Market Update – May 18

USDIndex lost some ground, albeit with the index at better than 20-year highs, as the market repriced for more hawkish BoE and ECB outlooks.  Yen is also back in demand, suggesting risk appetite is waning.There has also been a significant repricing of BoE and ECB risks. While the Fed remains on track to tighten policy 50 bps at upcoming meetings, there is growing expectation for the BoE and ECB to act to rein in inflation. The BoE is seen lifting rates in June, and may have to move more aggressively, due to the increasingly tight labor market, with the ECB likely raising rates in the summer. Stock markets’ rally has already started to run out of steam and mainland China bourses are struggling to add to yesterday’s gains, leaving the CSI 300 little changed on the day.

Japan’s economy contracted -0.2% q/q at the start of the year, less than feared, but with Q4 growth revised down to 0.9% q/q from 1.1% q/q reported initially.
UK CPI inflation hit 9.0% y/y in April, a sharp acceleration compared to the 7.0% y/y in Marc
Equities – a hefty 2.76% pop has been seen in the USA100, along with solid gains of 2.02% and 1.34%, respectively, for the USA500 and USA30. Hang Seng managed a further 0.3% but the advance is looking nothing like the rally yesterday, with dip buying in tech stocks and confidence in China’s economy already faltering. Nikkei and ASX managed gains of 0.9% and 1%, but while European equity futures are managing slight gains.
Yields 10-year rate is unchanged at 2.986%. The curve bear flattened 2.5 bps to 27.5 bps.
Oil dipped to 111.80, but currently settles at 113.10 – there are signs of waning momentum today.
Gold fell to $1807 as the USD recovered slightly, piling pressure on greenback-priced bullion alongside firm Treasury yields and an aggressive inflation stance by the US Federal Reserve chief.
FX markets USDJPY drifted to 128.93. The Cable rallied to 1.2500, posting its biggest move in 17 months;  And the EURUSD rose to 1.0563. Also, AUD firmed thanks to hawkish RBA minutes and a pick-up in oil prices.

Today – The calendar includes EU HCPI, US Housing Starts, and Canadian inflation.

Biggest FX Mover @ (06:30 GMT) GBPUSD (-0.61%) down to 1.2412. MAs aligning lower, MACD signal line & histogram decline, RSI 41 pointing down, H1 ATR 0.002, Daily ATR 0.0140

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Andria Pichidi

Market Analyst

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