Global risk assets saw lots of green while gold and bond prices steadily fell as the week went on. This likely signaled easing global recession fears and U.S. debt crisis fears, at least through Friday trade.
Aside from those themes, the biggest story may have been rising odds of more Fed tightening as a numerous amount of Fed officials spoke this week and signaled an openness to raise interest rates again in June.
Notable News & Economic Updates:
🟢 Broad Market Risk-on Arguments
House Speaker Kevin McCarthy shows optimism on Thursday that a deal to raise the debt ceiling may come next week
The IEA raised its 2023 global oil demand outlook by 200K bpd to 102M bpd; sees strong recovery in China to support outlook
European Commission revised its economic forecasts and projected higher growth rates of 1.1% for this year and 1.6% in 2024, along with increased inflation rates of 5.8% in 2023 and 2.8% in 2024
New Zealand’s annual budget release revealed that Treasury is no longer projecting a recession for the country this year
Chinese industrial production accelerated from 3.9% to 5.6% year-over-year in April, short of the expected 10.9% increase
On Friday, Fed Chair Powell said that the policy rate may not need to rise as much to achieve goals due to tighter credit conditions in the banking sector
🔴 Broad Market Risk-off Arguments
Wall Street executives warn that the impasse on U.S. debt ceiling talks are already doing damage
Australian April employment change showed a surprise 4.3K in hiring losses versus an estimated 24.8K gain, the previous reading upgraded from 53K to 61.1K in employment gains, jobless rate up from 3.5% to 3.7%
Chinese fixed asset investment slumped from 5.1% to 4.7% year-to-date/year in April versus an estimated improvement of 5.7%
China’s retail sales rose from 10.6% year-over-year to 18.4% in April, still below the expected 22% jump
GOP negotiators paused debt ceiling deal talks on Friday
Global Market Weekly Recap
Traders started the week with a cautiously optimistic tone following the previous Friday’s risk-off theme.
Though markets were still worried about a global recession and the world’s largest economy possibly defaulting on its debts, traders chose to be optimistic that a debt deal would be reached. It helped that there were talks of successful staff-level negotiations over the weekend.
Commodity-related currencies broke and traded above their Asian session ranges and European and U.S. equities ended the day in the green. Bitcoin (BTC/USD) even retested its $27,500 resistance after starting the day at $26,700!
“Risky” assets like the comdolls and the British pound were spotlighted on Tuesday, but not in a good way.
China missed the markets’ industrial activity and retail sales estimates, which did a number on AUD, CAD, NZD, and EUR for most of the day. The British pound even joined the bear parade after the U.K. printed higher-than-expected jobless claim and a higher unemployment rate in April.
Do you know what was safe from the selling? The U.S. dollar!
It was Fed speak week with FOMC members like Bostic, Goolsbee, Kashkari, and Barkin sharing hawkish sentiment early on. And because Tuesday’s weaker-than-forecast U.S. retail sales report still supported an okay consumer spending environment in Q2, U.S. dollar traders likely put more weight on a higher-for-longer interest rate situation signaled by Fed members.
U.S. bond yields shot higher, non-USD safe havens like JPY and gold dropped, and U.S. equities (which was already weighed by a disappointing Home Depot earnings release) ended the day in the red.
Focus turned back to debt ceiling negotiations on Wednesday after Congressional leaders shared that progress has been made in the negotiations. Meanwhile, President Biden shared his confidence that an agreement would be reached and that America will not default on its debts.
Stocks of U.S. companies and regional banks rallied, one-month Treasury bills saw their steepest decline in three weeks, and USD extended its gains against safe havens like JPY, CHF, and gold.
The comdolls danced to their own tune this time. NZD and AUD gained on hawkish RBNZ expectations and CAD found support from higher oil prices and Tuesday’s hotter-than-expected Canadian CPI report.
Asian, European, and U.S. equities leaned on the U.S. debt ceiling deal optimism on Thursday and closed in the green.
The dollar-buying also gained momentum, helped in part by the better-than-expected initial jobless claims and Philly Fed manufacturing index releases supporting the hawkish expectations from the Fed. Not surprisingly, USD counterparts like crude oil, gold, and BTC lost some points to the dollar.
The markets closed the week with one more burst of volatility, this time from two potential catalysts during the U.S. trading session. Traders were hit first with news that GOP negotiators walked out of debt ceiling deal talks, sending risk-on assets lower.
Then traders reacted when Fed Chair Jerome Powell said that the policy rate may not need to rise as much due to tighter credit conditions in the banking sector, slightly walking back hawkish commentary from colleagues this week..
Both of these headlines were initially a double whammy for USD bulls, but the losses in the Greenback seemed to be limited by the risk aversion vibes sparked by the debt talks freeze, likely bringing some traders back to the “safe haven” aspect of the U.S. dollar.