Weekly Macro Matters
Macro Matters – Weekly review, w/c May 8
Major central banks hiked rates last week, with the Fed signaling a likely pause amid concerns over policy impacts on economic activity. Nonfarm Payrolls exceeded expectations, but market focus now shifts to inflation data and geopolitical tensions.
TradeDay Macro Matters
Macroeconomic / Geopolitical Developments
• Central banks hike, but economic activity feels the strain
• Bond yields rebound but a downward trend is likely
• Geopolitical risks rise after a drone attack on the Kremlin
Central Banks Hike Again But Look Cautious
The Reserve Bank of Australia, Federal Reserve, and European Central Bank all raised rates by 25bps. The RBA surprised markets, boosting the AUD, while the Fed and ECB faced skepticism. Fed Chair Powell emphasized vigilance over inflation but faced pushback from markets expecting no further hikes. Similarly, ECB President Lagarde maintained a hawkish tone, but markets see limits to the tightening cycle as bank lending slows.
Bond Yields Are Choppy But a Path Lower Is Likely
Bond yields have been volatile, with the ICE BoAML MOVE Index climbing to three-week highs. While stronger-than-expected Nonfarm Payrolls provided a brief boost, the Fed’s likely pause could pressure the US 2-year yield lower, with a move toward 3.50% anticipated.
Will Russia Escalate Tensions?
A drone attack on the Kremlin has sparked geopolitical uncertainty. While responsibility remains unclear, President Putin blames external actors, including the US and Ukraine. The potential for heightened nuclear threats or disruptions to Black Sea grain exports could bring renewed market volatility.
US
• One final Fed rate hike
• Nonfarm Payrolls surprise to the upside
• Earnings season fades
• CPI becomes the next key focus
The End of the Tightening Cycle
The Fed’s latest hike is likely its last. Fed Chair Powell acknowledged the lagging impacts of monetary policy, signaling caution. However, Powell rejected imminent rate cuts, reinforcing expectations of prolonged high rates or a recession. These scenarios suggest continued range-bound trading for E-mini S&P 500 futures.
Nonfarm Payrolls Show Resilience to an Economic Slowdown
April’s jobs report exceeded forecasts, marking the 13th consecutive month of outperformance. Unemployment fell, and wage growth rose, but revisions to March’s data highlight potential volatility. Labor market resilience supports a Fed pause, though long-term implications remain uncertain.
Apple’s Solid Earnings Add Another Tick to the Tech Column
Apple delivered strong earnings, contrasting with mixed results from AMD, Starbucks, and Ford. Forward guidance from these companies raised concerns. With most major earnings now reported, market attention shifts to macroeconomic data.
What’s Next?
Focus turns to the US CPI data on Wednesday. Inflation remains stubborn, with core and headline readings expected near 5.5% and 5.0%, respectively. Michigan Sentiment on Friday will provide additional consumer insights.
Europe
• Cracks in ECB consensus emerge
• The Bank of England prepares to hike
The Mixed Messages of the ECB Weigh on EUR Performance
The ECB’s rate hike and President Lagarde’s hawkish remarks contrast with concerns over tightening’s impact on the euro area. Markets are now pricing in just one more hike. EUR/USD faces growing resistance at 1.1030/1.1095.
How Much Further Can the BoE Hike?
The Bank of England is expected to raise rates by 25bps, but its trajectory remains unclear. Recent GBP strength increases the risk of profit-taking as markets reassess tightening expectations.
What’s Next?
UK Q1 GDP is forecast at a modest +0.1%, highlighting the economy’s stagnant growth.
Asia
• A surprise from the RBA
• Asian currencies rebound
The RBA Surprises Everyone
The Reserve Bank of Australia unexpectedly hiked rates, delaying forecasts for cuts until 2024.
A Big Rebound in AUD, NZD But Uncertainty for the Safe Haven JPY
The RBA’s move boosted AUD and NZD, while JPY’s recovery was halted by stronger US Nonfarm Payrolls. The US CPI data could renew volatility for USD/JPY.
What’s Next?
Chinese trade and inflation data will drive sentiment midweek, with falling Chinese inflation likely weighing on market risk appetite.
Commodities
• Oil futures find support for a rally
• Gold futures fall back after the US jobs report
Oil Rebounds
Oil futures rallied following better-than-expected Nonfarm Payrolls, with demand outlook improving. A move toward $73.93/$76.92 resistance could test market momentum.
Gold Unwinds Previous Gains
Gold fell sharply after the payrolls report but retains positive trends supported by Fed caution and economic concerns. A retest of recent highs remains possible as fundamentals favor gold.
On the Calendar
Central Banks
The Bank of England is expected to hike rates by 25bps.
Macro Data
• 9 May: Australian Consumer Confidence, Chinese trade data
• 10 May: US CPI
• 11 May: Chinese CPI, Bank of England policy decision, US PPI
• 12 May: UK GDP (Q1 prelim), Michigan Sentiment
Corporate Earnings
• 8 May: PayPal
• 9 May: Airbnb, Occidental Petroleum
• 10 May: Walt Disney
• 11 May: Fiverr International
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