May 30, 2022

“The fear of an economic slowdown due to discouraging US macro data, coupled with Shanghai’s easing of city-wide lockdowns, has resulted in the US dollar continuing its downward correction from its 20 year highs.”

Sam Cornford, Partner – Head of Trading

Main Headlines

U.S President Joe Biden will meet Chair of the Federal Reserve of the United States Jerome Powell on Tuesday to discuss the state of American and global economy, the White House has said in a statement. This comes as data shows that central banks across the world are raising rates rapidly in the most widespread tightening of monetary policy for more than two decades. There have been more than 60 increases in current key interest rates in the past three months — the largest number since at least the start of 2000. Interest rates hovered near unprecedented lows in most advanced economies for the past decade, and in some cases went negative, but an increasing number of central banks are raising interest rates. Sudden shifts in policy come as inflation has reached multi-decade highs in many countries, fuelled by soaring energy and food costs since Russia invaded Ukraine in February.

The UK’s red hot housing market is beginning to cool, with a growing number of sellers cutting asking prices and the average time to sell a home lengthening. More than one in 20 homes for sale had their asking prices slashed last month, by an average of 9%, the highest level of discounting in 18 months. House prices in the UK have increased by an average of 18% since May 2020, when the housing market was reopened following a period of coronavirus lockdown, according to official figures. In March, the average price of a property in the UK hit a record £278,000. After two years of rapid price rises, buyers are more stretched and now face a cost-of-living crisis, which is hitting disposable income, and rising borrowing costs. Flats in London have been the worst performing properties during the pandemic, as buyers hunted for more space and were perturbed by the ballooning building safety crisis, which has disproportionately affected flats.

GBP

Sterling is stronger against the dollar and weaker against the euro this morning. UK ministers are preparing to launch a £3 billion-a-year loan guarantee scheme to replace a broad set of emergency financial support measures brought in to help businesses during the pandemic. The new government-backed loans will come with tighter requirements for borrowers compared to the easily accessible funds available during the Covid crisis which resulted in billions of pounds lost in fraud. The charity that sets Britain’s “real living wage”, a voluntary pay rate adopted by thousands of employers, has said it will bring forward the announcement for the 2022/23 rate to September from November because of high inflation. The Living Wage Foundation said it would encourage employers to pay the new rate, which is designed to reflect the rising cost-of-living as soon as they can. The statutory national minimum wage currently stands at £9.50 per hour, whilst the real living wage is £9.90 per hour and £11.05 per hour in London.

EUR

The euro is well bid against most major currencies overnight. European leaders have stepped up diplomatic efforts to loosen Russia’s hold on Ukraine’s grain supplies as Kyiv’s prospects in the eastern Donbas region worsen and the risk of a global food crisis mounts. German chancellor Olaf Scholz and French president Emmanuel Macron discussed the situation with Vladimir Putin in a phone call on Saturday. Putin told them Moscow was willing to find ways to unblock grain exports from Ukraine’s Black Sea ports and could increase its own fertiliser and agriculture exports if relevant sanctions are lifted. European Union leaders are due to agree at a summit later in the day that the sanctions package under preparation should include an embargo on Russian oil imports as punishment for Moscow invading Ukraine, but exempt pipeline crude deliveries. But, unable to agree on all the details of the oil embargo, the leaders will leave the final agreement on the package for later.

USD

The dollar is weaker than most major currencies in the early morning trade. The US Environmental Protection Agency (EPA) issued an emergency air-quality waiver through June 6 to boost supplies of gasoline in East Texas after production was cut at a regional refinery. The waiver allows the sale in 34 Texas counties of higher-volatility, winter-grade gasoline. The Biden administration has released emergency oil stocks and is considering lifting smog rules nationwide to combat rising fuel prices. Beijing could not have made its displeasure with Joe Biden any clearer. As the US president met leaders of the Quad security grouping in Tokyo, Chinese and Russian nuclear bombers flew over the Sea of Japan. But China is also employing less crude tactics to counter the US in the form of a diplomatic drive. Just as Biden embarked on his Asian trip, Beijing began promoting its Global Security Initiative (GSI), a proposal for an alternative security order. The initiative is a collection of policy principles such as non-interference and grudges against US “hegemonism”.

Markets

Stocks and US futures advanced Monday after China eased some virus curbs and Wall Street had its best week since November 2020. European equities rose to the highest level in three weeks, trimming their monthly drop. Nasdaq 100 contracts climbed more than 1% and S&P 500 futures also gained in a sign the bounce may have further to run. The S&P 500 wiped out its May losses and snapped a string of seven weekly declines as institutional investors rebalanced portfolios into the end of the month. The dollar slipped for a third day versus major peers as havens lost their appeal amid the improved mood. Cash Treasuries weren’t trading because of the US Memorial Day holiday. Oil climbed in response to the easing of Chinese lockdowns and as the European Union worked on a plan to ban imports of Russian crude. Spanish inflation unexpectedly quickened, denting hopes that the euro zone’s record price surge has peaked and piling more pressure on the European Central Bank to act.

Main Economic Data/Central Banks/Government (All Times CET)

8:00 a.m.: Sweden 1Q GDP, April trade balance
8:00 a.m.: Norway April retail sales with auto fuel
9:00 a.m.: Spain May CPI
10:00 a.m.: Italy April PPI
11:00 a.m.: Euro area May consumer confidence
11:00 a.m.: Norway sells bills
11:30 a.m.: Germany sells bills
2:00 p.m.: Germany May CPI
2:50 p.m.: France sells bills
3:15 p.m.: Bank of Portugal’s Centeno speaks
7:00 p.m.: ECB’s Nagel speaks

Corporate Events

Earnings include LIC, Sun Pharma, Huazhu Group, Indian Railway Catering, Jindal Steel

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