In another volatile week, data took a back seat as markets continued to focus on the Fed’s communication. Chair Powell’s comments on Tuesday cleared up any perceived dovishness during the last FOMC meeting and delivered the kind of hawkish message needed to tame yields and the USD. The Fed “wouldn’t hesitate” to slow the economy if needed, would “consider moving more aggressively” if inflation doesn’t come down and sees the drop in markets as “what we need.” It seems the Fed are more willing to throw the markets under the bus now that they are banned from holding individual stocks.
10-year yields dropped for the second week in a row, and USD weakness helped EURUSD reverse from the 1.035 level at the 2016 low. Meanwhile, stock markets were caught in a volatile crossfire. Falling yields are a plus, but the driver behind the falls—recession—is a negative. SPX made new bear market lows on Friday and looked all set to crash on Monday were it not for the late recovery, after it touched fibonacci retracement levels.
WEEKLY PRICE MOVEMENT
The biggest index mover was NDX, down 4.45%, it's seventh red week. The top forex mover was NZDUSD up 2.14%. Bitcoin and Ethereum were surprisingly flat, and once again, FANGs unevenly underperformed similarly to last week.
Last week's EURUSD long made 1.38%, which means I am ahead 9.46% this year, with 11/18 (61.1%) wins. This week I think AUDJPY is toppy so I am selling it.
Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. The equity and index prices are now based on the cash close each day.
The final full week of May doesn't offer much in the way of scheduled macro news, except for US PCE figures. PCE is the Fed's preferred method of measuring inflation, and Thursday's QoQ print can be contrasted again rising CPI. We also have the FOMC minutes which will be scrutinised closely, particularly for the view on the pace of rate hikes.
Otherwise the market declines do seem to have stabilised for now, although there is no clear consolidation support yet. On SPX, 3835 was the 38.2% retracement of March 2020 low, and 23.6% retracement of the 2009 low, so an upturn seems likely.
CALENDAR (all times are GMT, volatile items in bold)
Monday May 23
08:00 Germany IFO Sentiment
12:30 Chicago Fed National Activity Index
16:15 BoE Governor Bailey speech
23:00 Australia S&P PMIs
Tuesday May 24
07:30 Germany S&P PMIs (Mfr e54.3 p54.6)
08:00 Eurozone S&P PMIs (Comp e55.78 p55.8)
08:30 UK S&P PMIs (Svcs e58.7 p58.9)
13:45 US S&P PMIs
14:00 US New Home Sales
23:45 RBA Ellis speech
Wednesday May 25
06:00 Germany Q1 GDP
08:00 EU Financial Stability Review
11:05 BoJ Governor Kuroda
12:30 US Durable/ND Capital Goods
18:00 FOMC Minutes
Thursday May 26
12:30 US PCE QoQ (e5.2% p5.2%)
12:30 US Q1 GDP (Annualised e-1.4% p-1.4%)
12:30 US Jobless Claims
12:30 Canada Retail Sales
14:00 US Pending Home Sales
23:30 Tokyo CPI
Friday May 27
01:30 Aus Retail Sales
12:30 US PCE (MoM e0.4% p0.3%, YoY e4.6% p5.2%)
14:00 Michigan CSI