Daily Market Outlook, May 19, 2022

Overnight Headlines

Asian equity markets are down this morning, but most are now off their lows for the day. This follows a decline of 4% in the US S&P500 equity index yesterday. US Federal Reserve policymakers continued to warn of the likelihood of further interest rises. The Australian labour market showed the unemployment rate at 3.9% in April, its lowest since August 1974. In New Zealand, the finance minister used the annual budget to promise support to low and middle income families to cope with high inflation. Meanwhile, reports suggest that Chancellor Sunak will offer targeted support to business in the UK’s Autumn budget to boost investment.

Today’s CBI industrial trends survey will be watched for signs of the impact of recent international developments such as the Ukrainian crisis and the new lockdown in China on growth and price trends. Last month, orders growth fell to a six month low, while export orders contracted. More positively, selling prices eased from their March peak, although they were still high by normal standards as cost pressures remained very elevated.

US April housing starts may show further signs that the ongoing rise in interest rates is already impacting on a sector that is particularly rate sensitive. Sales have fallen in three of the last four months. In contrast, weekly jobless claims data continue to point to a tight labour market consistent with buoyant overall economic activity. The latest reading is expected to continue that trend.

The release today of the minutes of the European Central Bank’s May policy meeting may provide further details on the evolution of its plans. There have been growing indications of late that high inflation is prompting the ECB towards an early interest rate hike despite ongoing concerns about economic growth. Last week, ECB President Lagarde suggested that a rate rise might follow hot on the heels of an end to the asset purchase programme early in Q3. That echoed the comments of many of her colleagues, further boosting market expectations that the June policy meeting may pave the way for a rate increase at the following update on 21st July.

The post-Omicron rebound in UK economic activity seems to have petered out quickly reflecting various headwinds to growth. Potentially one of the most significant is the impact of high inflation on consumer spending power. Data due early Friday might further insight into its impact. The May GfK consumer confidence measure is expected to see a further fall, suggesting that the real income squeeze is a very real concerns for households. More positively April retail sales (also Fri) may show a modest rise but that follows a sizeable decline in March and may provide only limited assurance

USDJPY - 131.00 1.02bn (C). 130.00 556m. 128.40/50 1.47bn (778m C). 128.00/10 477m. 127.50/60 746m. 125.90/126.00 547m.
EURUSD - 1.0600/10 639m. 1.0540/50 831m. 1.0450/60 528m. 1.0430/40 1.64bn (1.04bn P). 1.0410/20 622m. 1.0390/1.0400 714m. 1.0320 926m.
GBPUSD - 1.2300 698m.
AUDUSD - 0.7150 482m.
NZDUSD - 0.6620 873m. 0.6250 507m.
USDCAD - 1.2740/50 843m. 1.2620/30 486m.
USDMXN - 20.00 770m.
USDCNH - 6.80 700m. 6.72 500m. 6.60 523m. 6.54 1.56bn (C)