The majors started the week in tight and mixed ranges but with slight anti-dollar weakness as debt ceiling and global growth concerns took hold early on.
The waves turned midweek, thanks to “skip June” talks from Fed members and optimism about the passage of the debt ceiling bill. The Aussie and Canadian Dollar seem to have benefited the most from the favorable shift in risk, while the “safe havens” have seen the biggest hits as would be expected when the environment changes positively.
US dollar pairs
Overlaying the US dollar against major currencies Planned by TV
Uncertainty around the US debt ceiling bill encouraged USD weakness in the first half of the week. But the bulls found some relief as debt default fears began to ease, perhaps due to stronger-than-expected home prices and consumer confidence data.
Subsequently, Fed members Jefferson and Harker began hinting at the possibility of a “skip” rate hike in June, which led to a re-pricing of rate hike expectations (ie lowering USD longs, moving toward risky assets).
An easing of debt ceiling fears, the Fed’s less hawkish bets, and a few rounds of risk-taking pushed the safe-haven dollar to fresh intraweek lows by Friday, which were quickly turned around by the US May jobs report. The NFP number seemed to be the main focus, as it came in well above expectations, opening up the notion that the Fed has plenty of room to cut as the risk of an economic meltdown decreases.
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US lawmakers reached a temporary debt ceiling agreement over the weekend
JOLTS US Job Opportunities in April: 10.1M vs. 9.75M in March; “The number and rate of layoffs and layoffs decreased to 1.6 million.”
Debt-reduction legislation brokered by President Joe Biden and Speaker Kevin McCarthy passed the House of Representatives on Wednesday night by a vote of 314-117.
ADP National Employment Report for May: +278K (+200K forecast) vs. 291K prior
The US Senate passed a package of budget and debt ceiling cuts late Thursday evening, bringing the US one step closer to avoiding a debt default scenario.
US Nonfarm Barrios for May: +339K (+180K forecast) vs. +294K in April; the unemployment rate rose to 3.7% (expected 3.5%, prior 3.4%); Average hourly wage: +0.3% (+0.4% forecast/previous)
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US Consumer Confidence in May: 102.3 vs. 103.7 in April
March S&P Corelogic Case-Shiller Index: +1.5% m/m (+0.3% m/m expected) vs. +0.3% m/m prior
The US Federal Reserve’s Beige Book revealed that some regions reported cool labor market conditions, as employment continued to increase but at a slower pace in late April to early May.
Federal Governor Jefferson indicated on Wednesday that the Fed may skip a rate hike in June while still being open to the option of raising interest rates later.
US S&P World Manufacturing Index reading for May: 48.4 vs. 50.2 in April
ISM Manufacturing PMI for May: 46.9 vs. 47.1 in April; The price index fell 9 points to 44.2 points. The Employment Index rose by 1.2 points, to 51.4
euro pairs
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Slower-than-expected Eurozone growth, credit and inflation data softened the European Central Bank’s hawkish outlook and sent the euro lower against major currencies this week.
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French GDP confirmed at 0.2% in the first quarter of 2023
The number of unemployed people in Germany increased by 9 thousand in April, less than expected, reaching 14 thousand and 23 thousand unemployed in March
The ECB review found that financial stability in the eurozone remains fragile thanks to banking pressures outside the eurozone.
German Retail Sales for April: +0.8% m/m; -4.3% on an annual basis
Eurozone Unemployment Rate for April 2023: 6.5% as expected vs. 6.6% previously
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Spain’s flash CPI slowed from 4.1% yoy to 3.2% in April vs. 3.6% expected
Eurozone loans for the month of April: 2.5% yoy vs. 2.9% yoy in March; M3 money supply grew 1.9% yoy in April vs. 2.5% yoy in March
French consumer spending fell 1.0% m/m in April – the third decline in a row – versus -0.3% expected, and -0.8% m/m in March.
France’s inflation unexpectedly fell at -0.1% m/m in May vs. 0.3% expected, and increased by 0.6% in April.
Eurozone HCOB Manufacturing PMI for May: 44.8 vs. 45.8 in April; Surveys have shown a sharp decline in new orders and factory output; Recruitment continues but at a slow pace
German HCOB Manufacturing PMI for May: 43.2 (lowest reading in three years) vs. 44.5
Eurozone annual inflation (flash estimate for May): 6.1% yoy (6.5% yoy expected) vs. 6.7% yoy previously
Sterling pairs
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After a quiet start to the week, the GBP bulls grabbed hold, likely due to Tuesday’s stubborn commodity inflation data keeping expectations high that the Bank of England (BOE) will have to remain hawkish to fight inflation.
The GBP bulls may also have been helped by traders selling their European counterparts in the EUR and CHF throughout the week due to weak Euro-Zone data and a shift away from the risk-off sentiment.
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The UK BRC Store Price Index accelerated from 8.8% to 9.0% yoy in May to reflect a stronger pace of inflation in retail stores
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S&P Global/CIPS UK Manufacturing PMI for May: 47.1 (four-month low) vs. 47.8 previously
Swiss Franc pairs
Overlay the Swiss Franc against major currencies Planned by TV
There may not have been a lot of market moving reports out of Switzerland, but that didn’t stop CHF traders from making a rain of pips!
The Swiss franc traded in narrow ranges in the first half of the week before weak Swiss net economic updates and growing risk appetite soon pushed the franc lower, bottoming out from the majors by Friday.
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The Swiss GDP report for the first quarter showed that the economy expanded by 0.3% on a quarterly basis versus an expected growth number of 0.1% and a flat reading earlier.
Swiss retail turnover fell -3.7% yoy in April vs -1.4% expected, and -1.9% yoy in March
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The Swiss KOF Economic Barometer fell from a low figure of 96.1 to 90.2 in May reflecting worsening conditions against an expected 95.7.
procure.ch Purchasing Managers’ Index (PMI) for May: 43.2 vs. 45.3
AUD pairs
Overlay the Australian dollar against major currencies Planned by TV
China’s PMI and concerns about the US debt ceiling outweighed pressure on the Australian dollar in the first half of the week.
But thanks to hawkish comments from RBA Governor Lowe, positive Chinese Caixin PMI data, and a positive shift in global risk sentiment, the Australian dollar quickly gained steady support to closely battle the Canadian dollar for first place among the majors in Friday’s close.
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Monthly CPI in Australia accelerated from 6.3% yoy in March to 6.8% yoy in April (vs 6.4% expected)
Australian Judo Bank Manufacturing PMI for May: 48.4 vs. 48.0 in April; The third consecutive reading of deflationary conditions
Private capital spending in Australia rose 2.4% qoq in the first quarter versus an expected gain of 1.1%, after an improved reading for the prior period of 3.0%.
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Australian Building Approvals fell 8.1% m/m in April versus an expected rebound of 2.3%, after the rating’s earlier drop of 1.0%.
RBA Governor Lowe: “We really want people to understand that we’re serious about this, that we’ll do what’s necessary, and not question our commitment to lower inflation. As painful as it is, we have work to do there.“
Australia Retail Sales for April: 0.0% mom (as expected) vs. 0.4% mom previously.
CAD pairs
Overlaying the Canadian dollar against major currencies Planned by TV
The Canadian dollar remained in tight ranges early Wednesday as traders entered risk mode sparked by growing optimism over the US debt deal, the “skip” of the Fed’s June hike, and possibly on positive Canadian GDP data showing the Bank of Canada still has room to rise.
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Canada’s current account for the first quarter of 2023: -deficit of 6.2 billion Canadian dollars compared to -8.1 billion Canadian dollars in the fourth quarter of 2022
Canadian GDP Q1 2023: +0.8% QoQ vs +0.0% QoQ in Q4 2022
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S&P Canada’s global manufacturing index for May: 49.0 vs. 50.2 in April, largely driven by lower output and new orders, and lower customer spending in efforts to reduce inventories
Canadian corporate earnings fell 5.6% on a quarterly basis in the first quarter, erasing part of the previous 7.3% increase.
NZD Pairs
NZD overlay against major currencies Planned by TV
The US dollar traded lower with negative risk sentiment early on as traders worried about the advance of the US debt ceiling bill and missing China data. There also appeared to be a correlation with NZD’s accelerated decline on Wednesday, lining up with the other negative NZ Business Confidence survey, but the dip was more likely due to a lower Aussie when the Australian CPI was released almost simultaneously with New Zealand’s. survey data.
Risk sentiment turned positive late Wednesday/early Thursday with the Fed’s “Skip June” talks and the passage of the US debt deal in both the House and Senate. This helped the Kiwis get a bit out of the red, at least against safe havens on Friday.
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ANZ: New Zealand business confidence rose 13 points from -43.8 to -31.1, while expected activity rose from -7.6 to -4.5 in May.
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New Zealand Building Permits April 2023: -2.6%m/m (2.0%m/m expect) vs. 6.6% m/m prior
Japanese yen pairs
Overlaying the Japanese Yen against major currencies Planned by TV
Risk aversion and safe-haven demand kept the Yen supportive in the first half of the week.
But an unplanned meeting of Japanese financial officials helped turn the tide in favor of the bears on the yen, as well as broad risk sentiment turning risky on Wednesday.
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Japan’s unemployment rate improved from 2.8% to 2.6% in April against the consensus of 2.7%
Japanese consumer confidence rose from 35.4 to 36 in May, the highest reading since January 2022
Japanese capital spending Q1 2023: +2.7% qoq; Spending, excluding software, rose 10% from a year earlier, compared to economists’ expectations for a 3.7% rise.
au Jibun Bank Japan Manufacturing PMI for May: 50.6 vs. 49.5 in April; “Increasing business and consumer confidence has helped increase overall customer demand.”
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BOJ Governor Ueda reiterates that they have not yet achieved a sustainable 2% inflation rate, so the central bank will maintain an easy policy.
Japanese industrial production unexpectedly fell 0.4% in April, its first drop in three months.
Retail sales in Japan rose 5.0% year-on-year in April, slower than March’s 6.9% growth and expected 7.1% increase.
Housing starts in Japan fell 11.9% year over year in April, faster than March’s 3.2% decline and the expected 0.9% decline.