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Weekly Market Outlook: Focus on Flash PMIs and Inflation Reports

Weekly Market Outlook – US dollar was negatively affected by mild inflation in the US and deflation in Asia before the weekend. The Fed is expected to cap its terminal rate at 5.25%, with a slight possibility of a temporary halt at the upcoming FOMC meeting. Among the significant releases this week are global flash PMIs, which will show whether pricing pressures continue to diminish, and growth potential remains weak. ZEW sentiment reports for Europe and Germany are always worth paying attention to. There will also be inflation reports for the eurozone, UK, Canada, and New Zealand, as well as RBA minutes. 


What to watch on the Economic Calendar this week     

Weekly Market Outlook

Monday, Apr 17:  

  • USD: Empire State Manufacturing Index 
  • CAD: Wholesale prices 
  • AUD: Monetary Policy Meeting Minutes 
  • CNY: GDP 
  • CNY: Unemployment Rate 
  • New Zealand: Food and Rental Price Index 
  • NZD: Business PSI 

Tuesday, Apr 18:  

  • GBP: Claimant Count Change 
  • GBP: Average Earnings Index 3m/y 
  • GBP: Unemployment Rate 
  • EUR: German ZEW Economic Sentiment 
  • EUR: Trade Balance 
  • CAD: CPI 
  • NZD: GDT Price Index 

Wednesday, Apr 19: 

  • GBP: CPI y/y 
  • EUR: Final CPI y/y 
  • USD: Crude Oil Inventories 
  • NZD: CPI q/q 
  • JPY: Trade Balance 

Thursday, Apr 20:  

  • EUR: German PPI 
  • USD: Unemployment Claims 
  • USD: Philly Fed Manufacturing Index 
  • USD: Existing Home Sales 
  • AUD: Flash Manufacturing PMI 
  • AUD: Flash Services PMI 
  • GBP: GfK Consumer Confidence 
  • JPY: National Core CPI y/y 
  • JPY: Flash Manufacturing PMI 

Friday, Apr 21:  

  • GBP: Retail Sales m/m 
  • EUR: Flash Manufacturing PMI 
  • EUR: Flash Services PMI 
  • GBP: Flash Manufacturing PMI 
  • GBP: Flash Services PMI 
  • CAD: Retail Sales m/m 
  • USD: Flash Manufacturing PMI 
  • USD: Flash Services PMI 

A Forex Economic Calendar provides you with a clear picture of what’s coming up, as it highlights all upcoming events, announcements, and data releases. 


USD: Keep an eye on Manufacturing and Philly Fed surveys 

The upcoming US economic data for this week is not as significant as the March jobs, CPI, and retail sales reports. However, it will include March housing starts and permits, as well as existing home sales. Additionally, the April surveys by the NY Fed’s manufacturing and Philadelphia Fed will be released. The Beige Book, which prepares for the May 2-3 FOMC meeting, will also be reported on April 19. 

The US economy expanded by 2.6% at an annualized rate in Q4, with a median forecast of 1.3% in the latest Bloomberg survey. The Atlanta Fed’s GDP tracker projects Q1 growth at 2.2%. The Fed’s March Summary of Economic Projections predicts growth to be 0.4% year-over-year in 2023. FOMC minutes show staff forecast a mild recession later this year. 

USD Falls Towards 103 as Eyes Turn to Inflation Figures

Market believes the Federal Reserve is done after May 3 hike, with the year-end rate expected near 4.35%. Banking stress remains contained, with the KBW bank index rising 3.2% last week and emergency borrowing from the Federal Reserve slowing gradually. The Dollar Index hit a new 12-month low near 101.80 and fell about 4.85% from March’s high to last week’s low. 

US bank deposits and commercial and industry loans increased, and earnings from several large banks for Q1 beat expectations. The Dollar Index posted a potential key upside reversal before the weekend but needs to push back above 102.00 to be meaningful. The next important chart area on the downside is near 100.00. 


GBP: BoE more likely to hold rates on 11 May 

Upcoming economic data could determine if the Bank of England (BoE) raises rates by 25 basis points in May. Officials remain non-committal but have suggested that further tightening may be necessary if inflation persists. Despite the positive trend of recent data, the Bank will likely keep rates at 4.25% on May 11th, barring any surprises. The BoE is expected to follow the lead of central banks in Canada and Australia and pause, as much of last year’s tightening has yet to affect the economy. 

The UK jobs market is experiencing a gradual cooling, with more employers proposing redundancies and a decline in vacancy numbers, although there are still a relatively high number of vacancies per unemployed worker compared to pre-Covid levels. However, it may take some time for the jobs market to show clear signs of economic weakness. The question for the Bank of England is whether wage growth will decrease even without a significant deterioration in the jobs market, and recent data suggests that it might.  

The Decision Maker Panel survey indicates a reduction in wage growth expectations, and there has been a slowing down of official wage data. If this trend continues, it would be a clear signal for the Bank to take a dovish stance, although it remains uncertain how quickly wage growth will decline. The recent worker shortages have not disappeared, and worker inactivity remains high, but the recent pay trends may be consistent with ending the Bank’s tightening cycle.  

Headline inflation is expected to dip back into single digits, and service sector inflation is likely to remain broadly unchanged, which means that another rate hike in May would require a material upside surprise. The Bank’s focus on inflation means that activity data is of less importance in the decision-making process, and recent monthly GDP data have been unhelpfully volatile. The economy seems to be stagnant, and next week’s retail sales numbers are likely to confirm this trend. 


EURO: Composite PMI improves in Q1 2023 

Prior to Russia’s invasion of Ukraine, the impact of the trade shock was becoming apparent. The three-month average surplus reached its peak towards the end of 2020, at approximately 27.6 billion euros. However, the trade surplus significantly decreased in the last three months of 2021, averaging 9.7 billion euros. In 2022, the trade balance primarily showed a deficit, reaching its peak in August at around 52.3 billion euros. It has been observed that the eurozone’s trade balance consistently improved in February compared to January.  

Despite the January shortfall of 30.6 billion euros, it may have decreased by up to two-thirds. In March, Bloomberg’s survey of economists revealed that their median forecast for the eurozone economy may have been overly pessimistic, with a projected contraction of 0.1% in Q1 after a stagnant Q4 in 2022. In Q1 of 2023, the eurozone composite PMI averaged 52.0, which is an improvement from 48.1% in Q4 of 2022 and 49.0 in Q3 of 2022.

Hawkish comments from ECB members influenced the swaps market, increasing the likelihood of a 50 bp move next month by about 1-in-4. This contributed to the euro reaching new highs for the year, nearing $1.1075 before a decline in North American dealings. Although the euro’s momentum indicators have been stretched by its seven-week rally, it is anticipated that it can test the $1.0925-50 area and still not cause significant technical damage. A break could signal a move to $1.0860 and possibly $1.08. 


CAD: Q1 economic growth stronger than expected 

Last week, the Bank of Canada kept rates unchanged as anticipated, indicating increased confidence in a gentle economic slowdown. The central bank acknowledged that tighter credit conditions would likely limit growth in the United States and Europe, while the Canadian economy outperformed expectations in Q1, with an estimated 2.3% annualized growth rate, up from the previously projected 0.5% in January. 

USD/CAD Rises on Policy Divergence and Softer Oil Prices

However, Q2 is predicted to slow to 1.0%, and the Bank of Canada expects weak growth for the rest of the year. On April 18, March CPI will be announced, following February’s 5.2% peak, which is anticipated to fall to 3.5% this year and 2.3% next year, according to the BoC. Core inflation median and trimmed measures have decreased below 5.0%.  

The Bank of Canada will not meet again until June 7, and the swap market is still pricing in a rate cut before the end of the year. On April 21, Canada will report February retail sales, which are likely to experience a minor decline after February’s 1.4% surge, although they have been softened by an increase in car sales. 


AUD: RBA halts tightening cycle! 

The Reserve Bank of Australia has halted its tightening cycle, which the market interprets as a peak in the cash rate (3.60%). The futures market anticipates a 20-basis point cut by the end of the year. On April 18, the minutes from the RBA meeting will be released, and the market will seek confirmation that the bar for resuming tightening is high. 

Unlike most other G10 economies, Australia’s composite PMI struggled in Q1, with the push above 50 in February proving premature, falling back to 48.5 in February, averaging 49.2 in Q1 23 after averaging 48.4 in Q4 22.  

The Australian dollar briefly reached $0.6800 before the weekend for the first time since late February but declined. It tested the $0.6735 level, which is the (38.2%) retracement of the rally from the April 10 low near $0.6620. The weakening support at $0.6700 indicates a risk of testing the lower end of its six-week range (~$0.6565-$0.6600). 


CNY: China’s Q1 GDP highlights  

In Q4 22, the world’s second-largest economy experienced stagnation, but it is expected to have expanded by 2.1% quarter-over-quarter in Q1 23. March is likely to see an acceleration in industrial production and retail sales, while property investing is expected to continue its decline since last April. This recovery in the economy reduces the need for officials to provide more monetary support. 

Although some economists doubt that Beijing will achieve its GDP goal of about 5% this year, we are slightly less skeptical, especially considering the IMF’s new forecast of 5.8% growth in 2023. Last week, the benchmark one-year medium-term lending rate was maintained at 2.75%, which is likely to keep the one- and five-year loan prime rates steady at 3.65% and 4.30%, respectively.  

The dollar has been trading between approximately CNY6.8170 and CNY6.9070 for the past month, hitting three-week lows (~CNY6.8320) before the weekend but recovering to the CNY6.87 area. According to the rule of alternation, after testing the lower end of the range, it may test the upper end in the coming days. 


JPY: Trade Balance and CPI to Watch 

In Japan, there are two notable pieces of data to consider, despite the preliminary PMI typically receiving little attention. Firstly, there is the March trade balance report, which is often discussed in relation to Japan’s export orientation or dependence. However, it is important to note that Japan has been running a trade deficit on average of nearly JPY375 bln (~$3.37 bln) per month in the decade up until December of last year and runs a chronic deficit on its services account. In the Jan-Feb period, Japan’s merchandise trade deficit was JPY3.01 trillion, compared to a deficit of JPY1.75 trillion in the same period the previous year.  

Secondly, on April 21, Japan will report its March CPI, with the Tokyo figures from last month providing a good indication of what to expect nationally. Tokyo consumer prices fell in February due to government subsidies, but there is concern about the measure excluding fresh food and energy, which accelerated to 3.4% year-over-year, a new cyclical high. In the past 60 days, there has been a strong correlation of 0.60 between changes in the exchange rate and the US 10-year yield, which is the highest since January 2022. 

Weekly Market Outlook,CPI,PMI,FED Market Analysis

Although the correlation weakened after the BOJ widened the 10-year band to 0.50% in December 2022, it has now fully recovered. The correlation between the exchange rate and the US 2-year note yield is slightly higher at 0.67, the highest since March 2020. However, the correlation between the exchange rate and Japan’s 10-year yield is negligible. The new leadership at the Bank of Japan has not indicated a significant urgency to change policy. 


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