It was a busy week of headlines and data updates, but it looks like the main continued to be on inflation and an aggressive global rate hike outlook.
This pushed higher-yielding currencies into the top spots against the lower-yielding majors, even after risk-off vibes on Friday.
Notable News & Economic Updates:
Chinese Caixin services PMI dipped from 53.1 to 51.4 vs. 50.5 forecast
Oil slid over 2% on Tuesday as talks between the U.S. and Iran could allow more oil exports from Iran
Poland central bank raises benchmark by 50 basis points to 2.75%; the highest since 2013
EIA: U.S. crude stockpiles drop unexpectedly by 4.8 million barrels vs. a 1 million barrel decline the previous week.
ECB President Lagarde pledged a ‘gradual’ adjustment to monetary policy on Monday during speech to European Parliament
U.S. posts its largest year-over-year inflation increase since 1982 at 7.5%; Equities drop & bond yields rip higher on speculation the Fed will be more aggressive to contain surging inflation
Global commodity prices soar 50% y/y in January, fastest pace in 27 years
Reserve Bank Governor Philip Lowe see inflation target overshoot as ‘acceptable risk’; a rate rise is “plausible” later this year if needed
The People’s Bank of China (PBOC) pledged it would keep liquidity ample to support key sectors and weak links in the economy
Escalating tensions at the Ukraine border as Russia begins massive military exercises in Belarus
Intermarket Weekly Recap
Dollar, Gold, S&P 500, Oil, Bond Yield, Overlay 1-HourDollar, Gold, S&P 500, Oil, Bond Yield, Overlay 1-Hour
We saw relatively quiet price action early in the week, likely due to traders being cautious ahead of the highly anticipated U.S. inflation data on Thursday.
And based on the rising bond yields and gold prices ahead of the event, it looks like traders were expecting a very strong number. We also saw higher-yielding major currencies outperforming during this period as well.
Come Thursday, the market got what it expected as the U.S. CPI number came in at 7.5% y/y, above the forecast of 7.3% and the highest rate of inflation in 30 years.
The broad market reaction was fierce as the 10-yr U.S. Treasury yield spiked above 2.00%, which simultaneous took down equities and gold through the rest of the Thursday session.
Oil and crypto markets were initially unaffected, likely due to traders focusing on specific catalysts for both sectors. Rising Ukraine-Russia tensions and falling oil inventories data likely kept the bid in on oil prices.
And for digital assets, the bulls were likely feeding off of a net positive string of headlines this week, including news that Russia is looking to regulate crypto and news of KPMG Canada (a major accounting firm) was adding crypto to their balance sheet.
Eventually, though, risk aversion sentiment was able to permeate through all markets on Friday as focus quickly shifted to the tensions between Russia and NATO as Russian military exercises began in Belarus.
Bond yields, equities and crypto prices fell on the session as traders were likely looking to take off risk to avoid any possible negative developments over the weekend. This of course had the usual risk-off affect on the safe haven currencies with the U.S. dollar, Swiss franc and Japanese yen spiking higher into the weekend.
This was not enough to take down this week’s FX winners, the comdolls, led by the Aussie. It’s likely the combination of high commodity inflation data updates, rising oil prices, and expectations of future rate hikes from their central banks that kept AUD, NZD, and CAD net green all week.
USD Pairs
December Consumer Credit grew by $18.90B m/m vs. $22.0B consensus & $38.82B in the prior month (revised from $39.99B).
Fed’s Bostic says more than 3 hikes possible this year, but “every option on the table”
US December wholesale inventories +2.2% vs +2.1% prelim
The U.S. consumer price index climbed 7.5% y/y in January, following a 7% annual gain in December
Weekly U.S. unemployment claims: 223K vs. 239K previous, 227K forecast
St. Louis Federal Reserve President James Bullard calls for big hike in interest rates to fight inflation; would like to see 100 bps interest rate hike before July
The preliminary read for the January University of Michigan Consumer Sentiment Survey fell to 61.7 vs. 67.2 in December
GBP Pairs
BRC: U.K. retail sales up by 8.1% y/y in Jan (vs. 0.7% expected, 0.6% in Dec), likely due to easing lockdown restrictions
Bank of England chief Andrew Bailey was slammed for asking Brits not to demand pay raises
The Royal Institution of Chartered Surveyors (RICS) reported a net balance of +74% of its members reported house price increases in Jan. vs. +70% in Dec.
Bank of England chief economist Huw Pill cautions against an ‘aggressive’ approach to rate hikes
U.K. preliminary GDP shows 1.0% q/q growth in Q4 2021; 7.5% y/y in 2021
EUR Pairs
German industrial production slowed 0.3% vs. projected 0.4% uptick
ECB’s Kazaks says a rate hike in July is unlikely
Eurozone Sentix Investor Confidence: 16.6 in February vs. 14.9 in January
German trade surplus narrowed from €10.9B to €6.8B vs. €11.3B forecast
ECB board member Schnabel say they may need to raise rates if inflation expectations rise too high
European Union raised inflation forecasts from 2.6% in 2021 to 3.5% in 2022 due to supply disruptions and high energy prices
ECB’s vice-president Luis de Guindos says that regardless of what other central banks are doing, the ECB will raise the main interest rate only “if and when” it sees inflation stabilizing at its 2% goal
ECB’s chief economist Philip Lane says Euro zone inflation will return to trend without significant policy tightening from the European Central Bank
CHF Pairs
Swiss jobless rate improved from 2.4% to 2.3% in January
Swiss CPI: +1.6% y/y in January vs. +1.5% forecast; +0.2% m/m
CAD Pairs
Canada trade deficit was C$137M in December, below forecasts of C$2.5B surplus
Bank of Canada Governor Tiff Macklem signaled rate hikes will partly depend on business investment; Also says trucker protests will only worsen supply-chain issues
NZD Pairs
New Zealand inflation expectations surge to 3.27% from 2.96%
New Zealand credit card spending up 3.0% vs. 0.6% consensus
AUD Pairs
Australia will open border to double vaccinated visitors on Feb. 21
Former RBA member John Edwards said the Reserve Bank of Australia could raise interest rates four times in late in 2022
Australia’s AIG services index improved from 49.6 to 56.2
Australian retail sales dropped -4.4% in December but still up +8.2% in Q4 2021
ANZ job advertisements down -0.3% in January after a downward revised -5.8% slide in December
Australia NAB business confidence survey showed business conditions falling by 5 points but confidence rebounding by 15 points in Jan.
Reserve Bank Governor Philip Lowe see inflation target overshoot as ‘acceptable risk’; a rate rise is “plausible” later this year if needed
JPY Pairs
Japan’s coincident index dipped 0.2 to 92.6 in December
Japan real wages were down by -2.2% in Dec, the biggest drop since May 2020
Japan’s household spending fell by -0.2% Dec, the fifth straight month of decrease
Japanese preliminary machine tool orders jump to 61.4% from 40.5%
Japan’s producer prices were up by 8.6% y/y, the 11th straight month of producer price increases
