Global risk assets saw a lot of green while gold and bond prices fell steadily as the week went on. This is likely to signal an easing of fears of a global recession and fears of the US debt crisis, at least during Friday’s trading.
Aside from these themes, perhaps the bigger story is the growing prospects for further Fed tightening as a slew of Fed officials have spoken this week and signaled openness to raise interest rates again in June.
Notable economic news and updates:
🟢 Extensive arguments about market risk
House Speaker Kevin McCarthy showed optimism Thursday that a deal to raise the debt ceiling could come next week
The International Energy Agency raised its forecast for global oil demand for 2023 by 200,000 barrels per day, to 102 million barrels per day. Sees strong rebound in China to support outlook
The European Commission revised its economic forecasts and predicted higher growth rates of 1.1% for this year and 1.6% in 2024, along with an increase in inflation rates of 5.8% in 2023 and 2.8% in 2024.
New Zealand’s annual budget statement revealed that the Treasury no longer expects a recession in the country this year
China’s industrial production accelerated from 3.9% to 5.6% year-on-year in April, below the expected increase of 10.9%.
On Friday, Fed Chair Powell said the interest rate may not need a significant increase to meet targets due to tightening credit conditions in the banking sector.
Extensive arguments for deflecting market risk
Wall Street executives warn that the impasse in US debt ceiling talks is already hurting
Australian Employment Change in April showed a surprise 4.3k in employment losses versus an estimated gain of 24.8k, the previous reading rose from 53k to 61.1k in employment gains, the unemployment rate rose from 3.5% to 3.7%
China’s fixed asset investment fell from 5.1% to 4.7% year-on-year in April against an estimated improvement of 5.7%.
China retail sales rose from 10.6% year-on-year to 18.4% in April, still short of the expected jump of 22%.
GOP negotiators halted debt ceiling deal talks on Friday
Weekly global market summary
Dollar, Gold, S&P 500, Bitcoin, Oil, US 10-Year Yield Overlay Planned by TV
Traders started the week on a cautiously optimistic note after last Friday’s risk aversion issue.
Even though the markets were still concerned about a global recession and the world’s largest economy possibly defaulting on its debt, traders chose to be optimistic about a debt deal. This helped lead to successful conversations at the staff level over the weekend.
Commodity currencies broke and traded above the ranges of the Asian session, and European and US stocks ended the day higher. Bitcoin (BTC/USD) even retested its $27,500 resistance after starting the day at $26,700!
“Risk” assets such as the US dollar and the British pound were highlighted on Tuesday, but not in a good way.
China missed market manufacturing activity data and retail sales estimates, which were a number on the Australian dollar, Canadian dollar, New Zealand dollar and euro for most of the day. Even the British Pound joined in the bear parade after the UK printed higher than expected jobless claims and a higher unemployment rate in April.
Do you know what is safe to sell? U.S. dollar!
This week the Fed was speaking with FOMC members Bostick, Goolsby, Kashkari, and Barkin who share early upbeat sentiments. As the weaker-than-expected US retail sales report on Tuesday continues to support a healthy consumer spending environment in the second quarter, USD traders are likely to put more weight on the longer-term higher interest rate position that Fed members have indicated.
US bond yields rose, non-dollar safe havens such as the Japanese yen and gold fell, and US stocks (already affected by Home Depot’s disappointing earnings release) ended the day in the red.
The focus shifted back to the debt ceiling negotiations on Wednesday after congressional leaders said progress was being made in the negotiations. Meanwhile, President Biden expressed confidence that an agreement would be reached and that America would not default on its debt.
Stocks of US companies and regional banks rose, one-month Treasury notes experienced their biggest drop in three weeks, and the US dollar extended its gains against safe havens such as the Japanese yen, Swiss franc and gold.
The kumdolls danced to their own tune this time. The New Zealand and Australian dollars rose on the RBNZ’s hawkish outlook and the Canadian dollar found support from higher oil prices and a hotter-than-expected Canadian CPI report on Tuesday.
Asian, European and US stocks turned optimistic on the US debt ceiling deal on Thursday and closed in the green.
Dollar buying also gained momentum, supported in part by better-than-expected Initial Jobless Claims and releases of the Philly Fed Manufacturing Index backing the upbeat outlook from the Fed. It is not surprising that the counterparts of the US dollar such as crude oil, gold and BTC Lost some points against the dollar.
The markets closed out the week with another wave of volatility, this time from two potential catalysts during the US trading session. Traders were first affected by the news of GOP negotiators pulling out of debt ceiling deal talks, sending risk assets lower.
Traders then reacted when Federal Reserve Chairman Jerome Powell said the policy rate may not need to rise as much due to tightening credit conditions in the banking sector, backing off slightly from hawkish comments from colleagues this week.
Those two headlines were initially a double whammy for the dollar bulls, but losses in the greenback appeared to be limited by the risk aversion sparked by the debt talks freeze, potentially returning some traders to the “safe haven” side of the US. dollar.