After quite a month in financial markets which saw global equity markets fall 15% it seems like we are entering a period of consolidation. At the epicentre of that unease has been China, where lockdowns have seen Chinese and global growth forecasts cut. The lockdown strategy by Chinese authorities seems unlikely to change anytime soon, but there is some very short-term optimism that the residents and workers of Shanghai might be released after three days without a new Covid case.
Also, today look out for US April retail sales and industrial production, both of which are expected to come in strong. We will also hear from Federal Reserve hawk James Bullard and Chair Jerome Powell. It seems too early in the tightening cycle for the Fed to be fighting market expectations of tightening and the dollar could in fact be a little stronger tomorrow after Powell's remarks tonight. But for today's session, we favour consolidation and a few recovery stories.
The CAD is little changed against the USD. Oil focus remains on the EU’s attempts to wean itself off Russian supply and shortages of refined product in the US. There may also be implications for commodities more generally from the sharp decline in Chinese economic activity. If the CAD can emerge from the recent bout of market volatility, there may be renewed headwinds developing in the commodity space where prices remain generally elevated. The Canadian economic calendar picks up this week, with most attention on the CPI data tomorrow. Short-term trends suggest that price growth has picked up a little in the past three months and markets are not anticipating the drop in Apr inflation that we saw in the US data; consensus estimates call for steady, 6.7% inflation y/y which will keep the BoC very much on the tightening path in the coming months Observe the USD/CAD chart
Some temporary calming in Chinese tension has allowed EUR/USD a short-term reprieve. Today looks as good a day as any for a bounce in EUR/USD, which could move as high as 1.0550. Interestingly, expectations for European Central Bank hikes are still creeping higher - where 91bp of tightening is priced in compared to 85bp last week. The ECB managing expectations of a 100bp rate hike this year may be what it takes to deliver some temporary stability to EUR/USD - even though we remain in a powerful downtrend. In terms of eurozone data today, look for 1Q22 GDP to be confirmed at 0.2% quarter-on-quarter.
This morning we have just seen a strong set of UK employment/wage data which will be a tick in the 'continue tightening' side of the Bank of England's policy calculus ledger. The BoE policy rate is still priced above 2.00% and today's data is supportive. The current short-term recovery could see GBP/USD recover a little, where a move through 1.2400/2410 could see a brief spike into the 1.2500/2550 area. GBP seems to be ignoring Northern Ireland politics at the moment - perhaps because Conservative backbenchers and also US politicians are leaning on the UK government not to go ahead with unilateral actions on the Northern Ireland protocol