U.S. Consumer Confidence Improved, Australia’s Inflation Picked Up, Core PCE Price Index Lower than Expected, PMIs, ECB and BOC Cuts, U.S. and Canada’s Labor Market Data Ahead

PREVIOUS WEEK’S EVENTS (Week 27 – 31.05.2024)

U.S. Economy

U.S. consumer confidence unexpectedly improved in May after deteriorating for three straight months amid optimism about the labour market, but worries about inflation persisted and many households expected higher interest rates over the next year.

The Conference Board said that its consumer confidence index increased to 102.0 this month from an upwardly revised 97.5 in April. 

Consumers’ inflation and interest rate views were formed by price pressures in the first quarter that kept inflation high. The Fed has kept its policy rate in the 5.25%-5.50% range since July and it is expected to keep it unchanged until September.

Downward revisions to consumer spending and a key measure of inflation ticked down. GDP (Gross domestic product) grew at a 1.3% annualised rate from January through March, down from the advance estimate of 1.6% and notably slower than the 3.4% pace in the final three months of 2023. The first-quarter growth downgrade suggests the U.S. central bank’s aim of gradually cooling the economy through high interest rates is having an impact, although it remains uncertain whether the weakening trend in inflation will continue. 

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Inflation

Australia’s CPI

Australian consumer price inflation unexpectedly picked up to a five-month high in April due in part to increases in petrol, health and holiday costs, bolstering expectations that interest rates would not be lowered soon.

The Australian (CPI) rose at an annual pace of 3.6% in April, up from 3.5% in March and above market forecasts of 3.4%. Moreover, a closely watched measure of core inflation, the trimmed mean, also accelerated to an annual 4.1%, from 4.0%. The CPI excluding volatile items and holiday travel stayed at an annual 4.1%.

The RBA expects headline inflation to pick up to 3.8% by June this year. 

U.S. PCE Price Index

The U.S. inflation tracked sideways in April. Price increases could last longer than expected, the Fed suggested. However, the personal consumption expenditures (PCE) price index increased 0.3% last month. 

The PCE price index rose 2.7% year on year, after advancing 2.7% in March. Core PCE, subtracting food and energy prices, rose 0.2% month to month, less than the forecast repeat of March’s 0.3% rise. In the 12 months to April, the core index rose 2.8%, the same as expected and as last month’s rise.

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Sources: 

https://www.reuters.com/markets/us/sideways-april-pce-price-index-shows-scant-inflation-improvement-2024-05-31/

https://www.reuters.com/markets/australia-consumer-inflation-surprises-high-side-april-2024-05-29/

https://www.reuters.com/markets/us/us-economic-growth-revised-lower-first-quarter-2024-05-30/

https://www.reuters.com/markets/us/us-consumer-confidence-unexpectedly-improves-may-2024-05-28/

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Currency Markets Impact – Past Releases (Week 27 – 31.05.2024)

Server Time / Timezone EEST (UTC+02:00)

Currency Markets Impact:

According to the report on the 27th of May, German business morale stagnated in May, missing forecasts, putting a stop to three consecutive months of increases. The Ifo Institute said its business climate index remained constant in May at 89.3, compared with a reading of 90.4 forecast by analysts. No major impact was recorded in the market at the time of the release.

The April 2024 seasonally adjusted estimate for retail sales in Australia rose 0.1% month-on-month according to the report at 4:30, 28th of May. That figure caused no significant impact on the market. The AUD continued to strengthen against the USD for the third consecutive session on Tuesday, despite the softer retail sales figure.

At 8:00 the core CPI figure in Japan was reported lower at 1.8%, down from 2.20%. After the release, the JPY suffered depreciation. The USDJPY moved upwards more than 20 pips.

The CB Consumer Confidence figure for the U.S. was released at 17:00. The figures were showing a continuous decline since the start of the year but the report yesterday took the market by a surprise increase. The market reacted with USD appreciation and the effect lasted until the end of the trading day.

Australia’s Inflation was reported higher than expected and shook the market as it turned away from the target level. The RBA is likely to delay rate cuts and maintain a tightening bias. Upon release of the 3.60% figure the AUD appreciated heavily and an intraday moderate shock took place. AUDUSD jumped near 15 pips before reversing eventually to the intraday mean.

On the 29th, the released flash estimate of German inflation in May signals sticky prices in the entire eurozone. Headline inflation came in at 2.4% year-on-year, up from the 2.2% YoY in April. The EUR started to depreciate after the news since on a month-to-month basis the figure was reported at 0.1%, lower than expected.

The Richmond Manufacturing Index showed improvement, turning from negative to 0. The USD started to appreciate significantly after the news.

At 10:00, the quarterly Swiss GDP figure was reported hotter than expected at 0.5%. No apparent shock at the time of the release. However, the USDCHF was on an intraday downtrend mostly due to USD depreciation.

In the U.S. at 15:30 on the 30th of May, the second-estimate GDP was reported to have grown 1.3% in the first quarter, below the first-estimate of 1.6% and much weaker than the 3.4% gain in Q4 2023. That could have given a further push for USD depreciation since the USD experienced a strong weakening until the end of the trading day. 

U.S. Unemployment claims remained roughly at the same levels, 219K an increase of 3K from the previous week’s revised level. Notably, layoffs remain historically low in the face of lingering inflation and high interest rates.

The Pending Home Sales m/m figure at 17:00 was reported as negative, a way higher decline than expected giving some more push for the USD weakening.

At 2:30 on the 31st of May, inflation in Tokyo was reported to have accelerated in May, increasing chances for a rate hike from BOJ in coming months even as the economy continues to show signs of weakness. No major impact was recorded in the market at that time.

Disappointing China’s PMI figures were reported at 4:30 on the same day as manufacturing fell back into contraction. CNH depreciated at that time and the USDCNH jumped around 60 pips before reversing immediately.

At 15:30 the U.S. PCE price Index figure, the Federal Reserve’s preferred measure of inflation, the core personal consumer expenditure deflator, came in at 0.2% month-on-month – the consensus had been swinging between 0.2% and 0.3%. This lower-than-expected figure has caused USD depreciation at the time of the release and an intraday shock. The EURUSD jumped around 30 pips upon release but it reversed soon after when the USD started to appreciate again heavily.

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FOREX MARKETS MONITOR

Dollar Index (US_DX)

Since the 28th of May the dollar started to strengthen significantly after the release of the improved consumer confidence figures. On the 29th the Richmond Manufacturing figure helped the USD to gain more strength with its improved figure as well. After that, the economic data were not in favour of the dollar. The second-estimate GDP was reported to have grown 1.3% in the first quarter, below the first-estimate of 1.6%. On the 30th of May, the dollar started to weaken. Further weakening continued with the release of the core PCE price index figure that was reported lower than expected causing dollar depreciation. However, despite the news the dollar is hard to bring down. 

This week will be interesting and dollar appreciation is expected instead. Will this week be the week that the dollar index takes off considering a triangle formation breach, the Central Banks Rate cuts, the Fed still faces high inflation, and NFP figures are expected to be reported higher.

EURUSD

Despite the fact that the ECB is expected to cut interest rates this week the EUR does not seem to be affected greatly. The pair’s movement is driven by the USD apparently as we compare this chart with the dollar index chart. Since the 30th, the EURUSD moved to the upside as the dollar suffered depreciation. It could be the case that this week we will see the dollar strengthening, considering the interest rate cut events from non-Fed central Banks and a stronger NFP report on Friday 7th of June.

USDJPY

The pair was moving upwards until the 30th of May. As the dollar started to depreciate heavily, the USDJPY moved to the downside aggressively however the pair reversed to the upside quite strongly due to JPY depreciation that helped it to remain high. Despite the dollar depreciation that took place on the 31st, the USDJPY pair remained close to the 30-period MA indicating that the JPY is suffering occasional weakness. A sudden dollar strengthening will potentially cause the USDJPY to jump significantly and remain high for longer.

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CRYPTO MARKETS MONITOR

BTCUSD

After a period of consolidation during the weekend when the price experienced low volatility, Bitcoin saw a jump on the 27th of May reaching 70,6K but soon reversed heavily to the downside. After finding support at near 67,500 USD it retraced to the 30-period MA and remained close, settling near the 68K USD level. Despite some high volatility on the 30th of May, the price still remained close to that level.

On the 31st of May, Bitcoin dropped after the U.S. PCE Price Index figure release reaching near the support at 65,500 USD before retracing to the 30-period MA. After a period of consolidation taking place over the weekend, the price broke the resistance and movies currently to the upside. It stalled at the resistance near 69K USD for now. The next level is at 69,500 USD.

NEXT WEEK’S EVENTS (Week 03 – 07.06.2024)

Coming up: 

The Manufacturing PMIs and Services PMIs will be released separately.

Potential Interest Rate cuts from the ECB and BOC.

U.S. and Canada’s Labor market Data including NFP. 

Currency Markets Impact:

On the 3rd of June the USD pairs could see increased volatility at 17:00 upon the release of the U.S. ISM Manufacturing PMI. The manufacturing sector saw a significant improvement this year, until now, however it still remains in the contraction area. This is actually what the Fed wants to see in the fight to bring inflation down. However, the economy proved to remain quite strong in 2024.

The Swiss CPI figure is expected to be reported higher. It makes sense since the Central Bank decided to proceed with cuts in March. CHF pairs could be affected greatly with a surprise in the figure.

JOLTS job openings report will probably affect the USD pairs on the 4th of June as it is the only labour market related figure released that day. The shock however is not expected to be high as the market usually reacts heavily to the NFP instead.

The same applies for the ADP Non-Farm employment change figure that will be reported on the 5th. The same day, the BOC will decide on interest rates at 16:45 and the market will have eyes on that event. Probably the USD pairs will indeed be affected by an intraday shock as much as the CAD pairs.

The U.S. ISM services PMI will be released also on the 5th of June and the market might not react heavily at the time of the release unless there is a surprise in the figure. The U.S. services sector is actually strong in the U.S. so the PMI is more likely to turn to expansion.

On the 6th of June the ECB will decide on rates at 15:15 and it is expected that the EUR pairs and USD pairs will be affected heavily. Despite the fact that expectations will be met with cuts, still it is an important event that could have a huge impact.

U.S. unemployment claims, released the same day are expected to be reported lower, however the impact on the USD pairs will probably be minimal.

On the 7th of June, the major labour market data for Canada and the U.S. will be released. No estimates yet for Canada. The NFP figure is expected to be reported higher while the unemployment rate is not expected to change. It is true that economic data so far support an increase as the economy is showing signs of strength. The USD pairs should be affected greatly and the USD could strengthen quite significantly considering the implementation of cuts from the other Central banks as well.

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COMMODITIES MARKETS MONITOR

U.S. Crude Oil 

OPEC+ is in the financial media’s focus, highlighting the probability of an extension of the voluntary cuts for the third quarter of the year, however, we have seen a remarkable drop in price since the 29th of this month. 

 That clear downtrend could end soon. We are 4 dollars down from that peak and even though we have 1 or 2 dollars downward potential, considering Crude oil’s volatility this year, it might be the time for a turn to the upside. The RSI is clearly showing a slowdown (bullish divergence). The OPEC+ meeting on Sunday was probably deterministic in regards to the direction of Crude oil’s price. Since OPEC+ decided to extend oil production cuts into 2025 the price will have a pressure to stay high.

Source: 

https://www.wsj.com/business/energy-oil/opec-agrees-to-extend-production-cuts-in-bid-to-boost-oil-prices-7ef55454

https://www.reuters.com/business/energy/opec-seen-prolonging-cuts-2024-into-2025-two-sources-say-2024-06-02/

Gold (XAUUSD)

On the 30th of May the price continued to the downside, testing the 2,320 USD/oz as mentioned in our previous analysis, however, it was unsuccessful. 2,340 USD/oz served as the mean price until the 31st of May with the price deviating around 20 dollars from that mean. The price broke the support at near 2,320 USD today and with a potential to move further downwards. However, it stalled after the breakout, indicating that there are upward pressures that keep the support strong yet.

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EQUITY MARKETS MONITOR

S&P500 (SPX500)

Price Movement

The wedge was broken on the 28th and the index moved lower to the support around 5,280 USD before reversing to the 30-period MA. A downward path continued on the 29th of May and with no signs of slowdown it continued all the way down until the 30th of May. The RSI was indicating a bullish divergence (higher lows) Price: lower lows, as mentioned in our previous analysis. 

A jump occurred eventually on the 31st of May which was a huge reversal, crossing the 30-period MA on its way up potentially ending the downtrend. This was the confirmation of the bullish divergence. The index is near the upper band of the 50- period Bollinger Bands indicating resistance for moving further to the upside. Retracement to the 61.8 Fibo level (back to the 61.8% of the total movement to the upside) is more probable, with target Level near 5,265 USD. Less probable alternative scenario could be the breakout of the 5,300 USD resistance pushing the index more to the upside with target level near 5,330 USD.

 

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