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Oil stays in the hunt for an upside break
Wed, May 18, 2022 9:56 AM
Oil is up over 1% on the day again as price looks to try and inch towards testing the $115 mark once more this week.The break higher on Monday sees a technical push above trendline resistance from the late March to early May highs but we are now running into some resistance around the $115 region as seen in the chart above.I don't want to be a broken record to keep repeating the resilience in oil but it has certainly been quite remarkable despite ongoing worries about global growth - not to mention the dollar's strength against the commodities space in general.I'll leave what I said last week as yet another reminder on oil's bullishness:"I think one key argument that not many people are raising is that there continues to be a shortage in supply and the situation is likely to get worse amid the supposed transition to green energy. The fact there is underinvestment in the sector and falling inventories continue to allude to a tighter market in general."Throw in the fact that Russia supplies are being phased out with little to no immediate substitutes, the tighter market outlook is going to stay for longer. The capacity shortage and the fact that OPEC+ is also not doing much more than they are now isn't going to help alleviate sentiment on that front either."When you throw in those factors and see how resilient oil prices have been as of late. It's rather scary to imagine where prices might end up once we get over this hump."The technicals are also abiding now with the potential breakout from the wedge above, though it needs to clear the region of $115.37 to $116.61 to really establish the next leg higher.
Moscow says there is no movement in peace talks with Kyiv
Wed, May 18, 2022 9:47 AM
On talks, Moscow says that Kyiv is showing a total lack of will to continue them. Well, with both sides not able to reconcile their differences then it really comes as no surprise. In any case, the dialogue was all for the optics in the first place so carry on as you will.
Eurozone April final CPI +7.4% vs +7.5% y/y prelim
Wed, May 18, 2022 8:57 AM
Core CPI +3.5% vs +3.5% y/y prelimA slightly lower revision but still a record high inflation reading for the euro area. That will reaffirm the more hawkish messages from the ECB as of late at the very least.
Beijing to conduct new round of mass COVID-19 testing in four districts on 19 to 21 May
Wed, May 18, 2022 8:41 AM
No let up in the 'zero covid' policy by China but the good news is that at least recent developments are showing an improvement in Shanghai. The fear though is that there might be broader lockdowns in other cities in the months ahead. That will continue to dampen economic prospects as such - both locally and abroad.
Rising prices dampen German construction sector outlook
Wed, May 18, 2022 7:21 AM
The Deutsche Bauindustrie (German Construction Industry) has dimmed its outlook for the sector as surging prices for building materials and energy are expected to dampen activity during the course of the year.The industry group says it expects a development in construction-related sales in the main construction sector of between 0% and -2% in real terms for the course of 2022. Prior to the ongoing issues with inflation and price pressures, they had initially projected real-term growth in sales of 1.5%.For all the talk about 'peak' inflation, one must be mindful that an inflation 'plateau' instead won't do much to alleviate the ongoing pressure from rising prices on the global economy.
Dollar checks back its early week losses
Wed, May 18, 2022 7:14 AM
While the early week moves were optimistic, they come off the back of a rather dour period for risk trades in general and a strong rally for the dollar. One can argue that the retracement yesterday is akin to the market letting off some steam after the more uniform trend in recent weeks. For today, the more tentative and cautious risk tones is seeing the market revert to the dollar - and yen - again currently. EUR/USD is down 0.3% to 1.0515 while GBP/USD is seen down 0.5% to 1.2425 with the pair seeing a rather firm rejection with offers lined up close to 1.2500 in the past few sessions: Besides that, AUD/USD is also down 0.4% to 0.7000 again as the push and pull continues to center around the figure level on the week. As much as the dollar rally in recent weeks has been unrelenting, there is still reason to not fight the tide just yet. Even if firm deleveraging pressure may be put on hold for now, the more challenging global economic backdrop and the tighter and more aggressive Fed policy (as reaffirmed by Powell yesterday) are still key factors at play at the moment. Put together, it makes for a poor risk backdrop and one that the dollar can still benefit from.
European equities open lightly higher to start the day
Wed, May 18, 2022 7:04 AM
Eurostoxx +0.1%Germany DAX +0.1%France CAC 40 +0.2%UK FTSE +0.1%Spain IBEX +0.3%There isn't much in the gains above as the changes are relatively light to start the session. The overall risk mood remains rather tentative with S&P 500 futures seen down 0.3% currently. The more cautious tone is helping to underpin the dollar and yen slightly as we get things going in European trading.
South Korea says a missile test by North Korea seems imminent
Wed, May 18, 2022 6:23 AM
But says that North Korea is not likely to test a nuclear weapon this weekend while US president Biden visits Seoul. Adding that US military "strategic assets" are ready to be mobilised if North Korea does stage a serious provocation during the period. Just putting this out there in case there is anything to it on the risk/geopolitical front.
UK's Sunak: Inflation numbers driven by energy price cap rise in April
Wed, May 18, 2022 6:13 AM
He says that:“Today’s inflation numbers are driven by energy price cap rise in April, in turn driven by higher global energy prices. We cannot protect people completely from global challenges but are providing significant support where we can and stand ready to take further action.”Pretty words but it isn't going to do much to help consumers in the UK who are battling against a cost-of-living crisis at the moment - one which could get worse in the months ahead even.
Eurostoxx futures +0.2% in early European trading
Wed, May 18, 2022 6:04 AM
German DAX futures +0.2%UK FTSE futures +0.2%There's not much in it to start the session as risk sentiment is rather more tentative for the time being. S&P 500 futures are down 0.1% with Nasdaq futures seen down 0.2% currently. But that follows a solid trading session in Wall Street yesterday, with the S&P 500 having closed up 2.0% and the Nasdaq up 2.8%.
UK April CPI +9.0% vs +9.1% y/y expected
Wed, May 18, 2022 5:57 AM
Prior +7.0% CPI +2.5% vs +2.6% m/m expected Prior +1.1% Core CPI +6.2% vs +6.2% y/y expected Prior +5.7% That's the highest consumer inflation rate in some 40 years and will add pressure to the BOE to act more aggressively, while having to balance out added worries on the cost-of-living crisis that is brewing in the UK. The numbers here won't add to much comfort on that, as consumers will continue to feel the pinch of rising costs.
UK inflation in focus in European trading today
Wed, May 18, 2022 5:25 AM
Major currencies are keeping little changed on the day as the dollar is keeping its losses so far this week in check. The aussie was dragged down earlier as wages data fail to perk up, not really supporting a more aggressive RBA. That said, AUD/USD is back to little changed around 0.7025 currently from a low of 0.6995 earlier.US stocks had a solid outing yesterday as equities look to recover some poise, though US futures are slightly on the softer side for now. As much as there is scope for optimism on the week, the overall balance remains more tentative in my view.Central bank tightening, surging inflation pressures, and the global growth slowdown remain key factors impacting sentiment. Looking ahead, the risk mood will continue to be a key focus in European morning trade.0600 GMT - UK April CPI figures0900 GMT - Eurozone April final CPI figures1100 GMT - US MBA mortgage applications w.e. 13 MayThat's all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.
Japan to hold auction to sell 4.7 mil bpd of oil from its national reserve on 10 June
Wed, May 18, 2022 4:49 AM
The supply will then become available to the winning bidders on 20 July or later, according to a statement by the Japanese industry ministry. Well, that's roughly like what? Slightly less than one-and-a-half days worth of Japan's oil consumption? "Flood".
Chinese yuan starting to settle in?
Wed, May 18, 2022 4:15 AM
The dollar is keeping losses in check today but so far this week, we're seeing a bit of a breather in markets and that includes China. While there are fears of broader lockdowns, there are some positive developments with the COVID-19 situation improving in Shanghai at least. Nonetheless, one can still expect Chinese authorities to stick with easing measures to try and bolster the economy. It is already a rather challenging environment for the country as credit data has been a bit sluggish, strengthening the case for more modest measures to follow in the weeks/months ahead. The yuan has been a key focus point as of late as Beijing has "allowed" the currency to weaken considerably: USD/CNY has surged to 6.80 but is stalling there for the time being. Is that a sign of the currency starting to settle in? Perhaps but given that this is arguably just a pit stop for the greenback, I wouldn't rule out a potential jump towards 7.00 especially since Chinese authorities have kept rather mum about the whole situation. The next key policy step to watch for China will be the LPR decision this Friday. The last cut was done in January and there are some quarters in the market expecting the next one to take place soon.That said, China did play around with its policy settings over the weekend by reducing the mortgage rate floor over the past weekend. That might be reason enough not to tweak things too much for the time being.
Shanghai authorities will permit 864 financial institutions to resume operations.
Wed, May 18, 2022 3:29 AM
Some encouraging news coming out of Shanghai. Gradually emerging from its long lockdown. Shanghai Securities News reportthe Shanghai Municipal Financial Work Party Committee and the Shanghai Local Financial Supervision Bureau issues a "white list" of financial institutions, including China Foreign Exchange Trade Center, Shanghai Stock Exchange, Shanghai Futures Exchange, China Financial Futures Exchange, Shanghai Insurance Exchange, China Central Depository & Clearing Co., Ltd. Shanghai Headquarters, China Securities Depository permitted to reopen for business864 financial institutions in total at this stageShanghai is China's largest city, its financial hub, and a critical driver of the entire country's economy.
ICYMI - US Treas Sec Yellen said the US & Europe should to end their reliance on China
Wed, May 18, 2022 3:27 AM
US Treasury Secretary Janet Yellen was speaking Tuesday at the Brussels Economic Forum said the U.S. and Europe should seek to end their reliance on China for commodities such as rare-earth minerals also called more broadly for Western countries and their allies to shift trading relations away from potential global rivals Yellen pointed to Russia's invasion of Ukraine as she argued that countries shouldn't make themselves beholden to Russia or China for critical commodities such as oil Info comes via the Wall Street Journal (may be gated). For a non-gated report Reuters have this, more of an emphasis on Russian oil: EU could combine tariffs on Russian oil with embargo, Yellen says
ForexLive Asia FX news wrap: AUD dropped on wages data miss
Wed, May 18, 2022 2:52 AM
European Central Bank meeting today, Wednesday 18 May 2022 (not on monetary policy) More from Goldman Sachs on US recession talk China April house prices -0.2% m/m and +0.7% y/y. Both down from March. AUD drops a few ticks after the lower than expected Australian wages data Australian wages index for Q1 2022: 0.7% q/q (vs. expected 0.8%) PBOC sets USD/ CNY mid-point today at 6.7421 (vs. estimate at 6.7456) More Fed's Evans: Expects transition to talking about 25bp hikes by July or September Here's why the Reserve Bank of Australia will hike the cash rate by 40bps to 0.75% Japan economy minister Yamagiwa: Economy to pick up but uncertainty due to Ukraine Australian data - Westpac leading index for April -0.15% m/m (prior +0.3%) China has halted daily updates of bond trading data for foreign institutions Japan GDP preliminary for Q1 2022: -0.2% q/q (vs. expected -0.4%) More from Fed's Evans - short-term neutral rate may be higher than long-run rate Reuters Tankan shows Japan Manufacturers Index halving in May, lowest since Feb. 2021 European Commission to outline 210bn EUR plan to end its reliance on Russian fossil fuels Fed's Evans calls to raise interest rates to 2.25% - 2.5% quickly Morgan Stanley bullish bias on the USD into the northern Summer ICYMI - Powell: “We need to see inflation coming down ... Until we do, we’ll keep going.” Magnitude 5.1 earthquake, north east Japan coast UK Chancellor Sunak considering bringing forward the 1p income tax cut (yes 1, just 1, p) Trade ideas thread - Wednesday 18 May 2022 NZDUSD is up for the 3rd consecutive day despite the poor dairy auction on Tuesday Private oil survey data shows surprise headline draw in crude oil inventory Tech stocks rebound and so do banking shares in a broad rally NZDUSD holds onto most of gains today and stays above the 200 hour MA The Australian dollar was a mover during the session here today. AUD/USD tested higher in the Sydney morning, ahead of wages data due at 11.30am Sydney time. The Wage Price Index data for Q1 of this year came in below central expectations on both q/q and y/y (see bullets above). AUD/USD dropped in response, albeit not within a very large range. Expectations of a 40bp rate hike from the Reserve Bank of Australia at the June (7 th ) meeting were trimmed in response to the data. USD/JPY has also been a mover, down from highs just over 129.50 to be lows circa 129.10. Lower AUD/USD and lower USD/JPY of course translates into a heavy AUD/JPY. Other yen crosses dropped also. EUR, GBP, NZD, CAD had all gained a little against the USD early in the session and all have given back this, to a greater or lesser extent. USD/CAD is up 30+ points from its early lows under 1.2800. WTI popped above $114 but is back under as I update Apart from the Australian data we had the preliminary reading for Japanese economic growth in the first quarter (January-March) of 2022. GDP contracted (see bullets above). We also had data on Chinese house prices in April. These fell m/m for the first time since December 2021 and recorded their slowest y/y gain since October 2015. On the central bank front had extended remarks from Charles Evans, President of the Chicago Federal Reserve branch. Evans did not depart from the current Fed chorus warning of rapid rises for Fed Funds in the near term, and that the Fed would do more if needed. He did express his expectation, though, that he sees a return to 25bp hikes from July or September. The People’s Bank of China raised the CNY at the daily USD/CNY reference rate setting. CNY was moved higher by 440+ pips to 6.7421 against the USD. This is the third consecutive day for a higher CNY against the USD at the central rate setting. AUD drop on the wages data - arrow
More from Goldman Sachs on US recession talk
Wed, May 18, 2022 2:04 AM
Goldman Sachs have been vocal on recession this week: Goldman Sachs' Blankfein says firms should be prepared for a recession. More on Goldman Sachs cutting its forecast for the S&P500 Goldman Sachs says a recession would cast doubt on a strong USD And, they haven't let up. This from an equity strategy note. GS says "the seemingly narrow path to a soft landing has led market participants and company managements to begin weighing the odds of a recession":, GS says firms are preparing "for any challenges that a period of flat or contracting growth may bring for corporate earnings"
China April house prices -0.2% m/m and +0.7% y/y. Both down from March.
Wed, May 18, 2022 1:36 AM
China April house prices -0.2% m/mprior 0% and +0.7% y/yprior +1.5%The m/m fall is the first reported decline since December 2021. The y/y rsie is the lowest since October 2015. The property sector has slowed sharply in China. Combine that with lockdowns covering major economic hubs and the lacklustre results today are hardly a surprise. ---Background piece on this data:China home price data due Wednesday 18 May 2022 likely to show impact of property slowdown
AUD drops a few ticks after the lower than expected Australian wages data
Wed, May 18, 2022 1:29 AM
Data is here: Australian wages index for Q1 2022: 0.7% q/q (vs. expected 0.8%) The lower than expected wage rise in the January - March quarter will be eyed as making it less likely the Reserve Bank of Australia will hike by an aggressive 40bps at the June 7 meeting. 40bps are not off the table, but at the margin this data lowers the likelihood. more to come
Australian wages index for Q1 2022: 0.7% q/q (vs. expected 0.8%)
Wed, May 18, 2022 1:27 AM
Australian Q1 Wage Price Index data 0.7% q/q expected 0.8% q/q, prior 0.7% 2.4% y/y expected 2.5% y/y, prior 2.3%Private sector +0.65% q/q and +2.44% y/y Public sector up not quite so quickl;y at +0.56% q/q & +2.23% y/yGiven the rate of inflation is north of 5% real wages are falling substantially according to this data.---Background:Australian wages data due today - "will be watched closely for (RBA) rate hike forecasts"Australian data due today will be key for the next RBA rate hike (on June 7)
Japan economy minister Yamagiwa: Economy to pick up but uncertainty due to Ukraine
Wed, May 18, 2022 12:31 AM
Japan economy minister Yamagiwa comments after the economic growth data for Q1 earlier:Japan GDP preliminary for Q1 2022: -0.2% q/q (vs. expected -0.4%) economy expected to pick up but uncertainty remains due to Ukraine situationneed to pay attention to rising raw material prices, swings in financial markets and supply-side restrictionswill ensure recovery in socio-economic activity from coronavirus slump while responding to downside risks to economyimports rose on easing of supply-side restrictions and imports of vaccines and drugswill put economy back on autonomous growth path by achieving virtuous cycle of growth and distribution China's zero-covid policy is having a significant impact on supply chains. jpy
Australian data - Westpac leading index for April -0.15% m/m (prior +0.3%)
Wed, May 18, 2022 12:30 AM
Summary from WPAC:The six-month annualised growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future slowed to 0.88% in April from 1.69% in March.
Japan GDP preliminary for Q1 2022: -0.2% q/q (vs. expected -0.4%)
Tue, May 17, 2022 11:47 PM
Japan GDP preliminary for Q1 2022 GDP sa -0.2% q/q expected -0.4%, prior +1.1% GDP annualised sa -1.0% y/y expected -1.8%, prior +4.6% GDP deflator (an inflation indication) -0.4% y/y expected -1.2%, prior -1.3% Private consumption 0.0% q/q expected -0.5% q/q, prior 2.4% Business spending 0.5% q/q expected 0.7%, prior 0.3% External demand -0.4% q/q expected -0.3%, prior 0.2% Not as dire as expected. A Japanese government official commenting on the results says the contraction was caused mainly by rises in imports (ie. net external demand slipping). Check out the deflator, which is an indication to inflation. Negative, but not as negative as expected. USD/JPY update, not a lot of change so far for the session here.
Reuters Tankan shows Japan Manufacturers Index halving in May, lowest since Feb. 2021
Tue, May 17, 2022 10:59 PM
The Reuters Tankan monthly poll is intended to track the quarterly Bank of Japan tankan survey. The results for May 2022 have been published. May manufacturers' sentiment index +5 vs April +11 Manufacturers' mood hits lowest since Feb 2021 May service sector index +13 vs +8 in April manufacturers' business confidence was seen falling to 3 in August, while that of service-sector firms was expected to fall slightly to 12 firms faced headwinds from persistently high raw material costs and Chinese coronavirus lockdown measures. Some comments from survey participants: "We're seeing a decrease in our workload as carmakers are facing impact on their output from chip shortages and Chinese coronavirus lockdowns that are causing parts supply delays," said a manager at a transportation equipment maker. "Soaring raw material prices could not sufficiently be passed on," said a manager at a metal products maker. Another manager, at a construction firm, said purchasing prices of goods had soared due to Russia's invasion of Ukraine. Reuters Tankan monthly poll: poll of 499 big and mid-sized companies conducted from April 26 to May 13 236 responses The Reuters Tankan index readings are calculated by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A positive reading means optimists outnumber pessimists. jpy shows little response: