit rating from Aaa to Aa1. The move overshadowed the optimism sparked by the US-China tariff truce and the broader de-escalation of trade tensions.

    The trade outlook appears less volatile in the near term, with more agreements possibly in the pipeline. Markets may enjoy a reprieve from tariff headlines until early July for non-China partners, and until mid-August for China.

    However, that stability could be abruptly shaken by Moody’s downgrade. The timing of the downgrade coincides with fragile improvements in sentiment, raises the risk of renewed selling in both Treasuries and Dollar.

    In the currency markets, performance was mixed last week, a hallmark of broader consolidation. Dollar finished as the strongest currency but notably failed to build on its early-week strength. Aussie followed as the second-best performer, buoyed by strong domestic job data and risk appetite, while Sterling also held firm with support from strong UK GDP. However, gains were limited overall. On the weaker side, Euro posted the poorest performance, followed by Swiss Franc and Kiwi. Yen and Loonie ended the week in the middle.

    Wall Street Surges on Trade Truce, Even Though Soaring Inflation Expectations Reinforce Fed Patience

    US equity markets wrapped up the week with strong gains, driven by renewed optimism over global trade and investor resilience, despite worrying economic signals. S&P 500 surged 5.3%, DOW added 3.4%, and NASDAQ Composite outperformed with a 7.2% jump. The rally was initially sparked by the surprising outcome of the US-China trade meeting. Both sides agreed to a 90-day truce and rolled back a significant portion of the tariffs, though not fully returning to pre-conflict levels.

    Investors looked past several downside risks and pushed stock prices higher, even as economic data pointed to potential trouble ahead. Markets absorbed weak consumer sentiment and sharply rising inflation expectations without flinching. This reflects a broader hope that trade normalization will continue to offset macro headwinds, at least in the short term.

    The University of Michigan’s preliminary consumer sentiment report for May, released Friday, highlighted growing public anxiety. The headline index dropped to 50.8, its second-lowest reading on record. Year-ahead inflation expectations surged from 6.5% to 7.3%, the highest since 1981.

    Importantly, the survey was conducted between April 22 and May 13. That timeframe includes the period after US President Donald Trump announced that reciprocal tariffs on all trading partners other than China would be scaled back to a 10% baseline. It also includes responses collected a day after the US-China truce was declared.

    In that context, the persistent collapse in sentiment and worsening inflation outlook suggest that consumers remain highly skeptical about the economic direction. Even the rollback of some tariffs was not enough to lift the mood or tame concerns about rising prices. Attention will now be on the final May release due May 30, to see if sentiment and expectations shift more positively as the trade truce sinks in.

    For Fed, the data likely reinforce a cautious stance, for holding back from another rate cut for longer. Fed funds futures now reflect just a 36% chance of a 25bps rate cut in July. Expectations rise to 75% for a September cut, followed by around 70% odds of another in December. That suggests markets believe only two rate cuts are likely this year, if any.

    Technically, S&P 500 gapped higher at the start of the week and extended its rally from 4835.04 low. The current rise is still viewed as the second leg in the medium-term corrective pattern from the 6147.43 high. Momentum should start to fade above 6000 psychological level. A break below 5720.10 gap support would indicate short-term topping. Sustained trading below 55 Day EMA (now at 5650.80) would suggest that the third leg of the correction has already begun.

    Moody’s Downgrade Casts Shadow Over Dollar and Treasuries

    Despite a strong weekly finish for Wall Street and Dollar, sentiment faces a fresh challenge after Moody’s downgraded the US sovereign credit rating on Friday. The move, announced after markets closed, cut the rating by one notch to Aa1 from Aaa—marking a rare loss of top-tier status. While the immediate market reaction was muted due to timing, the downgrade could cast a shadow over financial markets in the coming week, with pressure potentially building on both Dollar and US Treasuries.

    Notably, Dollar ended as the top-performing major currency last week, but it did so without conviction. After Monday’s initial surge, momentum faded quickly. By midweek, the greenback began to stall, showing little follow-through despite stronger inflation expectations. That suggests underlying demand may be fragile.

    Moody’s cited deteriorating fiscal outlook as the key reason for the downgrade, pointing to “successive US administrations and Congress” that have failed to reverse the trend of widening deficits and rising debt servicing costs. The agency also expressed skepticism that meaningful fiscal reforms are on the horizon, making clear that the downgrade reflects more than just short-term political risks. The downgrade reflects not only mounting fiscal stress, but also the political impasse that continues to hinder structural reforms.

    This backdrop is especially important given how markets reacted in early April, when sweeping reciprocal tariffs imposed by the US triggered a rally in Treasury yields and broad weakening of Dollar. That episode suggested investors may be reassessing traditional assumptions about the US’s role as the ultimate safe asset provider. A similar dynamic could resurface if the Moody’s downgrade gains traction with bondholders or sparks broader credit rating scrutiny.

    Technically, 10-year yield’s strong rise last week suggests that near term correction from 1.4592 has already completed at 4.124. Rise from 3.886 might be ready to resume. Further rally is now in favor as long as 55 D EMA (now at 4.3437) holds. Firm break of 4.592 would target 100% projection of 3.886 to 4.592 from 4.124 at 4.830 next.

    Dollar Index’s corrective recovery from 97.92 continued last week, but started to struggle ahead of 55 D EMA (now at 101.93). While another rise cannot be ruled out, upside should be limited by 38.2% retracement of 110.17 to 97.92 at 102.60. On the downside, break of 99.17 support will argue that larger down trend is ready to resume through 97.92 low.

    One asset that could benefit from renewed stress on the Dollar and Treasuries is Gold. Technically, Gold is now at an ideal level to complete the corrective pullback from 3499.79 high. Current levels include 55 D EMA (now at 3152.88) and 38.2% retracement of 2584.24 to 3499.79 at 3150.04. On the upside, firm break of 3262.74 resistance should bring stronger rally back to 3434.76/3499.79 resistance zone.

    EUR/USD Weekly Outlook

    EUR/USD dived further to 1.1064 last week but recovered ahead of 38.2% retracement of 1.0176 to 1.1572 at 1.1039. Initial bias remains neutral this week first. Strong support is still expected from 1.1039 to complete the correction from 1.1572. On the upside, above 1.1292 will bring stronger rise back to retest 1.1572. However, sustained break of 1.1039 will dampen this view and target 61.8% retracement at 1.0709 next.

    In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0818) holds.

    In the long term picture, the case of long term bullish reversal is building up. Sustained break of falling channel resistance (now at around 1.1300) will argue that the down trend from 1.6039 (2008 high) has completed at 0.9534. A medium term up trend should then follow even as a corrective move. Next target is 38.2% retracement of 1.6039 to 0.9534 at 1.2019.



    Source link

  • Markets Stuck in Ranges as Data Fail to Inspire

    Markets Stuck in Ranges as Data Fail to Inspire


    Market activity remains subdued ahead of the weekend, with major currency pairs and crosses locked within yesterday’s tight ranges. Earlier in the day, New Zealand Dollar received a brief lift from rise in inflation expectations, but the move lacked conviction and quickly faded. Similarly, Japan’s weaker-than-expected Q1 GDP figures failed to trigger much reaction, as traders largely shrugged off domestic data and remained directionless.

    Broader risk sentiment is offering little help, with global equity markets also confined to narrow ranges. Investors are awaiting fresh cues, with some attention turning to the upcoming US University of Michigan Consumer Sentiment survey. While a bounce in sentiment is possible following the 90-day reciprocal tariff truce, lingering policy uncertainty may cap any gains. Of particular interest will be the inflation expectations component, as a notable uptick could reinforce concerns that tariffs are beginning to feed into price pressures.

    For the week, Aussie is leading the pack, followed by Dollar and Sterling. On the weaker side, Swiss Franc is underperforming, trailed by Euro and Kiwi. Yen and Canadian Dollar are trading more neutrally.

    In Europe, at the time of writing, FTSE is up 0.40%. DAX is up 0.45%. CAC is up 0.37%. UK 10-year yield is down -0.038 at 4.623. Germany 10-year yield is down -0.047 at 2.575. Earlier in Asia, Nikkei closed flat. Hong Kong HSI fell -0.46%. China Shanghai SSE fell -0.40%. Singapore Strait Times rose 0.15%. Japan 10-year JGB yield fell -0.024 at 1.455.

    Fed’s Bostic sees only one rate cut in 2025, as uncertainty unlikely to resolve quickly

    Atlanta Fed President Raphael Bostic reiterated his expectation for just one interest rate cut this year, citing persistent uncertainty surrounding global trade policy “is unlikely to resolve itself quickly.”

    Speaking on Bloomberg’s Odd Lots podcast, Bostic pointed to the 90-day delay of reciprocal tariffs and the tentative nature of the recent US-China de-escalation, warning that the final outcomes of trade negotiations remain unclear.

    Bostic emphasized that tariffs are expected to exert upward pressure on inflation, a view supported by the Atlanta Fed’s own analysis and echoed by many economists.

    As a result, monetary policy may need to lean against those inflationary forces, limiting how far the Fed can ease. “Our policy is going to have to anticipate — and to some extent — potentially push against those inflationary forces,” he said.

    EU exports jump 15.% yoy in March on strong US shipments

    Eurozone trade data showed a strong performance in March, with exports rising 13.7% yoy to EUR 279.8B and imports up 8.8% yoy to EUR 243.0B, resulting in a solid trade surplus of EUR 36.8B. Intra-eurozone trade also rose 1.7% yoy to EUR 226.0B, indicating modest growth in internal demand.

    For the broader European Union, the trade picture was similarly positive. Exports jumped 15.2% yoy to EUR 254.8B, while imports increased by 10.4% yoy to EUR 219.5B, yielding a EUR 35.3B surplus.

    The standout development came from transatlantic trade: EU exports to the United States surged 59.5% yoy to EUR 71.4B, far outpacing the 15.8% yoy rise in imports from the U.S.

    Meanwhile, trade with the UK also showed moderate growth, with exports rising 4.8% yoy and imports increasing 5.4% yoy. In contrast, trade with China as a weak spot. EU exports to China fell sharply by -10.1% yoy to EUR 17.9B, while imports surged 15.8% yoy to EUR 48.6B.

    ECB’s Kazaks: Interest rates near terminal level of easing cycle

    Latvian ECB Governing Council member Martins Kazaks indicated market pricing of a 25bps cut at the June 5 meeting is “relatively appropriate”.

    Nevertheless, speaking to CNBC, Kazaks added that inflation developments are “by and large within the baseline scenario”. Thus, ECB is “relatively close to the terminal rate” of its easing cycle.

    Kazaks’ comments argue that ECB may enter a phase of pause after the June rate cut.

    Meanwhile, French Governing Council member Francois Villeroy de Galhau, in an interview with a regional French newspapers, acknowledged the risk of a trade war but dismissed the notion that central banks are currently engaged in a currency war.

    Villeroy defined a currency war as using interest rates competitively to gain economic advantage. Instead, he said recent currency movements are more reflective of “revisions to economic forecasts.”

    BoJ’s Nakamura urges caution on rate hikes as economy faces mounting downward pressure

    BoJ board member Toyoaki Nakamura, known for his dovish stance, warned that Japan’s economy is under “mounting downward pressure” and cautioned against “rushing” to interest rate hikes.

    Speaking today, Nakamura highlighted the risks of tightening policy while growth slows, noting that higher rates could “curb consumption and investment with a lag”.

    Nakamura also pointed to growing uncertainty stemming from US tariff policy, which he said is already causing Japanese firms to delay or scale back capital spending plans.

    He warned that escalating trade tensions could spark a “vicious cycle of lower demand and prices,” undermining both growth and inflation.

    Japan’s GDP contracts -0.2% qoq in Q1, export drag offsets capex gains

    Japan’s economy shrank by -0.2% qoq in Q1, marking its first contraction in a year and falling short of the -0.1% qoq consensus. On an annualized basis, GDP contracted by -0.7%, a sharp disappointment compared to expectations for -0.2%.

    The weakness was largely driven by external demand, which subtracted -0.8 percentage points from growth as exports declined -0.6% qoq while imports jumped 2.9% qoq.

    Domestically, the picture was mixed. Private consumption, comprising more than half of Japan’s output, was flat on the quarter. However, capital expenditure provided some support, rising by a solid 1.4% qoq.

    Meanwhile, inflation pressures showed no sign of easing, with the GDP deflator accelerating from 2.9% yoy to 3.3% yoy, above expectations of 3.2% yoy.

    RBNZ inflation expectations rise to 2.41%, further easing seen ahead

    RBNZ’s latest Survey of Expectations for May revealed a notable uptick in inflation forecasts across all time horizons.

    One-year-ahead inflation expectations climbed from 2.15% to 2.41%, while two-year expectations rose from 2.06% to 2.29%. Even long-term projections edged higher, with five- and ten-year-ahead expectations increasing to 2.18% and 2.15% respectively.

    Despite the upward revisions in inflation outlook, expectations for monetary policy point clearly toward easing.

    With the Official Cash Rate currently at 3.50%, most respondents anticipate a 25 bps cut by the end of Q2. Looking further ahead, the one-year-ahead OCR expectation also declined from 3.23% to 2.91%.

    NZ BNZ manufacturing rises to 53.9, recovery gains ground

    New Zealand’s BusinessNZ Performance of Manufacturing Index edged up from 53.2 to 53.9 in April. The gain was driven by improvements in employment and new orders, up to 55.0 and 51.4 respectively, with employment reaching its highest level since July 2021. However, production eased slightly to 53.8.

    BNZ Senior Economist Doug Steel noted that while the sector isn’t booming, the recovery is clear, with the PMI rebounding sharply from a low of 41.4 last June.

    Still, he cautioned, “there remain questions around how sustainable it is given uncertainty stemming from offshore”.

    GBP/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.3263; (P) 1.3292; (R1) 1.3331; More…

    Intraday bias in GBP/USD remains neutral as range trading continues. On the upside, decisive break of 1.3433/42 key resistance zone will confirm larger up trend resumption. Nevertheless, below 1.3138 will resume the correction from 1.3442. But downside should be contained by 38.2% retracement of 1.2099 to 1.3442 at 1.2929 to bring rebound.

    In the bigger picture, price actions from 1.3433 are seen as a corrective pattern to the up trend from 1.3051 (2022 low). Rise from 1.2099 could either be resuming the up trend, or the second leg of a consolidation pattern. Overall, GBP/USD should target 1.4248 key resistance (2021 high) on decisive break of 1.3433 at a later stage.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    22:30 NZD Business NZ PMI Apr 53.9 53.2
    23:50 JPY GDP Q/Q Q1 P -0.20% -0.10% 0.70%
    23:50 JPY GDP Deflator Y/Y Q1 P 3.30% 3.20% 2.90%
    03:00 NZD RBNZ Inflation Expectations Q2 2.29% 2.06%
    04:30 JPY Industrial Production M/M Mar F 0.20% -1.10% -1.10%
    09:00 EUR Eurozone Trade Balance (EUR) Mar 27.9B 17.5B 21.0B 22.7B
    12:30 USD Housing Starts Apr 1.36M 1.37M 1.32M 1.34M
    12:30 USD Building Permits Apr 1.41M 1.45M 1.48M
    12:30 USD Import Price Index M/M Apr 0.10% -0.40% -0.10% -0.40%
    14:00 USD UoM Consumer Sentiment May P 53 52.2
    14:00 USD UoM Inflation Expectations May P 6.50%

     



    Source link

  • Weak Data Overlooked as Yen Rises on Risk-Off Mood

    Weak Data Overlooked as Yen Rises on Risk-Off Mood


    Mild risk-off mood is helping Yen to extend its near-term rebound, despite fresh signs of economic weakness at home. Japan’s economy was already showing signs of strain even before the impact of US tariffs, with Q1 GDP contracting more sharply than expected. BoJ is left in an increasingly precarious position, wedged between deteriorating growth and persistent inflationary pressures.

    A recent Reuters poll taken between May 7 and 13 revealed a significant shift in market expectations, with 67% of economists now projecting that BoJ will hold its policy rate at 0.50% through the third quarter. That’s up sharply from just 36% a month ago, highlighting how tariff-related risks have changed expectations for near-term tightening.

    On the trade front, Japan is preparing a third round of negotiations with the US, as it seeks to secure exemptions from tariffs on automobiles and auto parts. In return, Tokyo is reportedly considering a set of concessions, including increased imports of US corn and soybeans, regulatory changes to auto inspection standards, and cooperation in shipbuilding technology.

    Chief negotiator Ryosei Akazawa is expected to travel to Washington as early as next week, though the timeline hinges on progress in working-level talks. Meanwhile, Finance Minister Katsunobu Kato will travel to Canada for G7 meetings, where he may hold bilateral discussions with US Treasury Secretary Scott Bessent on foreign exchange matters.

    Overall for the week so far, Yen is currently the top performer, followed by Sterling and then Dollar. Kiwi is the weakest, trailed by Euro and Swiss Franc. Loonie and Aussie sit in the middle of the pack. The overall tone in the currency markets remains mixed.

    Technically, Gold has bounced from key cluster support around 3150, including 55 D EMA (now at 3151.09) and 38.2% retracement of 2584.24 to 3499.79 at 3150.04. It’s possible that correction from 3499.79 has completed already. Firm of 3265.74 will reinforce this bullish case, and suggest that larger up trend is ready to resume. If realized, that should be accompanied by another round of selloff in Dollar. However, sustained break of 3150 will dampen this view and bring deeper fall to 61.8% retracement at 2933.98.

    In Asia, at the time of writing, Nikkei is down -0.06%. Hong Kong HSI is down -0.40%. China Shanghai SSE is down -0.34%. Singapore Strait Times is down -0.20%. Japan 10-year JGB yield is down -0.016 at 1.463. Overnight, DOW rose 0.65%. S&P 500 rose 0.41%. NASDAQ fell -0.18%. 10-year yield fell -0.073 to 4.455.

    Looking ahead, Eurozone trade balance in the main feature in European session. Later in the day, US will release housing starts and building permits, and import prices. But attention will be on U of Michigan consumer sentiment and inflation expectations.

    Japan’s GDP contracts -0.2% qoq in Q1, export drag offsets capex gains

    Japan’s economy shrank by -0.2% qoq in Q1, marking its first contraction in a year and falling short of the -0.1% qoq consensus. On an annualized basis, GDP contracted by -0.7%, a sharp disappointment compared to expectations for -0.2%.

    The weakness was largely driven by external demand, which subtracted -0.8 percentage points from growth as exports declined -0.6% qoq while imports jumped 2.9% qoq.

    Domestically, the picture was mixed. Private consumption, comprising more than half of Japan’s output, was flat on the quarter. However, capital expenditure provided some support, rising by a solid 1.4% qoq.

    Meanwhile, inflation pressures showed no sign of easing, with the GDP deflator accelerating from 2.9% yoy to 3.3% yoy, above expectations of 3.2% yoy.

    RBNZ inflation expectations rise to 2.41%, further easing seen ahead

    RBNZ’s latest Survey of Expectations for May revealed a notable uptick in inflation forecasts across all time horizons.

    One-year-ahead inflation expectations climbed from 2.15% to 2.41%, while two-year expectations rose from 2.06% to 2.29%. Even long-term projections edged higher, with five- and ten-year-ahead expectations increasing to 2.18% and 2.15% respectively.

    Despite the upward revisions in inflation outlook, expectations for monetary policy point clearly toward easing.

    With the Official Cash Rate currently at 3.50%, most respondents anticipate a 25 bps cut by the end of Q2. Looking further ahead, the one-year-ahead OCR expectation also declined from 3.23% to 2.91%.

    NZ BNZ manufacturing rises to 53.9, recovery gains ground

    New Zealand’s BusinessNZ Performance of Manufacturing Index edged up from 53.2 to 53.9 in April. The gain was driven by improvements in employment and new orders, up to 55.0 and 51.4 respectively, with employment reaching its highest level since July 2021. However, production eased slightly to 53.8.

    BNZ Senior Economist Doug Steel noted that while the sector isn’t booming, the recovery is clear, with the PMI rebounding sharply from a low of 41.4 last June.

    Still, he cautioned, “there remain questions around how sustainable it is given uncertainty stemming from offshore”.

    Fed’s Barr: Solid economy faces threats from tariff-driven supply disruptions

    Fed Governor Michael Barr highlighted solid growth, low unemployment, and continued progress on disinflation in the US economy. However, he flagged growing concern over rising trade-related uncertainty, which has begun to weigh on consumer and business sentiment.

    In a speech overnight, Barr specifically pointed to the vulnerability of small businesses, which are more exposed to “disruptions to supply chains and distribution networks”.

    These firms are integral to broader production networks, and failures in this segment could trigger cascading effects across the economy.

    Drawing a parallel to the pandemic, Barr noted that “disruptions can have large and lasting effects on prices, as well as output,” leading to lower growth and higher inflation ahead.

    USD/JPY Daily Outlook

    Daily Pivots: (S1) 145.13; (P) 145.97; (R1) 146.53; More…

    Intraday bias in USD/JPY remains neutral and more consolidations could be seen below 148.64. . Further rally is expected as long as 144.02 resistance turned support holds. As noted before, fall from 158.86 could have completed 139.87 already. Above 148.64 will target 61.8% retracement of 158.86 to 139.87 at 151.60 next. However, firm break of 144.02 will bring retest of 139.87 low instead.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    22:30 NZD Business NZ PMI Apr 53.9 53.2
    23:50 JPY GDP Q/Q Q1 P -0.20% -0.10% 0.70%
    23:50 JPY GDP Deflator Y/Y Q1 P 3.30% 3.20% 2.90%
    03:00 NZD RBNZ Inflation Expectations Q2 2.29% 2.06%
    04:30 JPY Industrial Production M/M Mar F 0.20% -1.10% -1.10%
    09:00 EUR Eurozone Trade Balance (EUR) Mar 17.5B 21.0B
    12:30 USD Housing Starts Apr 1.37M 1.32M
    12:30 USD Building Permits Apr 1.45M 1.48M
    12:30 USD Import Price Index M/M Apr -0.40% -0.10%
    14:00 USD UoM Consumer Sentiment May P 53 52.2
    14:00 USD UoM Inflation Expectations May P 6.50%

     



    Source link

  • Markets Tread Water as Traders Shrug Off US PPI and UK GDP Surprises

    Markets Tread Water as Traders Shrug Off US PPI and UK GDP Surprises


    Global financial markets are trading in tight ranges today, with little conviction seen across major asset classes. U.S. futures are pointing to a mildly weaker open. Despite a surprise decline in US producer prices in April, suggesting a possible easing of inflation pressures, there was little follow-through in market reaction. Earlier today, stronger-than-expected UK Q1 GDP data also offered limited support to the Pound. Overall sentiment remains contained as traders await further clarity on the trade front.

    Much of the current hesitation in markets can be attributed to persisting trade uncertainty. The EU Foreign Affairs Council is holding a key meeting today in Brussels to discuss trade relations with the US and broader economic security. Ahead of the meeting, European trade ministers expressed dissatisfaction with the limited UK-US trade agreement announced last week, which retains a 10% tariff on British exports. EU officials signaled that such a deal would not suffice to deter retaliatory measures.

    European Trade Commissioner Maros Sefcovic confirmed a recent conversation with U.S. Commerce Secretary Howard Lutnick and noted that both sides have agreed to step up engagement. Additional meetings are anticipated in Brussels or during upcoming OECD sessions. However, the complexity of negotiations and diverging expectations between the EU and US continue to cast doubt on a swift resolution.

    Elsewhere, trade talks between the US and India also show signs of friction. US President Donald Trump claimed that India had offered a trade deal with “no tariffs” on American goods. However, India’s foreign minister Subrahmanyam Jaishankar quickly pushed back, saying that talks remain ongoing and nothing has been finalized. It’s believed that India would  demand strict reciprocity on tariffs, while it’s unlikely to concede easily in politically sensitive sectors such as agriculture, where protectionist pressures remain high.

    In the currency markets, Aussie is leading gains for the week, followed by Dollar and then Sterling. On the weaker side, the Swiss Franc is the laggard, with Kiwi and Euro also underperforming. Yen and Canadian Dollar are holding middle positions.

    In Europe, at the time of writing, FTSE is up 0.34%. DAX is up 0.10%. CAC is down -0.19%. UK 10-year yield is down -0.042 at 4.674. Germany 10-year yield is down -0.061 at 2.64. Earlier in Asia, Nikkei fell -0.98%. Hong Kong HSI fell -0.79%. China Shanghai SSE fell -0.68%. Singapore Strait Times rose 0.54%. Japan 10-year JGB yield rose 0.022 to 1.479.

    US retail sales rises 0.1% mom in Apr, ex-auto sales up 0.1% mom

    US retail sales rose 0.1% mom to USD 724.1B in April, matched expectations. Ex-auto sales rose 0.1% mom to USD 582.5B, below expectation of 0.3% mom. Ex-gasoline sales rose 0.1% mom to USD 673.1B. Ex-auto & gasoline sales rose 02% mom to USD 531.5B.

    Total sales for the February through April period were up 4.8% from the same period a year ago.

    US PPI at -0.5% mom, 2.4% yoy in April, below expectations

    US PPI fell -0.5% mom in April, below expectation of 0.2% mom. PPI services fell -0.7% mom while PPI goods was unchanged. PPI less foods, energy and trade services ticked down by -0.1% mom, the first decline since April 2020.

    For the 12 months, PPI slowed from 2.7% yoy to 2.4% yoy, below expectation of 2.5% yoy. PPI less foods, energy and trade services rose 2.9% yoy.

    US initial jobless claims unchanged at 229k

    US initial jobless claims was unchanged at 229k in the week ending May 10, slightly below expectation of 230k. Four-week moving average of initial claims rose 3k to 230.5k.

    Continuing claims rose 9k to 1881k in the week ending May 3. Four-week moving average of continuing claims rose 1k to 1874k.

    Eurozone industrial output surges 2.6% mom in March, led by capital goods

    Eurozone industrial production jumped 2.6% mom in March, significantly outperforming expectations of 1.7% mom. The surge was driven by strong gains across key categories, including capital goods (+3.2%), durable consumer goods (+3.1%), and non-durable consumer goods (+2.3%). Intermediate goods also posted a modest 0.6% rise, while energy output dipped by -0.5%.

    Across the broader EU, industrial production rose by 1.9% mom. Ireland led the gains with a remarkable 14.6% surge, followed by Malta (+4.4%) and Finland (+3.5%). However, there were notable declines in Luxembourg (-6.3%), Denmark, Greece (both -4.6%), and Portugal (-4.0%).

    UK economy beats expectations with 0.7% qoq growth in Q1, 0.2% mom in March

    The UK economy expanded by 0.7% qoq in Q1, slightly ahead of expectations at 0.6% qoq. Growth was led by a 0.7% qoq rise in the services sector and a robust 1.1% qoq increase in production output, while construction activity was flat. Importantly, real GDP per head also rose by 0.5% qoq, ending two consecutive quarters of contraction.

    On the expenditure side, growth was underpinned by a 2.9% qoq rise in gross fixed capital formation, signaling strong business investment. Household consumption also edged up by 0.2% qoq, while net trade contributed positively as exports rose by 3.5% qoq and imports by 2.1% qoq.

    Monthly data for March further supported the upbeat quarterly reading, with GDP rising by 0.2% mom, exceeding expectations of flat growth. Services output was the standout, rising 0.4% mom and contributing the most to overall GDP expansion. Meanwhile, construction rose by 0.5% mom, offsetting a -0.7% mom decline in production output.

    Australia jobs surge 89k in April, unemployment rate unchanged at 4.1%

    Australia’s labor market delivered a strong upside surprise in April, with employment rising by 89k, sharply above expectations of 20.9k. Full-time jobs accounted for 59.5k of the gain, while part-time employment rose by 29.5k.

    Unemployment rate held steady at 4.1%, in line with forecasts, as the surge in employment was matched by a jump in labor force participation from 66.8% to 67.1%.

    Despite the headline strength, hours worked were largely unchanged on the month. Nonetheless, the employment-to-population ratio rose by 0.3 percentage points to 64.4%, just shy of the record high reached in January.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.1136; (P) 1.1201; (R1) 1.1238; More…

    Range trading continues in EUR/USD and intraday bias stays neutral. On the upside, break of 1.1292 resistance will argue that correction from 1.1572 has completed after defending 38.2% retracement of 1.0176 to 1.1572 at 1.1039. Intraday bias will be back on the upside for retesting 1.1572. However, sustained break of 1.1039 will dampen this view and target 61.8% retracement at 1.0709 next.

    In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0789) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    01:00 AUD Consumer Inflation Expectations May 4.10% 4.20%
    01:30 AUD Employment Change Apr 89K 20.9K 32.2K 36.4K
    01:30 AUD Unemployment Rate Apr 4.10% 4.10% 4.10%
    06:00 JPY Machine Tool Orders Y/Y Apr 7.70% 11.40%
    06:00 GBP GDP Q/Q Q1 P 0.70% 0.60% 0.10%
    06:00 GBP GDP M/M Mar 0.20% 0.00% 0.50%
    06:00 GBP Industrial Production M/M Mar -0.70% -0.60% 1.50%
    06:00 GBP Industrial Production Y/Y Mar -0.70% -0.90% 0.10% 0.40%
    06:00 GBP Manufacturing Production M/M Mar -0.80% -0.80% 2.20%
    06:00 GBP Manufacturing Production Y/Y Mar -0.80% -0.50% 0.30% 0.50%
    06:00 GBP Goods Trade Balance (GBP) Mar -19.9B -19.7B -20.8B -21.0B
    06:30 CHF Producer and Import Prices M/M Apr 0.10% 0.20% 0.10%
    06:30 CHF Producer and Import Prices Y/Y Apr -0.50% -0.10%
    09:00 EUR Eurozone GDP Q/Q Q1 P 0.30% 0.40% 0.40%
    09:00 EUR Eurozone Employment Change Q/Q Q1 P 0.30% 0.10% 0.10%
    09:00 EUR Eurozone Industrial Production M/M Mar 2.60% 1.70% 1.10%
    12:15 CAD Housing Starts Apr 279K 234K 214K
    12:30 CAD Manufacturing Sales M/M Mar -1.40% -1.90% 0.20% -0.20%
    12:30 CAD Wholesale Sales M/M Mar 0.20% -0.30% 0.30%
    12:30 USD Initial Jobless Claims (May 9) 229K 230K 228K 229K
    12:30 USD Retail Sales M/M Apr 0.10% 0.10% 1.50% 1.70%
    12:30 USD Retail Sales ex Autos M/M Apr 0.10% 0.30% 0.50% 0.80%
    12:30 USD PPI M/M Apr -0.50% 0.20% -0.40% 0.00%
    12:30 USD PPI Y/Y Apr 2.40% 2.50% 2.70%
    12:30 USD PPI Core M/M Apr -0.40% 0.30% -0.10% 0.40%
    12:30 USD PPI Core Y/Y Apr 3.10% 3.10% 3.30% 4.00%
    12:30 USD Empire State Manufacturing May -9.2 -7.1 -8.1
    12:30 USD Philadelphia Fed Survey May -4 -8.5 -26.4
    13:15 USD Industrial Production M/M Apr 0.00% 0.10% -0.30%
    13:15 USD Capacity Utilization Apr 77.70% 77.80% 77.80%
    14:00 USD Business Inventories Mar 0.20% 0.20%
    14:00 USD NAHB Housing Market Index May 41 40
    14:30 USD Natural Gas Storage 111B 104B

     



    Source link

  • Cautious Trade as APEC Cuts Growth View, Key UK and US Releases Awaited

    Cautious Trade as APEC Cuts Growth View, Key UK and US Releases Awaited


    Activity in the global stock markets remained relatively subdued, with US posting a mixed close overnight and Asian markets slipping modestly lower today. Despite China’s 50bps Reserve Requirement Ratio cut taking effect, expected to inject over USD 138B into the banking system, investor reaction has been muted. The cautious tone reflects lingering concerns over the global trade outlook, which continues to overshadow stimulus measures and upbeat economic data.

    Trade-related uncertainty remains a key drag on sentiment, with APEC group issuing a stark warning about the deteriorating outlook. At its 2025 trade ministers meeting in South Korea, APEC projected regional exports to grow by just 0.4% this year, sharply down from 5.7% in 2024. The group also downgraded its regional economic growth forecast to 2.6%, from 3.3% previously, citing weakening external demand, particularly in manufacturing and consumer goods, as well as rising policy uncertainty across trade and services sectors.

    In the currency markets, Yen and Swiss Franc are the strongest performer today so far, benefiting from mild pullback in risk-on sentiment and likely some short covering after recent weakness. Aussie is gaining ground as well, lifted by a stronger-than-expected employment report, which suggests that while the Reserve Bank of Australia is still on track for a rate cut next week, a more aggressive easing path may be off the table for now.

    Conversely, Dollar is the weakest major today, although the downside lacks conviction so far. Loonie and Kiwi are also under some mild pressure. Euro and Pound are holding steady, awaiting further catalysts, with the UK GDP report due in the European session.

    Technically, GBP/USD’s rebound from 1.3138 stalled well ahead of 1.3442 resistance. But for now, correction from 1.3442 is still seen as completed. Another rise would be in favor as long as 1.3138 holds. Retest of 1.3442 should be seen next, and firm break there will resume larger up trend.

    In Asia, at the time of writing, Nikkei is down -1.01%. Hong Kong HSI is down -0.25%. China Shanghai SSE is down -0.42%. Singapore Strait Times is up 0.41%. Japan 10-year JGB yield is up 0.023 at 1.48. Overnight, DOW fell -0.21%. S&P 500 rose 0.10%. NASDAQ rose 0.72%. 10-year yield rose 0.029 to 4.528.

    Looking ahead, UK GDP data will be the main focus in European session. Swiss PPI, Eurozone GDP revision and industrial production will also be released. Later in the day, US retail sales and PPI will take center stage. Jobless claims, Empire state manufacturing, Philly Fed manufacturing, industrial production will also be released.

    Fed’s Daly: Economy doing fairly well, patience key amid uncertainties

    At an event overnight, San Francisco Fed President Mary Daly said Fed is in a “good position” to respond to evolving conditions and uncertainties. She emphasized, “patience is the word of the day,”

    “We’ve got solid growth, a solid labor market and declining inflation,” she said. Despite lingering uncertainties, overall sentiment remains constructive, with people feeling the economy is performing “fairly well.”

    “It’s just a matter of resolving the uncertainty so we can continue to do very well,” Daly added.

    Australia jobs surge 89k in April, unemployment rate unchanged at 4.1%

    Australia’s labor market delivered a strong upside surprise in April, with employment rising by 89k, sharply above expectations of 20.9k. Full-time jobs accounted for 59.5k of the gain, while part-time employment rose by 29.5k.

    Unemployment rate held steady at 4.1%, in line with forecasts, as the surge in employment was matched by a jump in labor force participation from 66.8% to 67.1%.

    Despite the headline strength, hours worked were largely unchanged on the month. Nonetheless, the employment-to-population ratio rose by 0.3 percentage points to 64.4%, just shy of the record high reached in January.

    USD/CAD Daily Outlook

    Daily Pivots: (S1) 1.3928; (P) 1.3957; (R1) 1.4012; More…

    Intraday bias in USD/CAD remains neutral for the moment. Further rise is in favor with 1.3898 minor support intact. Above 1.4014 will resume the rebound from 1.3749 to 1.4150 cluster resistance (38.2% retracement of 1.4791 to 1.3749 at 1.4147). However, break of 1.3898 minor support will indicate that the rebound has completed, and bring retest of 1.3749.

    In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4150 resistance turned support holds. Firm break of 38.2% retracement of 1.2005 (2021 low) to 1.4791 at 1.3727 will pave the way back to 61.8% retracement at 1.3069.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    01:00 AUD Consumer Inflation Expectations May 4.10% 4.20%
    01:30 AUD Employment Change Apr 89K 20.9K 32.2K 36.4K
    01:30 AUD Unemployment Rate Apr 4.10% 4.10% 4.10%
    06:00 JPY Machine Tool Orders Y/Y Apr 11.40%
    06:00 GBP GDP Q/Q Q1 P 0.60% 0.10%
    06:00 GBP GDP M/M Mar 0.00% 0.50%
    06:00 GBP Industrial Production M/M Mar -0.60% 1.50%
    06:00 GBP Industrial Production Y/Y Mar -0.90% 0.10%
    06:00 GBP Manufacturing Production M/M Mar -0.80% 2.20%
    06:00 GBP Manufacturing Production Y/Y Mar -0.50% 0.30%
    06:00 GBP Goods Trade Balance (GBP) Mar -19.7B -20.8B
    06:30 CHF Producer and Import Prices M/M Apr 0.20% 0.10%
    06:30 CHF Producer and Import Prices Y/Y Apr -0.10%
    09:00 EUR Eurozone GDP Q/Q Q1 P 0.40% 0.40%
    09:00 EUR Eurozone Employment Change Q/Q Q1 P 0.10% 0.10%
    09:00 EUR Eurozone Industrial Production M/M Mar 1.70% 1.10%
    12:15 CAD Housing Starts Apr 234K 214K
    12:30 CAD Manufacturing Sales M/M Mar -1.90% 0.20%
    12:30 CAD Wholesale Sales M/M Mar -0.30% 0.30%
    12:30 USD Initial Jobless Claims (May 9) 230K 228K
    12:30 USD Retail Sales M/M Apr 0.10% 1.50%
    12:30 USD Retail Sales ex Autos M/M Apr 0.30% 0.50%
    12:30 USD PPI M/M Apr 0.20% -0.40%
    12:30 USD PPI Y/Y Apr 2.50% 2.70%
    12:30 USD PPI Core M/M Apr 0.30% -0.10%
    12:30 USD PPI Core Y/Y Apr 3.10% 3.30%
    12:30 USD Empire State Manufacturing May -7.1 -8.1
    12:30 USD Philadelphia Fed Survey May -8.5 -26.4
    13:15 USD Industrial Production M/M Apr 0.10% -0.30%
    13:15 USD Capacity Utilization Apr 77.80% 77.80%
    14:00 USD Business Inventories Mar 0.20% 0.20%
    14:00 USD NAHB Housing Market Index May 41 40
    14:30 USD Natural Gas Storage 111B 104B

     



    Source link

  • Dollar Steadies After Early Weakness, Focus Turns to Australia Jobs Data

    Dollar Steadies After Early Weakness, Focus Turns to Australia Jobs Data


    Dollar faced broad selling pressure throughout the Asian and European sessions but has since found some footing as markets transition into the US trading day. However, direction remains murky, with traders appearing undecided on whether to push the greenback higher or extend the recent pullback. A similar tone of uncertainty is mirrored in equities, as European indexes drift sideways and US futures show little conviction. With no major catalysts in the immediate pipeline, both FX and equity markets are likely to stay range-bound until fresh data offers clearer cues.

    Attention now turns to Thursday’s key releases, including Australia’s April employment report and the UK’s GDP figures. While Australia’s stronger-than-expected Q1 wage price index suggested some resilience in pay growth, the detail showed continued moderation in the private sector. This is unlikely to derail RBA’s expected rate cut next week, as the central bank remains focused on cushioning the economy from tariff-related risks. The upcoming April employment data will be more telling—especially if it deviates significantly from the expected 20.9k job growth and 4.1% unemployment rate. A downside surprise could fuel speculation of faster easing later this year.

    Technically, AUD/USD has struggled to establish momentum, despite a supportive risk-on backdrop. Even if a short-term rally resumes, 61.8% retracement of 0.6941 to 0.5913 at 0.6548 is likely to provide strong resistance to bring at least a near term pullback.

    In Europe, at the time of writing, FTSE is up 0.09%. DAX is down -0.18%. CAC is down -0.29%. UK 10-year yield is up 0.039 at 4.715. Germany 10-year yield is up 0.005 at 2.686. Earlier in Asia, Nikkei fell -0.14%. Hong Kong HSI rose 2.30%. China Shanghai SSE rose 0.86%. Singapore Strait Times fell -0.26%. Japan 10-year JGB yield rose 0.008 to 1.457.

    Fed’s Goolsbee urges patience amid ‘dusty’ data and tariff uncertainty

    Chicago Fed President Austan Goolsbee cautioned against overinterpreting April’s softer inflation data, noting on NPR that it’s still too early to gauge the true impact of rising US import tariffs.

    While recent consumer price figures suggest inflation may be easing, Goolsbee stressed that Fed needs more clarity before making firm policy judgments, describing the current environment as one filled with “a lot of dust in the air.”

    He acknowledged that the data so far “suggest that it’s going okay,” but emphasized the difficulty of drawing long-term conclusions amid ongoing short-term volatility.

    “It’s just not realistic,” he said, “to expect businesses or central banks to be jumping to conclusions” in such an uncertain setting.

    ECB’s Nagel stresses Dollar’s global role, cautious on tariff impact ahead of June decision

    German ECB Governing Council member Joachim Nagel emphasized the continued importance of the Dollar as a global reserve currency during remarks today. At the same time, he expected that Euro would gradually play a stronger role in the international financial system over the coming years.

    Looking ahead to ECB’s June policy meeting, Nagel reiterated that the interest rate decision will be guided by incoming data. He acknowledged the uncertainty surrounding the impact of US tariffs on inflation and growth within the Eurozone.

    The updated ECB staff projections, due next month, would be essential in shaping the decision. Nagel also stressed that central banks must increasingly adapt to operating in an environment characterized by persistent geopolitical and policy-driven uncertainty.

    BoE hawk Mann: Labor market resilient, and firms yet to lose pricing power

    BoE MPC member Catherine Mann explained her notable policy shift during an interview with CNBC, revealing why she moved from backing a 50bps rate cut in February to voting for a hold at last week’s meeting.

    Mann cited the UK labor market’s resilience as a key factor in her reassessment. While recent data suggest some moderation “a slowing labor market”, she argued that “it is not a non-linear adjustment.”

    Mann also flagged a new risk emerging from tariffs. She warned that rising US tariffs on countries like China could lead to an influx of diverted exports into markets such as the UK. While this could temporarily ease goods prices at the border, she cautioned that domestic retailers may use the opportunity to rebuild profit margins, keeping upward pressure on consumer price inflation rather than alleviating it.

    Crucially, Mann emphasized the need to see a broad-based “loss of pricing power” in firms. “I need to see that firms are starting to be much more moderate in setting their prices across a broad range of products,” she added. “Goods price inflation is actually going up, not down.”

    Japan’s PPI rises 4% yoy in April, record high for 8th straight month

    Japan’s PPI rose 4.0% year-on-year in April, easing slightly from 4.3% yoy in March and matching market expectations. Despite the modest slowdown, the index climbed to a fresh record high of 126.3, marking the eighth consecutive month of new highs, highlighting persistent cost pressures at the wholesale level.

    However, the data also showed little immediate impact from the sweeping US tariffs announced in early April, thanks in part to the 90-day suspension.

    Japan’s Yen-based import price index fell sharply by -7.2% yoy in April, following a -2.4% yoy decline in March. The drop suggests that Yen’s appreciation during the market turmoil have helped shield Japanese importers from some of the price shocks, at least for now.

    Australian wage growth accelerates to 3.4% yoy in Q1, led by public sector

    Australia’s Wage Price Index rose by 0.9% qoq in Q1, slightly above market expectations of 0.8% qoq. Public sector saw a stronger 1.0% qoq gain, outpacing the 0.9% qoq rise in private sector.

    On an annual basis, wages grew by 3.4%, up from 3.2% in the previous quarter, marking the first uptick in annual wage growth since mid-2024.

    The uptick in annual wage growth was driven primarily by the public sector, which saw a notable increase to 3.6% yoy from 2.9% yoy in Q4. Private sector wage growth was steady at 3.3% yoy.

    USD/CHF Mid-Day Outlook

    Daily Pivots: (S1) 0.8367; (P) 0.8415; (R1) 0.8442; More….

    Intraday bias in USD/CHF remains neutral for the moment. On the downside, firm break of 0.8333 resistance turned support will argue that corrective rebound from 0.8038 has completed at 0.8475, after rejection by 38.2% retracement of 0.9200 to 0.8038 at 0.8482. Intraday bias will be back on the downside for 0.8184, and then retest of 0.8038 low. However, sustained trading above 0.8482 will dampen this bearish view and target 61.8% retracement at 0.8756 next.

    In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8750) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY PPI Y/Y Apr 4.00% 4.00% 4.20% 4.30%
    01:30 AUD Wage Price Index Q/Q Q1 0.90% 0.80% 0.70%
    06:00 EUR Germany CPI M/M Apr F 0.40% 0.40% 0.40%
    06:00 EUR Germany CPI Y/Y Apr F 2.10% 2.10% 2.10%
    12:30 CAD Building Permits M/M Mar -4.10% 1.00% 2.90% 4.90%
    14:30 USD Crude Oil Inventories -2.0M -2.0M

     



    Source link

  • Dollar Rally Stalls, Market Cools, Trade Optimism Tempered by Reality

    Dollar Rally Stalls, Market Cools, Trade Optimism Tempered by Reality


    Global markets showed signs of fatigue overnight as trade optimism gave way to a more cautious tone. In the US, the S&P 500 eked out another gain, turning positive for the year, while DOW lagged and closed modestly lower. The divergence reflects a market still digesting the implications of recent trade developments. In Asia, stock markets also lacked direction, with investors reluctant to chase risk without clearer signs of progress on the trade front.

    Despite the positive headlines, investors are coming to terms with the reality that any new trade deal with China is unlikely to resemble a full rollback to pre-conflict conditions. Even if an agreement is reached, it will likely involve layered provisions and protracted enforcement timelines, making the short-term benefits less impactful. Meanwhile, trade discussions with the EU remain stalled, and Brussels is preparing countermeasures should negotiations not advance in the near future. The fragmented state of trade diplomacy is leaving markets in a holding pattern, particularly as geopolitical and political uncertainties remain elevated.

    That said, there is cautious hope that more preliminary deals could emerge soon. Market chatter suggests Switzerland, India, and Japan might be next in line for early-stage agreements. Though, like the recent UK deal, these are likely to be agreements in principle rather than fully ratified pacts, requiring extended negotiations before they take effect.

    Adding to the anticipation, US National Economic Council Director Kevin Hassett said President Donald Trump is expected to announce a new trade deal upon returning from his Middle East trip. According to Hassett, around 25 negotiations are currently underway, with at least one nearing final confirmation.

    Dollar’s rally also lost much momentum, despite extended rise in 10-year yield. Technically, Dollar’s bounce earlier in the week look more like part of a corrective rise, then a genuine bullish reversal. As for 10-year yield, rise from 3.886 might be ready to resume with corrective pullback from 4.592 completed at 4.124. Further rally is now in favor to retest 4.592 first. Firm break there will confirm this bullish case and target 100% projection of 3.86 to 4.592 from 4.124 at 4.830.

    As for currency performance this week, Aussie is now leading the pack, followed by Kiwi, and then Loonie. Yen remains the weakest, trailed by Swiss Franc and Euro. Dollar and British Pound are trading in the middle of the pack.

    In Asia, at the time of writing, Nikkei is down -0.33%. Hong Kong HSI is up 1.42%. China Shanghai SSE is up 0.35%. Singapore Strait Times is down -0.22%. Japan 10-year JGB yield is up 0.008 at 1.457.

    Overnight, DOW fell -0.64%. S&P 500 rose 0.72%. NASDAQ rose 1.61%. 10-year yield jumped 0.042 to 4.499.

    Japan’s PPI rises 4% yoy in April, record high for 8th straight month

    Japan’s PPI rose 4.0% year-on-year in April, easing slightly from 4.3% yoy in March and matching market expectations. Despite the modest slowdown, the index climbed to a fresh record high of 126.3, marking the eighth consecutive month of new highs, highlighting persistent cost pressures at the wholesale level.

    However, the data also showed little immediate impact from the sweeping US tariffs announced in early April, thanks in part to the 90-day suspension.

    Japan’s Yen-based import price index fell sharply by -7.2% yoy in April, following a -2.4% yoy decline in March. The drop suggests that Yen’s appreciation during the market turmoil have helped shield Japanese importers from some of the price shocks, at least for now.

    Australian wage growth accelerates to 3.4% yoy in Q1, led by public sector

    Australia’s Wage Price Index rose by 0.9% qoq in Q1, slightly above market expectations of 0.8% qoq. Public sector saw a stronger 1.0% qoq gain, outpacing the 0.9% qoq rise in private sector.

    On an annual basis, wages grew by 3.4%, up from 3.2% in the previous quarter, marking the first uptick in annual wage growth since mid-2024.

    The uptick in annual wage growth was driven primarily by the public sector, which saw a notable increase to 3.6% yoy from 2.9% yoy in Q4. Private sector wage growth was steady at 3.3% yoy.

    AUD/USD Daily Report

    Daily Pivots: (S1) 0.6395; (P) 0.6437; (R1) 0.6513; More…

    AUD/USD is staying in range below 0.6511 and intraday bias remains neutral. On the upside, firm break of 0.6511 will resume the rally from 0.5913 to 61.8% retracement of 0.6941 to 0.5913 at 0.6548. However, break of 0.6356 support should confirm short term topping. Intraday bias will be turned back to the downside for 38.2% retracement of 0.5913 to 0.6511 at 0.6283.

    In the bigger picture, as long as 55 W EMA (now at 0.6441) holds, down trend from 0.8006 (2021 high) should resume later to 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. However, sustained trading above 55 W EMA will argue that a medium term bottom was already formed, and set up further rebound to 0.6941 resistance instead.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY PPI Y/Y Apr 4.00% 4.00% 4.20% 4.30%
    01:30 AUD Wage Price Index Q/Q Q1 0.90% 0.80% 0.70%
    06:00 EUR Germany CPI M/M Apr F 0.40% 0.40%
    06:00 EUR Germany CPI Y/Y Apr F 2.10% 2.10%
    12:30 CAD Building Permits M/M Mar 1.00% 2.90%
    14:30 USD Crude Oil Inventories -2.0M -2.0M

     



    Source link

  • Dollar Eases as Trade Boost Fades, Sterling Finds Support on Wages and BoE Rhetoric

    Dollar Eases as Trade Boost Fades, Sterling Finds Support on Wages and BoE Rhetoric


    Dollar softened slightly in early US trading today, though the move appears more related to a fading post-trade-deal rally than any direct reaction to economic data. While April’s inflation report showed encouraging progress on headline disinflation, the core CPI reading held firm, suggesting underlying price pressures remain sticky. That dynamic should keep Fed cautious, and today’s market reaction suggests the data did little to shift expectations meaningfully. The more optimistic takeaway, however, is that recent tariffs have yet to significantly lift inflation.

    In contrast, Sterling is gaining some traction, particularly against Euro, following solid UK wage data. Despite signs of softening in overall employment, wage growth remains robust, with average earnings still running well above levels consistent with BoE’s 2% inflation target. BoE Chief Economist Huw Pill reinforced that concern by warning that more aggressive or sustained policy action may be needed to bring inflation under control. His remarks have helped underpin Sterling sentiment.

    Overall in the currency markets, Aussie has overtaken Dollar to become the week’s top performer. Kiwi and Loonie are also firm. At the other end of the spectrum, Yen continues to struggle, while Swiss Franc and Euro are also soft.

    Technically, GBP/JPY is now pressing 195.95 resistance as rise from 184.35 extends. Decisive break of 195.95 will argue that choppy fall from 199.79 has completed at 184.35 already. More importantly, rise from 180.00 might then be ready to resume through 199.79 in this bullish case.

    In Europe, at the time of writing, FTSE is up 0.05%. DAX is up 0.17%. CAC is up 0.23%. UK 10-year yield is up 0.021 at 4.671. Germany 10-year yield is up 0.013 at 2.666. Earlier in Asia, Nikkei rose 1.43%. Hong Kong HSI fell -1.87%. China Shanghai SSE rose 0.17%. Singapore Strait Times rose 0.13%. Japan 10-year JGB yield rose 0.06 to 1.449.

    US CPI hits four year low at 2.3%, but core inflation holds steady at 2.8%

    US headline CPI rose just 0.2% mom, below the expected 0.3% mom. Core CPI, excluding food and energy, also increased by 0.2%, undershooting forecasts of 0.3% mom.

    On an annual basis, headline inflation eased to 2.3% yoy from 2.4% yoy, the lowest rate since April 2021. Core inflation held steady at 2.8% yoy, in line with expectations.

    Shelter remained the key driver of monthly inflation, rising 0.3% mom and accounting for over half of the total increase.

    Energy prices also ticked higher by 0.7% mom, while food prices declined slightly by -0.1% mom. On a year-over-year basis, energy costs dropped by -3.7%, helping to keep overall inflation in check, while food prices rose 2.8%.

    BoE’s Pill: May require more aggressive and persistent effort to bring down inflation

    Speaking at a press conference today, BoE Chief Economist Huw Pill warned that returning inflation to the BoE’s 2% target may prove more difficult than anticipated. Hence, Pill said the central bank may need to respond in a “somewhat more aggressive or more persistent” way to ensure inflation is brought under control within a reasonable time frame.

    He raised concerns that recent shifts in wage and price-setting behavior might reflect a more “structural change”, drawing parallels with inflation dynamics of the 1970s and 1980s.

    Pill emphasized that investors should not interpret BoE’s latest forecast, showing inflation returning to target by early 2027 based on market-implied rates, as a clear endorsement of future rate cuts.

    Instead, he pointed to the Bank’s more inflationary risk scenario, which assumed persistently weak productivity and stronger wage pressures. These conditions, he said, echo past inflation crises, where elevated price levels triggered repeated and entrenched pay demands.

    Last week, Pill voted against the BoE’s quarter-point rate cut, aligning with fellow hawk Catherine Mann in preferring to keep rates unchanged.

    UK payrolled employment falls -33k, wage growth remains elevated

    UK labor market data for April showed signs of softening in employment but continued strength in wage growth. Payrolled employment fell by -33k (-0.1% mom), while the claimant count rose by 5.2k. Median monthly pay rose by 6.4% yoy in April, accelerating from 5.9% yoy in the previous month.

    In the three months to March, unemployment rate in the three months to March edged up from 4.4% to 4.5%, in line with expectations and marking the highest level since late 2021.

    Average earnings including bonuses rose 5.5% yoy, beating expectations of 5.2% yoy. Earnings excluding bonuses rose 5.6% yoy, slightly below forecast of 5.7% yoy.

    German ZEW economic sentiment surges on stabilizing domestic politics and trade progress

    Investor sentiment in Germany and the wider Eurozone improved sharply in May, with ZEW Economic Sentiment Index for Germany jumping from -14.0 to 25.2, well above the expected 9.8. Eurozone sentiment followed suit, rising from -18.5 to 11.6, also beating expectations.

    According to ZEW President Achim Wambach, the rebound reflects growing optimism tied to easing trade tensions, a new German government, and stabilizing inflation, helping to offset last month’s sharp deterioration.

    However, views on current conditions remain deeply negative. Germany’s Current Situation Index edged down further from -81.2 to -82.0, missing forecasts. Eurozone’s improved modestly but still stood at -42.2. This divergence suggests that while expectations for the months ahead are improving, near-term economic conditions remain fragile, particularly in Germany.

    BoJ’s Uchida sees temporary inflation pause, but wage growth to persist

    BoJ Deputy Governor Shinichi Uchida said today that while Japan’s underlying inflation and medium- to long-term inflation expectations may “temporarily stagnate”, wage growth is expected to remain firm as “Japan’s job market is very tight.”

    He added that companies are likely to continue “passing on rising labour and transportation costs by increasing prices”.

    Uchida also stressed that BoJ will assess the economic impact of US trade policy “without pre-conception,” acknowledging the high degree of uncertainty surrounding the global outlook.

    BoJ opinions: Sees tariff risks but maintains flexible rate-hike stance

    BoJ’s Summary of Opinions from its April 30–May 1 meeting revealed a generally cautious view on the impact of US tariffs, with board members acknowledging the potential economic damage but not seeing it as enough to derail the pursuit of the 2% inflation target.

    One member noted that BoJ may enter a “temporary pause” in rate hikes due to weaker US growth. But it’s emphasized that “it shouldn’t be too pessimistic”.

    The member emphasized that rate hikes could resume if conditions improve or US policy shifts.

    Other opinions highlighted the high level of uncertainty facing Japan’s economic and price outlook, driven largely by global trade tensions. One board member noted the policy path “may change at any time.”

    Another reaffirmed that there has been “no change to the BoJ’s rate-hike stance”, as projections continue to show inflation reaching the 2% target and real interest rates remain deeply negative.

    Australian Westpac consumer sentiment rises to 92.1, weak confidence supports RBA cut

    Australia’s Westpac Consumer Sentiment Index rose 2.2% to 92.1 in May, partially recovering from April’s sharp decline triggered by trade-related uncertainty.

    Westpac attributed the modest rebound to stronger financial markets and a decisive outcome in the Federal election. However, sentiment remains subdued, with the index still 3.9% below its March level and firmly in pessimistic territory.

    With all key inflation measures now back within the 2–3% target range, Westpac expects RBA to cut the cash rate by another 25bps to 3.85%. The combination of soft domestic sentiment and a more “unsettled and threatening global backdrop” strengthens the case for further easing.

    Australia’s NAB business conditions weaken to 2, profit pressures mount

    Australia’s NAB Business Confidence Index edged up from -3 to -1 in April. However, the underlying Business Conditions Index slipped from 3 to 2. Trading conditions eased from 6 to 5, while profitability dropped sharply from 0 to -4, highlighting the ongoing strain on margins.

    Purchase cost growth accelerated to 1.7% in quarterly equivalent terms, up from 1.4%. Labor cost growth remained elevated at 1.6%. Rising input costs appear to be eroding profitability, with businesses struggling to pass through the full extent of these increases. This was reflected in modest increases in final product and retail price growth, which rose to 0.8% and 1.4% respectively—still below the pace of input cost growth.

    NAB Chief Economist Sally Auld noted that weaker profitability was at the core of the drop in business conditions, aligning with the uptick in purchase costs and softer trading performance.

    EUR/USD Mid-Day Outlook

    Daily Pivots: (S1) 1.1022; (P) 1.1132; (R1) 1.1199; More…

    Intraday bias in EUR/USD is turned neutral first with current recovery. Overall, strong support should be seen from 38.2% retracement of 1.0176 to 1.1572 at 1.1039 to bring rebound. On the upside, break of 1.1380 will suggest that the correction from 1.1572 has completed, and bring retest of 1.1572. However, sustained break of 1.1039 will dampen this view and target 61.8% retracement at 1.0709 next.

    In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 55 W EMA (now at 1.0789) holds.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY BoJ Summary of Opinions
    23:50 JPY Money Supply M2+CD Y/Y Apr 0.50% 0.60% 0.80%
    00:30 AUD Westpac Consumer Confidence May 2.20% -6%
    01:30 AUD NAB Business Conditions Apr 2 4
    01:30 AUD NAB Business Confidence Apr -1 -3
    06:00 GBP Claimant Count Change Apr 5.2K 22.3K 18.7K -16.9K
    06:00 GBP ILO Unemployment Rate (3M) Mar 4.50% 4.50% 4.40%
    06:00 GBP Average Earnings Including Bonus 3M/Y Mar 5.50% 5.20% 5.60% 5.70%
    06:00 GBP Average Earnings Excluding Bonus 3M/Y Mar 5.60% 5.70% 5.90%
    09:00 EUR Germany ZEW Economic Sentiment May 25.2 9.8 -14
    09:00 EUR Germany ZEW Current Situation May -82 -77 -81.2
    09:00 EUR Eurozone ZEW Economic Sentiment May 11.6 -4.4 -18.5
    10:00 USD NFIB Business Optimism Index Apr 95.8 94.5 97.4
    12:30 USD CPI M/M Apr 0.20% 0.30% -0.10%
    12:30 USD CPI Y/Y Apr 2.30% 2.40% 2.40%
    12:30 USD CPI Core M/M Apr 0.20% 0.30% 0.10%
    12:30 USD CPI Core Y/Y Apr 2.80% 2.80% 2.80%

     



    Source link

  • Fed Cut Bets Recede Ahead of US CPI, Dollar Approaches Key Resistance

    Fed Cut Bets Recede Ahead of US CPI, Dollar Approaches Key Resistance


    Global equity markets surged overnight in response to the breakthrough US-China tariff truce, with risk appetite roaring back across the board. DOW jumped more than 1100 points, while S&P 500 and NASDAQ surged 3.26% and 4.35%, respectively. The relief rally extended into Europe, where Germany’s DAX surged to a new record high, reflecting broad optimism that trade tensions have eased significantly—at least for now. In Asia, Japan’s Nikkei jumped nearly 1.8% in early trading as it played catch-up, though the boost faded in Hong Kong where HSI turned lower, signaling some regional caution.

    In the currency markets, however, the initial momentum has slowed. Dollar remains the strongest currency for the week so far, supported by rising Treasury yields and expectations that Fed will maintain its high interest rate longer. Commodity currencies like the Australian, Canadian, and New Zealand Dollars are also holding firm, buoyed by improved risk sentiment. Meanwhile, Yen and European majors continue to lag.

    The attention now shifts to today’s US April CPI release, which will be the first major inflation print since the April tariff escalation and the subsequent truce. Although the immediate impact of tariffs may not be fully visible yet, any upside surprise could reinforce Fed’s message of caution. While that may further support Dollar, it’s unlikely to significantly dampen the broader risk-on mood, given that markets have already recalibrated expectations following the trade deal.

    Indeed, Fed fund futures have responded decisively to the latest developments. A week ago, markets were pricing in a 74% chance of a July rate cut. That probability has now dropped sharply to 41% in the wake of the tariff truce. This suggests that traders have already priced in a “higher for longer” Fed policy stance, reducing the likelihood of any sudden repricing unless inflation data comes in meaningfully above expectations.

    Technically, with yesterday’s strong rally, DXY will enter into a key resistance zone ahead, between 55 D EMA (now at 102.07) and 38.2% retracement of 110.17 to 97.92 at 102.60. For now, rebound from 97.92 is still seen as part of a correction to the fall from 110.17. Hence, strong resistance should be seen from 102.07/60 to limit upside, at least on first attempt. However, sustained break of this zone will raise the chance of reversal, and target 61.8% retracement at 105.49 next.

    In Asia, at the time of writing, Nikkei is up 1.79%. Hong Kong HSI is down -1.67%. China Shanghai SSE is up 0.08%. Singapore Strait Times is up 0.43%. Japan 10-year JGB yield is up 0.07 at 1.459. Overnight, DOW rose 2.81%. S&P 500 rose 3.26%. NASDAQ rose 4.35%. 10-year yield rose 0.082 to 4.457.

    Looking ahead, UK employment data and German ZEW economic sentiment will be the main feature in European session. Later in the day, US CPI is the center of focus.

    Fed’s Goolsbee warns tariff truce still carries stagflation risk

    Chicago Fed President Austan Goolsbee welcomed the weekend’s US-China tariff agreement as a step in the right direction but cautioned that its limited scope offers only modest relief.

    In an interview with the New York Times, he said the temporary 90-day reduction in tariffs would be “less impactful stagflationarily than the path they were on.”

    But that still represents a significant burden on the economy. With tariffs remaining three to five times higher than pre-trade war levels, Goolsbee warned the deal would still “make growth slower and make prices rise”, hallmarks of a stagflationary environment.

    Given the persistent uncertainty surrounding US trade policy, Goolsbee reiterated his support for a wait-and-see approach on interest rates. He noted that the Trump administration’s statements acknowledge the temporary nature of the current truce. “It’s going to be revisited in the near future,” he said.

    BoE’s Taylor defends 50bps cut, cites perilous trade climate and weak demand

    BoE MPC member Alan Taylor explained his decision to vote for a 50bps rate cut last week, warning that both global and domestic conditions have deteriorated significantly.

    He pointed to a “quite perilous” international trade environment, driven in large part by broader-than-expected US tariffs. Also, “the erosion of confidence that we saw has continued”, he added, with low readings in business surveys like the PMI and REC, along with signs of increased precautionary saving and delayed investment.

    Taylor also called the recent UK-US trade deal “quite slender,” noting that most British exports will still face a 10% tariff, offering little near-term relief for exporters.

    Taylor warned that waiting for complete confirmation that all inflation pressures had eased before easing policy further could leave BoE behind the curve.

    ECB officials signal cautious path to June cut

    Latvian ECB Governing Council member Martins Kazaks indicated overnight that a rate cut in June remains a “pretty possible step,” aligning with market expectations, provided upcoming data confirms progress toward anchoring inflation around the 2% target.

    Kazaks added that “gradual cautious cuts could come upon the anchoring of inflation to around the 2% target.”

    Meanwhile, German and Spanish ECB members Joachim Nagel and Jose Luis Escriva added a note of caution in a joint interview, warning that US President Donald Trump’s aggressive tariff policies have clouded the economic outlook.

    “Regarding monetary-policy decisions, it is important to be cautious and not to overreact by overemphasizing specific announcements that could change shortly afterwards,” Nagel emphasized.

    BoJ’s Uchida sees temporary inflation pause, but wage growth to persist

    BoJ Deputy Governor Shinichi Uchida said today that while Japan’s underlying inflation and medium- to long-term inflation expectations may “temporarily stagnate”, wage growth is expected to remain firm as “Japan’s job market is very tight.”

    He added that companies are likely to continue “passing on rising labour and transportation costs by increasing prices”.

    Uchida also stressed that BoJ will assess the economic impact of US trade policy “without pre-conception,” acknowledging the high degree of uncertainty surrounding the global outlook.

    BoJ opinions: Sees tariff risks but maintains flexible rate-hike stance

    BoJ’s Summary of Opinions from its April 30–May 1 meeting revealed a generally cautious view on the impact of US tariffs, with board members acknowledging the potential economic damage but not seeing it as enough to derail the pursuit of the 2% inflation target.

    One member noted that BoJ may enter a “temporary pause” in rate hikes due to weaker US growth. But it’s emphasized that “it shouldn’t be too pessimistic”.

    The member emphasized that rate hikes could resume if conditions improve or US policy shifts.

    Other opinions highlighted the high level of uncertainty facing Japan’s economic and price outlook, driven largely by global trade tensions. One board member noted the policy path “may change at any time.”

    Another reaffirmed that there has been “no change to the BoJ’s rate-hike stance”, as projections continue to show inflation reaching the 2% target and real interest rates remain deeply negative.

    Australian Westpac consumer sentiment rises to 92.1, weak confidence supports RBA cut

    Australia’s Westpac Consumer Sentiment Index rose 2.2% to 92.1 in May, partially recovering from April’s sharp decline triggered by trade-related uncertainty.

    Westpac attributed the modest rebound to stronger financial markets and a decisive outcome in the Federal election. However, sentiment remains subdued, with the index still 3.9% below its March level and firmly in pessimistic territory.

    With all key inflation measures now back within the 2–3% target range, Westpac expects RBA to cut the cash rate by another 25bps to 3.85%. The combination of soft domestic sentiment and a more “unsettled and threatening global backdrop” strengthens the case for further easing.

    Australia’s NAB business conditions weaken to 2, profit pressures mount

    Australia’s NAB Business Confidence Index edged up from -3 to -1 in April. However, the underlying Business Conditions Index slipped from 3 to 2. Trading conditions eased from 6 to 5, while profitability dropped sharply from 0 to -4, highlighting the ongoing strain on margins.

    Purchase cost growth accelerated to 1.7% in quarterly equivalent terms, up from 1.4%. Labor cost growth remained elevated at 1.6%. Rising input costs appear to be eroding profitability, with businesses struggling to pass through the full extent of these increases. This was reflected in modest increases in final product and retail price growth, which rose to 0.8% and 1.4% respectively—still below the pace of input cost growth.

    NAB Chief Economist Sally Auld noted that weaker profitability was at the core of the drop in business conditions, aligning with the uptick in purchase costs and softer trading performance.

    USD/CHF Daily Outlook

    Daily Pivots: (S1) 0.8367; (P) 0.8421; (R1) 0.8512; More….

    USD/CHF’s rebound from 0.8038 is still seen as a corrective move. Strong resistance is expected from 38.2% retracement of 0.9200 to 0.8038 at 0.8482 to limit upside. Break of 0.8330 resistance turned support will turn intraday bias will turn bias back to the downside. Further break of 0.8184 will bring retest of 0.8038 low. However, sustained trading above 0.8482 will dampen this bearish view and target 61.8% retracement at 0.8756 next.

    In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8750) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY BoJ Summary of Opinions
    23:50 JPY Money Supply M2+CD Y/Y Apr 0.50% 0.60% 0.80%
    00:30 AUD Westpac Consumer Confidence May 2.20% -6%
    01:30 AUD NAB Business Conditions Apr 2 4
    01:30 AUD NAB Business Confidence Apr -1 -3
    06:00 GBP Claimant Count Change Apr 22.3K 18.7K
    06:00 GBP ILO Unemployment Rate (3M) Mar 4.50% 4.40%
    06:00 GBP Average Earnings Including Bonus 3M/Y Mar 5.20% 5.60%
    06:00 GBP Average Earnings Excluding Bonus 3M/Y Mar 5.70% 5.90%
    09:00 EUR Germany ZEW Economic Sentiment May 9.8 -14
    09:00 EUR Germany ZEW Current Situation May -77 -81.2
    09:00 EUR Eurozone ZEW Economic Sentiment May -4.4 -18.5
    10:00 USD NFIB Business Optimism Index Apr 94.5 97.4
    12:30 USD CPI M/M Apr 0.30% -0.10%
    12:30 USD CPI Y/Y Apr 2.40% 2.40%
    12:30 USD CPI Core M/M Apr 0.30% 0.10%
    12:30 USD CPI Core Y/Y Apr 2.80% 2.80%

     



    Source link

  • Risk Assets Soar as US-China Tariff Rollback Surpasses Expectations

    Risk Assets Soar as US-China Tariff Rollback Surpasses Expectations


    Global risk markets surged after the surprising breakthrough in US-China trade negotiations delivered results far beyond market expectations. Just days ago, hopes were low, with even the mere continuation of talks seen as a positive development. Investors had braced for a possible breakdown or at best, a symbolic gesture of engagement. Instead, both countries announced a major easing of tariffs, offering a rare dose of optimism to fragile global sentiment.

    The agreement will see tariffs lowered on both sides for a 90-day period. Specifically, the US will cut its tariffs on Chinese goods from 125% to 30%, while China will reduce its duties on US goods from 125% to just 10%. The gap reflects the US’s decision to maintain a 20% base tariff linked to concerns about fentanyl imports. Still, the rollback represents a major de-escalation.

    In a joint statement, both governments emphasized the intention to continue discussions in a “spirit of mutual openness” and “cooperation,” with follow-up meetings already being planned. US Treasury Secretary Scott Bessent confirmed he expects to meet Chinese officials again in the coming weeks to build on the momentum.

    In the currency markets, Dollar is the strongest performer of the day. Commodity-linked currencies including the Aussie, Kiwi and Loonie are also advancing. In contrast, Yen is under significant pressure while. European majors are also lagging.

    AUD/USD would now provide an important gauge to Dollar’s underlying strength in this risk-on sentiment. Technically, break of 0.6364 support will confirm short term topping at 0.6511. Deeper decline would then be seen to 38.2% retracement of 0.5913 to 0.6511 at 0.6283. Firm break there will argue that whole rise from 0.5913 has already completed.

    In Europe, at the time of writing, FTSE is up 0.64%. DAX is up 0.67%. CAC is up 1.46%. UK 10-year yield is up 0.089%. Germany 10-year yield is up 0.085 at 2.646. Earlier in Asia, Nikkei rose 0.38%. Hong Kong HSI rose 2.98% China Shanghai SSE rose 0.82%. Singapore was on holiday. Japan 10-year JGB yield rose 0.035 to 1.389.

    BoE’s Lombardelli: Gradual cuts warranted as wage and services inflation stay high

    BoE Deputy Governor Clare Lombardelli reinforced the case for a “gradual and careful” approach to policy easing in a speech today. She noted underlying inflation “have continued to fall” despite noises. Monetary policy is still restrictive and will continue to balance the need to lower inflation with the risk of undermining already soft demand.

    Lombardelli highlighted wage growth as a central focus in the disinflation process, particularly given its outsized influence on domestic services pricing. She noted that private sector regular average weekly earnings rose 5.9% in February, still well above levels consistent with BoE’s inflation target. Services inflation, a key proxy for persistent price pressure, remains elevated at 4.7% as of March. Both indicators suggest that while progress has been made, inflationary momentum in wage-sensitive sectors continues to pose a challenge.

    She also addressed the global backdrop, warning that higher US tariffs and increasingly uncertain American trade policy could lower growth and inflation in the short term by dampening global demand and trade volumes. However, over the longer term, if trade fragmentation continues, it could “reduce output and productivity and would raise inflationary pressures.”

    BoE’s Greene says trade risks justify rate cut

    BoE MPC member Megan Greene said during a panel discussion today that while wages and inflation are moving in the right direction, they remain uncomfortably high. And more concerningly, “medium-term inflation expectations have also started picking up.”

    Greene, who voted with the majority last week in favor of a 25bps rate cut, the fourth since last August, revealed that she was initially undecided going into the meeting.

    She noted being “torn” between holding rates steady and cutting, but ultimately decided to support easing. A key factor in her decision was the rise in global trade tensions, driven by US President Donald Trump’s sharp tariff hikes.

    Despite the subsequent temporary trade truce between the US and China announced today, Greene said it would not have changed her vote.

    She also flagged continued uncertainty over US-EU trade relations as a key downside risk for the UK economy, noting that any escalation could further dampen external demand.

    USD/JPY Mid-Day Outlook

    Daily Pivots: (S1) 144.74; (P) 145.46; (R1) 146.11; More…

    USD/JPY’s rise from 139.87 accelerates higher today Break of 38.2% retracement of 158.86 to 139.87 at 147.12 suggests that whole fall from 158.86 has completed at 139.87, after defending 139.57 support and 139.26 fibonacci level. Intraday bias stays on the upside for 61.8% retracement at 151.60 next. On the downside, below 145.70 minor support will turn intraday bias neutral again first.

    In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

    Economic Indicators Update

    GMT CCY EVENTS ACT F/C PP REV
    23:50 JPY Bank Lending Y/Y Apr 2.40% 2.80% 2.80%
    23:50 JPY Current Account (JPY) Mar 2.72T 2.42T 2.32T 2.91T
    05:00 JPY Eco Watchers Survey: Current Apr 42.6 44.5 45.1

     



    Source link