Tuesday May 17th, 2022

The US$ weakens, oil prices edge higher, while equity markets and US yields strengthen as risk sentiment improves. Risk-on sentiment improves on optimism that Beijing may ease up covid lockdowns, which improved growth prospects and helped Asian & European equities rally for a 3rd day. Lisa Shalett, Chief Investment Officer at MSWM said in a note “with inflation showing little sign of letting up, the Fed is under pressure to accelerate the pace of tightening”.  Intraday markets will be focused on Fed Bullard speech, US Retail Sales and in the evening ECB President Lagarde and Fed Chair Powell’s speeches. In other news. Ukrainian forces evacuate from Mariupol, ceding control to Russia. In a Reuters poll, the ECB is expected to hike rates by 25bps in July the first time in over a decade despite a 30% expectation of recession within a year. The UK unemployment rate hit a 48-year low, but inflation impacts pay. Brazil mills cancel sugar exports and are diverting production to ethanol to cash in on high energy prices. Turkish President Erdogan opposes Finland & Sweden’s entry to NATO, but Germany is confident Turkey will come around. The currency markets. The US$ index eases for a second trading session as optimism for growth improves on signs China is easing its covid restrictions. Asian currencies rebound from multi-year lows, GBP rallies on strong labor market data, while Turkish lira drops 2%, declining for a 9th day. CNY rallies 0.55%, while Asian currencies are up 0.3% on average vs US$. Trading currencies rebound JPY is flat, while MXN is up 0.2%, CHF & ZAR firms 0.6%, and AUD, NOK & NZD strengthen 0.9% vs US$.

Oil edges to its highest level in 7-weeks in early trading on China demand hopes and the EU attempts to persuade Hungry to agree to the Russian oil ban. C$ is now net up 0.4% for May vs US$ after a volatile May which has seen markets swing from 1.2709 May 5th, to 1.3076 on May 12th. Our bias remains positive for C$ to continue to strengthen as the Index of agricultural prices have hit all-time record highs, oil prices remain near 8-year highs and BoC is expected to maintain its interest hiking policy in 2022. Intraday US Retail sales and to a lesser degree CAD portfolio investment data will help provide direction. Support resets to 1.2770, while resistance lowers to 1.2865

Euro breaks 1.05 on a weaker US$ and upbeat EU data. The Euro area showed the economy grew at a better-than- expected annualized growth of 5.1% in Q1. News that there were no new covid cases in Shanghai helped boost risk-on sentiment, rallying equity markets and prompting an exit of the safe-haven US$. A Reuters poll showed an expectation of 25bp hike in July, a 25bp hike in September which would see the EU a ditch of negative rates. Focus will be on the ECB & Fed speeches tonight for direction. Support resets to 1.0480, while resistance rises to 1.0550.

EURGBP drops as the pound rallies on the stronger than expected Jobs report and optimism improves over Brexit as the UK looks for a compromise on the NI protocol. Support resets .8400 (1.1905) while resistance lowers .8500 (1.1764).

GBP surges to a fresh 12-day high on upbeat jobs data and improving risk sentiment. UK unemployment hit its lowest levels since 1974 in the first 3-months of the year, but rising inflation saw its biggest annual fall in real earnings since 2013. The UK will set out steps to tackle post-Brexit trade issues in NI protocol today, in a hope to defuse the row with the EU that could threaten a trade war. Intraday US Retail sales and Fed Chair Powell speech will provide direction to the markets. Support resets to 1.2400, while Resistance rises to 1.2490.