Weekly Market Outlook

Weekly Market Outlook: Global PMIs, US NFP, BoC meeting in Focus

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Weekly Market Outlook — Worldwide PMI releases are likely to be closely followed as May comes to a close this week. Friday’s US NFP report which will have the most notable impact on USD movements for the upcoming weeks. Meanwhile, the Bank of Canada is expected to hike rates by 50 bp. Inflation numbers from Eurozone and Germany will be another crucial factor to consider. GDP figures from Australia will also be in focus.

Worldwide Manufacturing and Services PMIs for May to be Watched

PMI data for both manufacturing and service sectors will be released this week for many countries. Last month’s flash PMI release that showed price pressures had slowed economic growth in developed countries. In particular, global PMI data are keenly awaited after economies such as the UK, which saw a significant surprise on the downside, showed inflationary pressures were impacting economic conditions.

USD — NFP Figures in Focus

Global financial markets are looking forward to the possibility of a recession. A rising mortgage rate is heating up the US housing market, while investors are fearful that the rising cost of living is about to affect the labor market, as slowing demand forces employers to cut jobs.  

This process seems to have begun already. Several corporations have announced plans to slow or even freeze hiring, including Amazon, Microsoft, Facebook, Twitter, Uber, Salesforce, and Nvidia. As the economy slows, executives are looking at how they can manage costs. Smaller companies are likely to be in greater difficulty. This is why Friday’s US jobs report will be critical for the markets. Nonfarm payrolls are to show 350k growth in May, and the unemployment rate is forecasted to drop slightly. Wages are anticipated to grow at a healthy rate. 

Weekly Market Outlook: Global PMIs, US NFP, BoC meeting in Focus

Readings above 50 can have a positive effect on US dollar.

US consumer confidence will be closely watched this week ahead of PMIs from the private sector on Wednesday and Friday. However, the key release for the week will be the release of nonfarm payrolls and the unemployment rate on Friday, which will determine the Fed’s next interest rate move. As for monetary policy, FOMC members speeches are expected to draw plenty of attention.  

For the dollar, there are some signs of trend exhaustion, but it’s still hard to predict a reversal. The EUR/USD has risen from 1.0340 lately, a region that acted as a reversal point in the past.

EUR — Watching for Inflation and Unemployment

For the eurozone, the May inflation and unemployment figures will be announced on Tuesday and Wednesday, respectively. CPI is expected to rise 7.6% in May, according to forecasts. Price pressures moderated from their peak in April, but remain stronger than historical norms, according to the S&P Global Flash Eurozone PMI. Employment also grew strongly, benefiting from a recovery in the region’s services sector.  

While the European Central Bank is certain to raise interest rates in July, the rate is up for debate. Analysts assign a 40% chance for a half-point increase and a quarter-point rise is fully priced in. 

The rise in inflation would tip the scales in favor of a bigger move, allowing the Euro to extend its recovery. However, the ECB has a limit to how fast it can go. A rate hike accompanied by an end to asset purchases poses huge risks for bond markets, especially in countries with high debt levels like Italy. 

Despite the Euro’s bounce back, this appears to be mostly a relief bounce from oversold levels. A sustained rally will likely require something larger than an interest rate hike from the ECB.

CAD — Another 50 bp Rate Hike

In Canada, the central bank meets on Wednesday, and a half-percentage point rate hike (50 bps) is fully priced in. Therefore, the market’s reaction will be determined mainly by the signals for future rate hikes as well as the remarks about the economy. 

Weekly Market Outlook: Global PMIs, US NFP, BoC meeting in Focus
BoC Interest Rate

It is true that the Canadian economy is doing well. The unemployment rate is at its lowest level in five decades, inflation is sizzling hot, and consumption is healthy. However, the housing market is a concern. House prices in Canada have risen dramatically during the last few years, and now that mortgage rates are increasing at such a fast pace, this once ‘bubbly’ sector is in trouble. 

AUD — Q1 GDP release in the spotlight

In Australia, Q1 GDP will be released on Wednesday followed by trade balance data on Thursday.  

Anthony Albanese, the new Prime Minister of Australia, gets to find out how the economy around him fared in the first quarter. As the effects of floods and omicron weigh on GDP, the bigger concern is how inflation will impact household budgets and consumption, and how the government will respond.  

Traders are watching the trade balance closely to see if the Chinese slowdown has an impact on Australia’s terms of trade, which could have a negative effect on financial markets. While the Australian dollar has managed to ride the US dollar correction higher, the short-term direction of the currency continues to be driven by the swings in risk sentiment daily, despite data, elections, and monetary policy changes. 

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