Daily Market Update

Buck takes breather, China wakes up

May 16, 2022

The U.S. Dollar remained in tight ranges over the weekend, tilting towards weakening at the moment with global markets feeling the weight of inflation and war. 

Overview

Although Friday was a good day for equities, there are no experts calling the current situation a bottom with a lack of evidence of a march towards growth. One sign of relief however is finally coming from China’s government, which took steps over the weekend to address the slowdown crippling the world’s second-largest economy.For one, officials decided to cut the interest rate for new mortgages in order to incentivize a hurt housing market. Both Industrial Output as well as Consumer Spending reached their weakest levels since the pandemic began in 2020. China’s Zero-COVID policies resulted in shutdowns that are now causing tremendous havoc for suppliers globally.

Some analysts are more worried than others, with some at Goldman Sachs warning clients of a very high risk of a recession that they should protect themselves from starting now. Indeed, equities have fallen by 17.0% thus far this year and there is an eager search for a reprieve for longer than one session.

We have an eventful week ahead that will include plenty of Fed speaking and commentary particularly on Tuesday while on Wednesday we will get word from G-7 leadership as finance ministers gather to assess the state of affairs.

 

What to Watch Today…

  • No major economic events are scheduled for today

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EUR

The Euro is recovering from hitting multi-year lows last Thursday and is looking to grow along with markets if indeed reaction is positive to China’s stimulus efforts. Much of the world’s tough supply-chain situation is due to an overwhelmed China that has affected every sector of international commerce. As a result, prices keep growing and every central bank is having to make the move to tighten and increase interest rates.The European Union Commission does not see a very optimistic future, for the time being, thus cutting its growth forecast from 4.0% to 2.7%. Additionally, inflation is set to increase this year by 6.1% instead of the previously released 3.5%. We shall see what develops that could push the shared currency higher with finance leaders coming to discuss these troubles.

 

GBP

Sterling is not moving much at the moment, but it could be a turbulent week as Brexit-Deal-Breaking concerns are back on the table. Prime Minister Boris Johnson is set to agree on a unilateral move by the United Kingdom to pick apart items from the Brexit trade deal that have been argued over and over since before the deadline arrived for a deal to be struck.

Ultimately, this means that the EU and U.K. could enter a trade war as the things the U.K. desires to do such as free trade between the island of Ireland and the U.K. require European legislation and regulation. Both sides have failed to also live up to things that were agreed upon. If we are headed toward worsened relations between both parties, the economic pressures could end up holding back both Euro and Pounds long-term.

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