US consumer confidence dropped slightly to 107.3, inflation and war to pose downside risks

    US Conference Board Consumer Confidence Index dropped slightly from 107.6 to 107.3 in April, below expectation of 108.5. Present Situation Index dropped from 153.8 to 152.6. Expectations Index rose from 76.7 to 77.2.

    “Consumer confidence fell slightly in April, after a modest increase in March,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index declined, but remains quite high, suggesting the economy continued to expand in early Q2. Expectations, while still weak, did not deteriorate further amid high prices, especially at the gas pump, and the war in Ukraine. Vacation intentions cooled but intentions to buy big-ticket items like automobiles and many appliances rose somewhat.”

    “Still, purchasing intentions are down overall from recent levels as interest rates have begun rising. Meanwhile, concerns about inflation retreated from an all-time high in March but remained elevated. Looking ahead, inflation and the war in Ukraine will continue to pose downside risks to confidence and may further curb consumer spending this year.”

    Full release here.

    US durable goods orders rose 0.8% mom in Mar, ex-transport orders up 1.1% mom

      US durable goods orders rose 0.8% mom to USD 275.0B in March, below expectation of 1.0% mom. Ex-transport orders rose 1.1% mom, above expectation of 0.5% mom. Ex-defense orders rose 1.2% mom. Computers and electronic products, up two of the last three months, led the increase, USD0.7B or 2.6% to USD 26.3B.

      Full release here.

      ECB Kazaks: Rate hike in July is possible and reasonable

        ECB Governing Council member Martins Kazaks said “a rate rise in July is possible and reasonable” and “ending the Asset Purchases Programme in early July is appropriate,”

        “Markets are pricing two or three 25 basis point steps by the end of the year. I have no reason to object to this, it’s quite a reasonable view to take,” he said. “Whether it happens in July or September is not dramatically different, but I think July would be a better option.”

        Japan unemployment rate dropped to 2.6% in Mar, lowest in 2 years

          Japan unemployment rate dropped from 2.7% to 2.6% in March, better than expectation of 2.7%. That;s also the lowest rate since April 2020. Number of workers rose 180k while unemployed dropped -90k. Job-to-applicant ratio rose 0.01 pts to 1.22.

          “The drop in unemployment rate indicates signs of recovery” in the labour market, a government official told a media briefing. “But the impact of the pandemic appears to be lingering and requires close attention.”

          IMF slashes Asia Pacific growth forecast to 4.9%, warns of stagflationary outlook

            IMF lowered growth forecast for Asia Pacific by -0.5% to 4.9% in 2022. Inflation forecast, on the other hand, was raised by 1% to 3.4%.  Anne-Marie Gulde-Wolf, acting director of the IMF’s Asia and Pacific Department, warned, “the region faces a stagflationary outlook, with growth being lower than previously expected, and inflation being higher.”

            In a blog post, she also warned of three main headwinds to the outlook. An escalation of the war in Ukraine would further increase food and energy prices. A tightening of US monetary policy that is materially faster or larger than currently expected by markets—or both—would have large spillovers to Asia. Also, a greater slowdown in China’s economy due to broader virus lockdowns or other risk factors such as the continued weakness in the real estate sector, would also have large implications for the region

            “More broadly, a potential fragmentation of supply chains and added geopolitical tensions will remain risks for the longer term for a region that has flourished in recent decades from rising wealth and other economic gains from globalization,” she added.

            Full blog post here.

            BoC Macklem: Strong economy, high inflation, higher interest rates needed

              BoC Governor Tiff Macklem delivered three main messages to a House of Commons Committee. First, the Canadian economy is strong… Second, inflation is too high…. Third, we need higher interest rates.”

              “The economy needs higher rates and can handle them….,” he said, “We also need higher interest rates to keep Canadians’ expectations of inflation anchored on the target. We can’t control or even influence the prices of most internationally traded goods. But if Canadians’ expectations of inflation stay anchored on the 2% target, inflation in Canada will come back down when global inflationary pressures from higher oil prices and clogged supply chains abate.”

              “Canadians should expect interest rates to continue to rise toward more normal settings. By more normal we mean within the range we consider for a neutral rate of interest that neither stimulates nor weighs on the economy. We estimate this rate to be between 2% and 3%,” he added.

              Full remarks here.

              AUD/JPY and NZD/JPY in deep correction to recent up trend

                AUD/JPY is under some heavy selling today. The development should confirm that a short term top was formed at 95.73, on bearish divergence condition in 4 hour MACD. It’s now correcting the whole rally from 80.34. Deeper fall should be seen to 38.2% retracement of 80.34 to 95.73 at 89.85. Break of 93.27 minor resistance is needed to indicate completion of the pull back, or risk will stay on the downside.

                Similarly, NZD/JPY is also in correction to rise from 75.22 to 87.33. Deeper decline could be seen to 38.2% retracement of 75.22 to 87.33 at 82.70. Break of 85.85 minor resistance is needed to indicate completion of the pull back, or risk will stay on the downside too.

                China cuts FX reserve ratio by 100bps to stabilize Yuan

                  China’s PBOC announce to cut foreign exchange reserve ratio of financial institutions by 100 basis point, from 9.00% to 8.00%. The move is to improve the ability of financial institutions to use foreign exchange funds, and thus help stabilize Yuan from recent free fall.

                  USD/CNH retreats mildly after the release. But after all, break of 6.5214 support is needed to be the first sign of short term topping. Otherwise, USD/CNH’s recent rally is still expected to continue. That is, Yuan’s decline is not finished yet.

                  Chinese stocks and Yuan dive on fear of lockdown spread

                    The markets in China were in free fall today on fears on the impact of the spread of coronavirus, and more importantly, imposition of strict covid zero policy and lockdowns. Beijing is the believed to be evolving into the next Shanghai, after the government ordered residents not to leave the Chaoyang district.

                    The Shanghai SSE dropped -5.13% to 2928.51, the first close below 3000 handle since 2020. In any case, near term outlook will remain bearish as long as 3140.89 resistance holds. Deeper decline lies ahead.

                    More importantly, based on current momentum, long term fibonacci support at 61.8% retracement of 2440.90 to 3731.68 at 2933.97 is unlikely to be defended. That is, the whole down trend from 3731.68 could extend in to 2440.90/2646.80 support zone before bottoming

                    The decline in Chinese Yuan also looks unstoppable, even after the worst week since 2015 last week. USD/CNH (offshore Yuan) surged through 6.6 handle today, breaking through another important medium term resistance at 6.5872 (2021 high).

                    The next hurdle is long term fibonacci resistance at 38.2% retracement of 7.1961 (2020 high) to 6.3057 (2022 low) at 6.6458. Strong resistance is expected there to cap upside on first attempt. But overall, break of 6.5214 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat. That is, there would be more downside in Yuan then not.

                    Germany Ifo business climate rose to 91.8, shows resilience after initial shock of Russian attack

                      Germany Ifo business climate rose from 90.8 to 91.8 in April, above expectation of 88.1. Current assessment index rose from 97.0 to 97.2, above expectation of 95.0. Expectations index rose from 85.1 to 86.7, above expectation of 82.3.

                      By sector, manufacturing rose from -3.6 to -1.0. Services rose from 0.8 to 5.4. Trade dropped from -12.0 to -13.3. Construction dropped sharply from -12.3 to -20.0.

                      Ifo said, the improvement was “due primarily to less pessimism in companies’ expectations. Their assessments of the current situation are minimally better. After the initial shock of the Russian attack, the German economy has shown its resilience.”

                      Full release here.

                      Ethereum breaking down, bitcoin to follow

                        Ethereum follows broad based risk-off sentiment lower today and dips to as low as 2838.30 so far. The development is in-line with the view that corrective pattern from 2157.05 has completed with three waves up to 3577.70. Further decline is now expected as long as 3177.25 resistance holds.

                        Sustained break of near term channel support, and then 2490.05 support, should sent the stage for resumption of whole down trend form 4863.75. Next target is 61.8% projection of 4863.75 to 2157.04 from 3577.70 at 1804.95.

                        Similarly, bitcoin should follow and break through 38539 support soon, to resume the decline from 48226. Further break of 37550 support should set the stage for resumption of down trend from 68986. Next target is 61.8% projection of 68986 to 33000 from 48226 at 25986.

                        WTI crude oil falls on concern of Beijing lockdown

                          WTI crude oil falls notably in Asian session, following general risk-off sentiment. It’s reported that more than a dozen of buildings are now also under lockdown the largest district of Chaoyang in Beijing, China’s capital. That raised concerns that Beijing could be put under tough and continued lockdown like Shanghai soon, which would then weigh further on oil demand.

                          WTI crude oil is seen as in the fifth leg of a triangle corrective pattern which started at 131.82, back in early March. Deeper fall should be seen in the near term towards lower side of the pattern at 93.47. A breach of that level could be seen but it should be relatively brief, and contained above key support level at 85.92.

                          The main question is that after the corrective pattern completes, whether the next rally could break through 131.82 high. But in any case, the next rise should be the last in current up trend and should then set up a medium term corrective phase which lasts much longer.

                          ECB said to be keen on starting rate hike in Jul

                            According to a Reuters report, some unnamed ECB sources said ECB policymakers were keen to end the asset purchases in June, and start raising interest rate soon. Some expected interest hike to start as soon as in July. The main policy rate could be back to neutral at around 1.00-1.25% by the end of the year. That would also lift the deposit rate back into positive territory for the first time since 2014.

                            ECB President Christine Lagarde sounded more cautious with her comments, however. She just said last Friday, “If the situation continues as predicated at the moment, there is a strong likelihood that rates will be hiked before the end of the year. How much, now many times, remains to be seen and will be data dependent.”

                            Canada retail sales rose 0.1% mom in Feb, to rise 1.4% in Mar

                              Canada retail sales rose 0.1% mom to CAD 59.9B in February, better than expectation of -0.5% mom decline. That’s the fourth increase in the last five months. Higher sales at clothing and clothing accessories stores (+15.1%) and gasoline stations (+6.2%) were offset by lower sales at motor vehicle and parts dealers (-5.1%).

                              Sales were up in 6 of the 11 subsectors, representing 47.2% of retail trade. Core retail sales—which exclude sales at gasoline stations and motor vehicle and parts dealers—increased 1.4%.

                              According to advance estimate, sales increased 1.4% mom in March.

                              Full release here.

                              Bundesbanks: Germany to lose 5% of GDP on suspending all trade with Russia

                                In the latest monthly report, Bundesbank presented the scenario analysis on the impact of further escalation of invasion of Ukraine, with the assumption that trade with Russia, including energy imports, will be suspended.

                                Germany GDP could be up to -5% lower than March forecast by the ECB. Comparing to 2021, GDP would fall by almost -2% in 2022.

                                Price incase could be significant, with inflation 1.5% higher in 2022, and 2% higher in 2023 than ECB forecast. “The upward risks of inflation predominate, since price increases in downstream production stages or wage increases could be greater.”

                                Full release here.

                                UK PMI composite dropped to 57.6 in Apr, a marked cooling in growth

                                  UK PMI Manufacturing ticked up from 55.2 to 55.3 in April, above expectation of 54.9. PMI Services dropped from 62.6 to 58.3, below expectation of 60.3. PMI Composite dropped from 60.9 to 57.6.

                                  Chris Williamson, Chief Business Economist at S&P Global said: “The survey data signal a marked cooling in the pace of UK economic growth during April, caused by an abrupt slowing in demand… High prices and the associated rising cost of living were often cited as a principal cause of lower demand, with covid also continuing to affect many businesses. Brexit and transport delays were seen as having further impeded export sales, while the Ukraine war and Russian sanctions also led to lost overseas trade… Concerns over the worsening inflation picture are meanwhile flamed by another near-record leap in firms’ costs.”disruptions and rising interest rates.”

                                  Full release here.

                                  Eurozone PMIs: Two-speed economy with common cost pressures

                                    Eurozone PMI Manufacturing dropped from 56.5 to 55.3 in April, above expectation of 54.5. That’s the lowest level in 15 months. PMI Services rose from 55.6 to 57.7, above expectation of 55.0. That’s the highest level in 8 months. PMI Composite rose from 54.9 to 55.8, a 7-month high.

                                    Chris Williamson, Chief Business Economist at S&P Global said:

                                    “April saw a two-speed eurozone economy. Manufacturing came close to stalling due to ongoing supply constraints, rising prices and signs of spending being hit by risk aversion due to the war. However, April also saw manufacturers suffer due to a shift in demand from goods to services amid looser pandemic restrictions, most notably via a record surge in spending on activities such as travel and recreation.

                                    “Common across both sectors, however, was a further surge in cost pressures, driven by soaring energy and raw material costs, as well as rising wages. Average prices charged for goods and services rose at an unprecedented rate in April as these higher costs were passed on to customers, sending a worrying signal that inflationary pressures continue to build.”

                                    Full release here.

                                    Germany PMI manufacturing dropped to 20-mth low, but services rose

                                      Germany PMI Manufacturing dropped from 56.9 to 54.1 in April, below expectation of 54.4. That’s also the lowest in 20 months. PMI Services rose from 56.1 to 57.9, above expectation of 55.5. That’s a 3-month high. PMI Composite dropped from 55.1 to 54.5 a 3-month low.

                                      Phil Smith, Economics Associate Director at S&P Global said:

                                      “We’re seeing a growing divergence in the performance of Germany’s manufacturing and service sectors. Whilst services activity continues to build momentum thanks to the easing of COVID restrictions and the subsequent release of pent-up demand, manufacturing production has fallen into contraction amid a combination of renewed supply disruption and cooling demand for goods.

                                      “For now, the recovery in the service sector is providing a key support to overall economic activity, but the reopening of the economy will provide only a temporary boost to growth and spillovers from a protracted downturn in manufacturing cannot be ruled out. Confidence towards the outlook has fallen across the board and especially sharply in the manufacturing sector since the start of the year, with businesses voicing their concerns about soaring prices, material shortages and a more cautious attitude among customers.

                                      “One theme that we’re seeing throughout the economy is rising prices. Latest data showed record increases in both goods and services output prices in April, reflecting widespread attempts by businesses to offset the increasing cost of energy, materials and labour. The broad-based nature of the price increases points to inflation remaining historically elevated in the near-term at least.”

                                      Full release here.

                                      France PMI composite rose to 57.5 in Apr, 51-month high

                                        France PMI Manufacturing rose from 54.7 to 55.4 in April, below expectation of 56.4. PMI Services rose from 57.4 to 58.8, above expectation of 53.7, highest in 51 months. PMI Composite jumped from 56.3 to 57.5, also a 51-month high.

                                        Joe Hayes, Senior Economist at S&P Global said:

                                        “The resilience of the French economy in April may come as a little surprising to many given rampant inflation, escalating geopolitical tensions and on-going supply-chain disruption. The strongest increase in economic output for over four years suggests there was still plenty of COVID catch-up at the start of the second quarter. Indeed, comments from our panel members back this up, with many linking this to an increase in their orders.

                                        “Support for demand also came from clients placing advanced orders and bookings in anticipation of higher prices. This was particularly (but not exclusively) the case in manufacturing, and is important anecdotal evidence that tells us inflation expectations are still rising. Companies are now starting to fear that soon enough, clients will not be so accepting of price hikes. Output charges rose at a series record rate once again in April, surpassing the previous high set in March. Given how rampant inflation is at present, it’s difficult to see sustained post-pandemic recovery efforts offsetting the negative impact from rising prices.”

                                        Full release here.

                                        GBP/USD dives through 1.3, risking more downside acceleration

                                          GBP/USD dives sharply through 1.3 handle today, breaking through 1.2971 low too. Immediate focus is now on 61.8% projection of 1.3641 to 1.2999 from 1.3297 at 1.2900. Firm break there could trigger more downside acceleration to 100% projection at 1.2655. Watch out!