The Weekly Wrap – Fed Monetary Policy Sinks Riskier Assets
While it was a busy week on the economic calendar for the week ending May 6, 2022, the Fed monetary policy decision was the main event.
A total of 62 stats were monitored, following 56 stats in the week prior.
Of the 62 stats, 25 beat forecasts, with 30 economic indicators falling short of forecast. Seven stats were in line with forecasts.
Looking at the numbers, 20 of the stats reflected an upward trend. Of the remaining 42 stats, 36 stats were weaker.
Out of the US
Private sector PMIs were the key stats in the week ahead of nonfarm payroll numbers on Friday.
The numbers were mixed, with private sector PMI figures disappointing.
In April, the ISM Manufacturing PMI fell from 57.1 to 55.4, with the Non-Manufacturing PMI down from 58.3 to 57.1.
Labor market numbers were also dollar negative ahead of the NFP numbers. The ADP reported a 247k increase in nonfarm payrolls for April, falling short of forecasts, and a 479k rise in March.
For the week ending April 29, initial jobless claims increased from 181k to 200k.
On Friday, the stats were dollar neutral. Nonfarm payrolls increased by 428k in April, following a 428k rise in March. As a result, the US unemployment rate held steady at 3.6%.
While the stats were of interest, the Fed monetary policy decision and forward guidance were the key drivers in the week.
On Wednesday, the Fed delivered a 50 basis point rate hike, which was in line with forecasts. Fed Chair Powell also looked to calm the markets by assuring that 75 basis point hikes would not be on the table.
Relief was brief, with jitters over inflation and Fed policy returning in the second half of the week.
In the week ending May 6, 2022, the Dollar Spot Index rose by 0.68% to end the week at 103.660. In the week prior, the Index rallied by 1.72% to 102.959.
Out of the UK
It was a quiet week, with stats limited to finalized private sector PMIs. The numbers were GBP positive, with the all-important services PMI revised up from 58.3 to 58.9. Despite the upward revision, the PMI was still down from March 62.6.
On the monetary policy front, the Bank of England was in action. On Thursday. The BoE lifted rates by 25 basis points to 1.00%.
The rate hike came despite concerns over the economic outlook. However, risk aversion offset any monetary policy moves to leave the pound in the red.
In the week, the pound slid by 1.79% to end the week at $1.2348. The pound tumbled by 2.07% to $1.2573 in the week prior.
The FTSE100 ended the week down 2.08%, reversing a 0.30% gain from the previous week.
Out of the Eurozone
The German economy and private sector PMIs were the areas of focus.
It was a mixed set of numbers, with economic data from Germany disappointing.
In March, German retail sales unexpectedly fell by 0.1% versus a forecasted 0.3% increase. Unemployment also fell more slowly, leaving the German unemployment rate at 5.0%.
Trade, factory orders, and industrial production figures also sounded the alarm bells.
Germany’s trade surplus narrowed from €11.1bn to €3.2bn, with factory orders tumbling by 4.7%.
Industrial production was not much better, sliding by 3.9%, to reflect the impact of the war in Ukraine and lockdown measures in China.
Private sector PMIs were also negative, with the Eurozone’s manufacturing PMI falling to a 15-month low of 55.5. Easing lockdown measures provided some relief, with the Eurozone services PMI rising from 55.6 to 57.7 in April.
For the week, the EUR rose by 0.06% to $1.0551. In the previous week, the EUR tumbled by 2.27% to $1.0545.
The DAX fell by 3.00%, with the EuroStoxx600 and the CAC40 seeing losses of 4.55% and 4.21%, respectively.
For the Loonie
Key stats included trade and employment figures for March and April, respectively.
The stats were mixed. Canada’s trade surplus narrowed from C$3.08bn to C$2.49bn.
Employment figures were Loonie positive, with the unemployment rate falling from 5.3% to 5.2% in April. In the month, employment increased by 15.3k, following a 72.5k surge in March.
In the week ending May 6, the Loonie slipped by 0.21 to C$1.1.2875 against the greenback. The Loonie slid by 1.09% to C$1.2848 in the week prior.
The Aussie Dollar rose by 0.21% to $0.7076, while the Kiwi Dollar fell by 0.74% to end the week at $0.6410.
For the Aussie Dollar
Positive stats failed to support the Aussie, with the markets also brushing aside an RBA rate hike.
Key stats included retail sales and trade data for March. Retail sales increased by 1.6%, with the trade surplus widening from A$7.457bn to A$9.314bn.
Early in the week, the RBA raised cash rates by 25 basis points to 0.35% versus a forecasted 0.25%. Monetary policy divergence remained firmly in the favor of the greenback, however.
For the Kiwi Dollar
A quiet week left the markets to consider employment change figures and the RBNZ financial stability report.
In Q1, the New Zealand unemployment rate held steady at 3.2%, with employment rising by 0.1% in the quarter.
The RBNZ provided little Kiwi dollar support in the week, however, with the RBNZ talking of a possible house price correction.
Rising prospects of a house price correction could test the RBNZ’s appetite to lift cash rates at a more aggressive pace.
Monetary policy diversion with the Fed left the Kiwi on the back foot.
For the Japanese Yen
Economic data was limited to inflation figures. There was little support for the Yen, however, despite a pickup in inflationary pressure.
In April, Tokyo’s annual core rate of inflation accelerated from 0.8% to 1.9%.
The Japanese Yen fell by 0.66% to end the week at ¥130.56 against the dollar. In the week prior, the Yen ended the week down by 0.93% to ¥129.70.
Out of China
It was a particularly quiet week, with service sector PMI numbers for April in focus.
The Caixin Services PMI slid from 42.0 to 36.2, with COVID-19 lockdown measures weighing on service sector activity.
In the week ending May 6, the Chinese Yuan declined by 0.88% to CNY6.6667. The Yuan slid by 1.65% to CNY6.6085 in the week prior.
The Hang Seng Index ended the week down 5.16%, with the CSI300 falling by 2.67%.