Weekly Macro Matters
Macro Matters – Weekly review, w/c May 15
The US debt ceiling crisis continues to dominate market sentiment, fueling safe-haven flows into the USD and Japanese yen. Inflation trends in the US and China also weigh heavily on risk appetite, with stubbornly high US core inflation and cooling Chinese demand adding to concerns.
TradeDay Macro Matters
Macroeconomic/Geopolitical Developments
US debt ceiling concerns continue to dominate market sentiment. Treasury Secretary Janet Yellen warned of catastrophic consequences if the debt ceiling is not raised, with the early June deadline fast approaching. Markets are increasingly pricing for volatility, with safe-haven flows boosting demand for US Treasuries, USD, and JPY. Meanwhile, inflation trends highlight contrasting narratives in the world’s two largest economies. In the US, headline CPI eased to 4.9%, but core inflation remains sticky at 5.5%, leaving the Fed under pressure to maintain its hawkish stance. In China, CPI slowed to +0.1%, and PPI dropped to -3.6%, reflecting weak domestic demand and a faltering post-COVID recovery.
United States
The debt ceiling crisis is driving safe-haven flows into US Treasuries, the USD, and JPY as traders brace for potential default scenarios. Despite strong nonfarm payrolls, rising weekly jobless claims (265,000) signal growing strain in the labor market. Market dynamics also reveal key moves. The USD has rebounded, supported by safe-haven demand, with the Dollar Index targeting resistance at 102.80/103.45. Meanwhile, NASDAQ futures have broken above 13,370, opening a potential test of August 2022 highs at 13,740 as Big Tech continues to outperform.
Europe
The Bank of England raised interest rates by 25bps and signaled further hikes amid persistent inflation pressures. This has bolstered GBP performance against EUR and AUD but limited gains versus the stronger USD and JPY. Meanwhile, the euro faces headwinds as cracks emerge in the ECB’s hawkish stance. EUR/USD is testing key support at 1.0785/1.0830, with a break lower potentially opening a retreat toward 1.0500.
Asia
The Japanese yen is benefiting from safe-haven flows as government bond yields decline, particularly against risk-sensitive currencies like AUD and NZD. Both the Australian and New Zealand dollars have faltered amid concerns over global growth, with AUD particularly vulnerable to Australian labor market data this week.
Commodities
Oil futures have struggled to maintain a recent rebound, with demand concerns weighing on sentiment. Resistance at $73.89 could cap near-term gains, while March/May lows around $63.65/$65.65 remain under threat. Gold prices have also come under pressure as the USD strengthens, with support at $2004 critical to avoiding a deeper correction toward $1970/$1977.
On the Calendar
Central bank activity is quiet this week, but markets will focus on speeches from FOMC members Bostic and Barkin on Monday and BoE Governor Bailey on Wednesday. Macro data highlights include Chinese industrial production and retail sales, UK unemployment, and US retail sales on Tuesday, followed by Australian unemployment on Thursday. Key earnings this week feature Home Depot, Walmart, and Deere & Co.
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