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The US dollar has fallen over the past week after the US Federal Reserve threatened to pause its historic rate hike campaign. Global equity markets closed broadly flat, while US markets were triggered by better-than-expected earnings, regional bank woes, debt ceiling fears and optimism that the Fed is nearing the end of its tightening cycle. Closed mixed on a volatile week.
The US Dollar Index (DXY Index) ended the week down 0.4%, while the MSCI All Country World Index was broadly flat. In equities, the S&P 500 fell 0.8% and the Nasdaq 100 Index rose 0.1%. Germany’s DAX 40 rose 0.2%, the UK’s FTSE 100 each fell 1.2%, the Hang Seng Index rose 0.8%, and the Japanese market was closed for the Golden Week holidays.
At this late stage of the Q1 2023 earnings season, the S&P 500 companies have posted their best performance since Q4 2021 compared to analyst expectations. Of his 85% of companies in the S&P 500 that have reported so far, 79% have his actual EPS above estimates. According to FactSet, both the number of companies reporting positive EPS surprises and the magnitude of these earnings surprises are above their 10-year averages.
Data released this week showed an unexpected contraction in China’s manufacturing activity last month, highlighting the uneven nature of the post-Covid recovery. US manufacturing activity (ISM) improved slightly last month but remains in contraction territory. The Reserve Bank of Australia surprisingly raised interest rates by 25 basis points at its meeting on Tuesday and said it was ready to tighten further to keep inflation in check. In line with expectations, the US Federal Reserve raised its benchmark rate by 25 bps, signaling a pause in the tightening cycle. The European Central Bank hiked interest rates by 25 bps and retained its hawkish message.
Next week, the minutes of the most recent Bank of Japan meeting are due to be submitted on Monday. Australian Westpac consumer confidence data for Tuesday. His CPI for April and German inflation data are due out on Wednesday. The Bank of England’s interest rate decision, his April Producer Price Index for the US and his April inflation rate for China are due to be released on Thursday. UK Q1 GDP and China’s new renminbi loan data are due out on Friday.
US inflation data shed light on the extent to which price pressures have eased. Core CPI is expected to drop from 5.6% in March to 5.5% in April. Strong US jobs data on Friday cut expectations for a July rate cut by the Fed to 36% from a 60% chance before the data. If price pressures do not ease as expected, the 75 bps rate cut priced in by the end of the year could be reassessed.
The Bank of England is widely expected to raise interest rates by another 25 bps at its Thursday meeting after the latest wage and inflation data. Inflation is still in double digits (10.1%) and the Bank of England may remain hawkish. The relative financial outlook could point to further gains in his GBP as its US counterpart points to a pause.
predict:
US Dollar Forecast: Will Markets Abandon Fed Stake Cuts After Another NFP Crash?
The US dollar fell cautiously last week as the US Federal Reserve (Fed) hiked interest rates and Chairman Jerome Powell was unable to curb his bets on a summer rate cut. Eyes turn to CPI and Fedspeak.
Tired of the Euro heading into an inflation-filled week?
EUR/USD appears to be gearing up for a significant technical breakout that could be catalyzed by upcoming US and German inflation data.
A Week Ahead of the British Pound: GBP/USD Stumbles, EUR/GBP Test Support, BoE on Tap
The Bank of England will release its latest monetary policy decision next Thursday and the bank’s 25bp rate hike is already fully priced in. Governor Bailey’s remarks after the decision will be key.
AUD Outlook: RBA and Fed rate hikes but sentiment swings
The Australian dollar rose last week, but was supported by a struggling US dollar largely ignored by solid domestic data amid growing uncertainty about where the US is headed.
Gold Weekly Forecast: XAU/USD Whipsaw, But Safe Haven Appeal Remains
Gold has produced a week of staggering volatility as the market shifts from major risk aversion to abandoning most of its gains amid overheating US jobs data.
S&P 500, Nasdaq Weekly Outlook: Banking Sector Stress Takes Spotlight
US stocks struggle to clear above recent highs even as the US Federal Reserve hints at a pause in the hiking cycle. Banking sector concerns take center stage as earnings season draws to a close It looks like it’s on the right stage, posing risks to the multi-week uptrend. However, the technical chart shows no signs of a reversal of the bullish structure.
Crude Oil Weekly Forecast: Oil Seeks Further Recovery Amid Continued Recession and Demand Concerns
Oil prices have rebounded aggressively from multi-month lows as WTI ended the week above $70 a barrel. Technicals suggest a deeper recovery, but market sentiment remains volatile.
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— The body of the article was written by Manish Jaradi, Strategist at DailyFX.com.
— Individual articles created by DailyFX team members
— Contact and follow Jaradi on Twitter: @JaradiManish
