Market participants anticipate several critical economic reports this week, including the BOJ Rate Statement, US Advance GDP, and Core PCE Price Index. These key reports will provide valuable insights and help investors and traders make informed decisions. Don’t miss out on this opportunity to stay ahead of the curve.
Here are the key events to watch out for:
Consumer Price Index | Australia (April 26)
The annual inflation rate in Australia rose to 7.8% in Q4 2022 from 7.3% in Q3 2022.
For Q1 2023, analysts expect a more moderate increase of 6.8%.
Advance GDP | US (April 27)
The US economy expanded at an annualised rate of 2.6% in Q4 2022.
For Q1 2023, analysts predict a rate of 2.3%.
BOJ Rate Statement | Japan (April 28)
During its March meeting, the Bank of Japan unanimously voted to keep its key short-term interest rate at -0.1% and the rate for 10-year bond yields at around 0%.
This month, analysts expect that the rate will stay the same as the board introduces new quarterly growth and price estimates in Kazuo Ueda’s first policy meeting.
Prelim Consumer Price Index | Germany (April 28)
Germany’s consumer price inflation reached a seven-month low in March 2023, recording a year-on-year rate of 7.4%, down from 8.7% in the previous two months. The figure remained well above the European Central Bank’s target of 2%.
Analysts predict a further decrease in April 2023, with an expected rate of 7.0%.
Gross Domestic Product | Canada (April 28)
Canada’s economy jumped 0.5% in January 2023, following a slight contraction of 0.1% in December 2022.
For February, analysts expect it to increase by 0.3%.
Core PCE Price Index | US (April 28)
Core PCE prices in the US, which exclude food and energy, rose by 0.3% month-on-month in February 2023, following a downward revision of 0.5% in the previous month.
For March 2023, analysts expect a 0.4% increase.
Employment Cost Index | US (April 28)
Compensation costs for civilian workers in the US rose 1% in Q4 2022, a third straight slowdown, compared to a 1.2% increase in the previous quarter.
For Q1 2023, analysts expect the index to rise by 0.8%.
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On Thursday night, U.S. stock futures showed little movement, with the Dow Jones Industrial Average futures dropping slightly by 18 points or 0.05%. S&P 500 futures remained unchanged, while Nasdaq 100 futures rose 0.07%.
During regular trading on Thursday, the Dow decreased by approximately 110 points or 0.33%. The S&P 500 dropped 0.6%, and the Nasdaq Composite, which has a heavier focus on technology stocks, lost 0.8%. Tesla’s shares were one of the factors dragging down the Nasdaq, with a decline of nearly 10% after the company reported a sharp drop in net income for the first quarter compared to the same period in the previous year.
This week, the major U.S. stock market indices are likely to finish in the red, with the Dow and S&P 500 on track for their worst weekly performances since March. This earnings season brings more macro-level uncertainty than in the recent past.
Earnings season continues on Friday, with Procter & Gamble, Regions Financial, SLB, Freeport-McMoRan, and HCA Healthcare set to report earnings before the market opens. Investors will also keep an eye on the Purchasing Managers’ Index for the manufacturing and services sectors to gain insight into the economy.
Data by Bloomberg
On Thursday, all sectors in the stock market experienced a price decline of 0.60%, except for the Consumer Staples sector which increased by 0.06%. The Real Estate and Consumer Discretionary sectors saw the largest declines, at 1.19% and 1.48%, respectively. The Information Technology and Communication Services sectors also experienced significant declines, both down by over 0.75%. The remaining sectors saw smaller declines, ranging from 0.05% to 0.43%.
Major Pair Movement
Data by VT Markets MT4
On Thursday, disappointing U.S. economic data caused Treasury yields to fall, resulting in the dollar weakening and increasing the likelihood of further rate cuts by the Federal Reserve. The data included jobless claims, Philly Fed, existing homes, and the Conference Board’s Leading Economic Index, which all signaled that the battle against inflation would negatively impact growth and asset demand.
Despite a 3bp rise in 2-year bund-Treasury yield spreads, the EUR/USD remained relatively unchanged. The European Central Bank is expected to raise rates more than the Fed this year but holds hikes for a longer period.
While JGB yields remained steady, the yen advanced against the euro and sterling due to the upcoming Japanese CPI report and Bank of Japan meeting. The BoJ is likely to maintain its policy stance but may tweak its yield curve control if wage settlements remain strong. GBP/USD recovered from Thursday’s lows but still finished down 0.05%.
Friday will feature April S&P Global PMIs and retreating oil prices will also be watched as a global recession risk indicator.
Technical Analysis
EUR/USD (4 Hours)
The EUR/USD remained stable below 1.1000 due to mixed US equity markets and doubts about the market outlook. The European Central Bank’s accounts showed that the central bank would have signaled more rate hikes if not for the banking crisis, and a rate hike is expected at the May 4 meeting. US data was below expectations, with Initial Jobless Claims, Continuing Claims, and Philly Fed Manufacturing Survey lower than expected, and Existing Home Sales also dropped. On Friday, the S&P Global PMIs are due, which could affect market sentiment and benefit the US Dollar if the readings are negative.
According to technical analysis, the EUR/USD has been moving slightly flat and remains between the support and resistance levels from the previous day. The Bollinger band is also narrowing, indicating that the market is in a flat range. We are expecting better market movement today with the release of PMI data in the EU. The Relative Strength Index (RSI) is currently at 50, indicating that the EUR/USD is in a waiting condition.
Resistance: 1.0975, 1.1026
Support: 1.0923, 1.0877
XAU/USD (4 Hours)
On Thursday, XAU/USD rose above the $2,000 mark as financial markets became more cautious due to concerns about the economic future and the weak US dollar. Global stock markets traded softly, with US indexes rebounding slightly from early lows, and government bond yields falling after disappointing US data suggested an upcoming economic downturn. Initial jobless claims rose, while the Philadelphia Fed Manufacturing Survey and existing home sales both performed worse than expected in April. US Treasury Secretary Janet Yellen commented on the relationship between the US and China, stressing the importance of maintaining a constructive and fair relationship while warning of severe consequences for any violations of sanctions on Russia by Chinese companies. She also emphasized the need for the government to ensure the soundness of the banking system in light of the recent financial crisis.
Based on technical analysis, XAU/USD has risen back above the $2,000 mark but is still experiencing consolidation. It is currently trading in the middle band of the Bollinger band, indicating a neutral trend in the longer term. The Relative Strength Index (RSI) is hovering around 50, suggesting that XAU/USD is waiting for its next move.
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Stock futures were slightly down on Wednesday night as investors evaluated the latest corporate earnings reports. The Dow Jones Industrial Average futures lost 43 points or 0.1%, while the S&P 500 futures dropped 0.2%, and Nasdaq-100 futures slipped 0.3%. Investors examined various reports released after the bell, including Tesla and IBM. Tesla fell 5% after reporting that its net income and GAAP earnings dropped by over 20% from a year ago. However, IBM rose almost 2% after expanding its margins.
Although investor attention has mostly shifted to quarterly results, reporting firms have not driven the broader market, according to William Northey, senior investment director at U.S. Bank Wealth Management. The S&P 500 closed slightly below its flatline on Wednesday, while the Nasdaq Composite ended higher, and the Dow closed 0.2% lower. Investors anticipate more earnings reports on Thursday, including releases from Alaska Air and AT&T.
Data by Bloomberg
On Wednesday, all sectors experienced a slight dip of 0.01%. The utility sector saw the biggest gain, rising 0.78%, followed by real estate at 0.55% and health care at 0.28%. Financials and consumer discretionary also saw positive gains at 0.26% and 0.02%, respectively. On the other hand, communication services experienced the biggest drop at 0.72%, while the materials and energy sectors declined by 0.31% and 0.25%, respectively. The information technology sector also fell slightly by 0.13%, while consumer staples and industrials decreased at 0.05% and 0.07%, respectively.
Major Pair Movement
Data by VT Markets MT4
The dollar index rose on Wednesday but subsequently retreated from its highs after being rejected at Monday’s peak. Along with the earlier-fueling risk-off flows, the gains in 2-year Treasury-bond spread yields also reached a zenith. The euro zone’s above-forecast core inflation readings limited the euro’s losses against the dollar, while the United Kingdom’s significantly above-forecast March inflation pushed sterling broadly higher. Sterling was left with 0.13 percent gains after falling from its highs, with this week’s lows concentrated near the rising 21-day moving average support. In late trade, the EUR/USD had recovered from its lows between Tuesday and Monday but was still down 0.13 percent.
As a result of the BoJ’s reaffirmation of its yield curve control policy, rising Treasury-JGB yield spreads to support the USD/JPY. JGB yields are once again being capped. Treasury yields are increasing as a result of the markets’ pricing out of anticipated rapid Fed rate cuts during March’s banking crisis and in response to US core inflation increasing to 5.6% and the unemployment rate decreasing to 3.5% in March. Wednesday’s elevated European inflation readings suggest that inflation is more persistent than anticipated and will require the ECB and BoE to raise rates further and for an extended period.
However, the market struggles to price in more than one additional 25bp Fed raise, followed by roughly 50bp of cuts by the end of the year. Divergent central bank policy outlooks place the dollar index in a precarious position above February and April’s trend lows of 100.80/78.
Technical Analysis
EUR/USD (4 Hours)
The EUR/USD pair rose as the US Dollar lost gains on Wednesday, but pulled back to 1.0950 due to market fluctuations. Eurozone inflation remained high at 6.9% YoY in March, with the ECB suggesting more rate hikes ahead. The ECB Chief Economist expects a hike in May, with data determining the size, and the ECB will release meeting minutes on Thursday. The odds of a rate hike in May by the Fed are 83%. The EUR/USD pair is waiting for the next catalyst to move above 1.1000 or downside. Market sentiment may benefit the Euro if the risk appetite is high.
According to technical analysis, the EUR/USD experienced a slight decrease on Wednesday and broke its previous support level. It is currently trading around the middle band of the Bollinger band. It is predicted that the market will continue to consolidate, with the possibility of a downward movement toward the support level at 1.0923. The Relative Strength Index (RSI) currently stands at 47, indicating a potential slight decrease for the EUR/USD.
Resistance: 1.0975, 1.1026
Support: 1.0923, 1.0877
XAU/USD (4 Hours)
On Wednesday, financial markets started in risk-off mode, leading to a firmer demand for the US Dollar across the FX board. As a result, XAU/USD fell to its lowest in over two weeks but has since grounded higher to trade around $1,995 a troy ounce. This sentiment was triggered by US Federal Reserve officials’ suggestions of the need for more rate hikes to control inflation in the United States. The UK’s annual Consumer Price Index was higher than anticipated in March, while the Eurozone confirmed the annual Harmonized Index of Consumer Prices at 6.9% in the same period. Government bond yields are also on the rise due to inflation-related concerns. The US indexes are currently trading mixed, while Asian and European indexes edged lower.
According to technical analysis, XAU/USD has rebounded after experiencing a significant drop on Wednesday. It is currently trading at the middle band of the Bollinger band, indicating a neutral trend in the long term. The Relative Strength Index (RSI) is hovering around the 45 levels, suggesting the potential for a slight upward movement.
The S&P 500 index closed nearly unchanged on Tuesday as investors analyzed a wave of corporate earnings reports and their impact on the US economy. The Dow Jones Industrial Average dipped slightly, while the Nasdaq Composite edged down a bit. Investors evaluated the latest batch of earnings reports, and although Bank of America beat first-quarter expectations, Goldman Sachs shares fell, and Johnson & Johnson’s stock dropped after the company beat estimates but lowered its 2023 guidance. Investors warn that profits topping already low expectations won’t matter to a market staring at a Federal Reserve that’s continuing to tighten into a potential recession.
Despite this, earnings season has so far proven resilient, and all the major averages are up since the period kicked off. However, more than eight out of ten traders anticipate a 25 basis point increase in interest rates next month, marking a stark contrast to the calls for a halt in hiking in March. Atlanta Federal Reserve President Raphael Bostic anticipates one more 25 basis point hike, followed by a hold at that level “for quite some time.” Earnings season continues with results from United Airlines and streaming giant Netflix.
Data by Bloomberg
On Tuesday, all sectors in the market saw an overall increase of 0.09%. Industrials, energy, and information technology were the top-performing sectors, with gains of 0.46%, 0.45%, and 0.41%, respectively. Materials and consumer staples also performed well, with gains of 0.40% and 0.33%. On the other hand, utilities, communication services, and healthcare sectors saw a decline of -0.51%, -0.65%, and -0.65%, respectively. The real estate sector had the biggest decline, down by -0.15%.
Major Pair Movement
Data by VT Markets MT4
On Tuesday, the dollar index decreased by 0.34%, despite the hawkish outlook of St. Louis Fed President James Bullard. The market is struggling to factor in more than one more 25bp U.S. interest rate hike. The dollar was impacted by the risk-on theme, which began when China’s Q1 GDP growth exceeded expectations. The ECB and BoE are expected to have more hikes, and the recovery of Chinese demand could assist non-U.S. exporters. Although Treasury yields and the dollar rebounded, the hawkish view remains at odds with the market, which is roughly pricing in only one more 25bp hike to 5%, followed by almost two 25bp rate cuts by year-end.
The EUR/USD rose 0.5%, while the GBP/USD increased by 0.4% due to the broader dollar setback and strong UK pay growth. GBP/USD traders are now focused on Wednesday’s UK inflation data, with overall inflation forecast at 9.8% versus 10.4% in February, yet vastly above the BoE’s 2% target. USD/JPY fell by 0.25%, and there is little U.S. data until Thursday, followed by Friday’s Global PMIs. Longer-term Treasury yields are driving prices, with the BoJ on hold.
Technical Analysis
EUR/USD (4 Hours)
The EUR/USD rose on Tuesday due to a weaker US Dollar, and it remained in a small range during the American session. The April German ZEW survey results were mixed, with the Economic Sentiment Index falling unexpectedly while the Current Situation Index improved. Wednesday’s economic calendar includes Euro Zone’s March Consumer inflation report, February Current Account, and Construction Output. The US Dollar fell on Tuesday, with little change in US yields and mixed performance on Wall Street. The Federal Reserve will release the Beige Book on Wednesday, and the latest comments from Fed officials suggest the possibility of one more rate hike. The market sees the ECB raising rates beyond May as Fed rate cuts got priced out, and the Euro Zone’s yields rose on Tuesday, offering support to EUR/USD.
Based on technical analysis, the EUR/USD saw a slight rally on Tuesday and broke the previous resistance level, reaching the middle band of the Bollinger band. It is expected that the market will continue to consolidate with a possibility of an upward movement toward the resistance level at 1.0998. The RSI is currently at a level of 51, indicating that the EUR/USD is in consolidation mode.
Resistance: 1.0998, 1.1026
Support: 1.0966, 1.0923
XAU/USD (4 Hours)
Gold initially rose on Tuesday, driven by optimism from China, reaching a high of $2,005.79 per troy ounce during Asian hours. However, the positive sentiment was short-lived as China’s Q1 Gross Domestic Product (GDP) showed that the economy grew by 2.2% in the three months to March, beating market expectations, but failed to boost risk appetite in European and American data. Wall Street opened lower but has since recovered slightly, and US Treasury yields remained stable. Despite the broad weakness of the US dollar, it found some demand during the European session due to tepid macroeconomic figures that weighed on high-yielding assets’ demand.
Based on technical analysis, XAU/USD is currently in a consolidation phase, but it has been able to move slightly higher and maintain its position above the $2,000 level. The price is currently situated in the middle band of the Bollinger band, which indicates a neutral trend in the market. The key support level is now at the $2,000 level. The RSI is hovering around the 45 levels but indicating that there is still potential for a slight upward movement.
Retail sales refer to the total amount of merchandise or goods sold to customers by a retailer. This can include a wide range of items, such as clothing, electronics, furniture, and more. Retail sales are an important indicator of the health of the economy, as they represent consumer spending, which accounts for a significant portion of overall economic activity.
In the United States, retail sales are closely monitored and reported by the government and other organizations as a key economic indicator.
Understanding Retail Sales
Retail sales data gives insights into customer behavior and buying habits. Retailers use it to make informed decisions about inventory, marketing, and pricing. Analyzing data also helps identify trends and changes in consumer preferences. This information is critical for product development and market expansion.
Additionally, retail sales data can be used by investors, policymakers, and economists to assess the overall health of the economy and make predictions about future growth and performance.
How Is Retail Sales Data Calculated
Retail sales data is typically collected through a combination of surveys, point-of-sale (POS) systems, and other sources. The U.S. Census Bureau conducts a monthly survey of retail establishments to gather information on sales and inventory levels. This survey includes both brick-and-mortar stores and online retailers and covers a wide range of product categories.
In addition to the survey data, the Bureau of Economic Analysis (BEA) also incorporates data from POS systems and other sources to create a comprehensive estimate of retail sales for a given period.
How Does Inflation Impact Retail Sales
Inflation can have a significant impact on retail sales, as it affects the purchasing power of consumers. When prices rise due to inflation, consumers may be less likely to make discretionary purchases and may focus on purchasing only essential goods. This can lead to a decline in retail sales, which can have a ripple effect on the economy as a whole.
On the other hand, low inflation can stimulate retail sales by making goods more affordable for consumers. Understanding the relationship between inflation and retail sales is critical for retailers, investors, and policymakers to make informed decisions about pricing and economic policies.
Why Are Retail Sales Important
Retail sales are important for the economy because they show how much consumers are spending, which is a big part of economic activity. When retail sales are strong, it is usually a good sign for the economy because it suggests that consumers are confident and that the economy is growing.
Conversely, weak retail sales can be a sign of economic contraction, as consumers may be less willing to spend money during times of uncertainty or financial strain.
Retail sales data is also closely watched by investors, as it can provide insights into the performance of individual companies and industries.
Rate of inflation refers to the percentage change in the general price level of goods and services in an economy over a specific period, usually a year. It is a key economic indicator that measures the rate at which prices are increasing, and it affects consumers, businesses, and the overall economy. A higher rate of inflation means that the same amount of money buys fewer goods and services, reducing purchasing power and potentially leading to economic instability.
Different Types of Inflation
There are several types of inflation, and understanding each type is important to determine the appropriate course of action.
One of the types of inflation is cost-push inflation, which occurs when the cost of production rises, leading to higher prices for consumers.
Another type is demand-pull inflation, which occurs when the demand for goods and services exceeds the supply, resulting in higher prices.
Deflation occurs when the rate of inflation goes negative, leading to a decrease in prices.
Disinflation refers to the decrease in the rate of inflation over time.
Reflation is the opposite of deflation, and it occurs when there is an increase in the rate of inflation after a period of deflation.
Creeping inflation refers to a slow increase in the rate of inflation, while walking inflation refers to a moderate increase in inflation.
Running inflation refers to a sudden and rapid increase in the rate of inflation.
Finally, hyperinflation occurs when the rate of inflation becomes extremely high, leading to a loss of value of the country’s currency.
The Effects of Rate of Inflation on the Economy
The rate of inflation has a significant impact on the economy. When inflation is high, the cost of goods and services increases, which reduces purchasing power. This, in turn, leads to a reduction in demand for goods and services, leading to a decrease in production and eventually leading to unemployment. The increase in prices of goods and services also results in a decrease in the value of money.
Inflation can also lead to higher interest rates, as central banks try to control the rate of inflation. This, in turn, leads to an increase in the cost of borrowing, making it more difficult for businesses to obtain loans to finance their operations. Additionally, inflation can also lead to an increase in the cost of living, leading to a decrease in the standard of living.
Measuring Rate of Inflation
The rate of inflation is typically measured by calculating the percentage change in the price level of a basket of goods and services over a period of time. There are different ways to measure the rate of inflation, but the most common methods are the Consumer Price Index (CPI) and the Producer Price Index (PPI).
The CPI measures the average price change of a basket of goods and services typically consumed by households. The goods and services included in the CPI are weighted according to their relative importance in the average household’s expenditure. The CPI is usually calculated on a monthly basis and is used to measure changes in the cost of living over time.
The PPI, on the other hand, measures the average price change of goods and services at the producer level before they reach the consumer. The PPI includes goods and services used in the production process, as well as intermediate goods and services. The PPI is often used as a leading indicator of future changes in the CPI.
To calculate the rate of inflation, you would compare the CPI or PPI from one period to another, usually a month or a year, and calculate the percentage change. For example, if the CPI was 100 in January and 105 in February, the rate of inflation would be (105-100)/100 = 5%.
Protecting Against the Rate of Inflation
There are different ways of protecting against the rate of inflation. One way is to invest in assets that increase in value with inflation, such as real estate, stocks, and commodities. Another way is to invest in bonds, which can provide a steady stream of income and help offset the effects of inflation.
Additionally, it is important to diversify investments across different asset classes to spread the risk. Another way to protect against inflation is to save in high-yield savings accounts or certificates of deposit (CDs) that offer interest rates that keep up with inflation.
The Purchasing Managers’ Index (PMI) is an economic indicator that measures the health of a country’s manufacturing sector. It is based on a survey of purchasing managers in the manufacturing industry and provides valuable insight into the state of the economy. The PMI is considered a leading indicator, as it can signal changes in economic activity before they become apparent in official economic data.
How the Purchasing Managers’ Index Works
The PMI is based on a survey of purchasing managers in the manufacturing industry. The survey asks purchasing managers to rate various aspects of their business, such as new orders, production levels, employment, and prices. The answers are then compiled into a single index number that represents the health of the manufacturing sector.
The PMI is calculated on a scale of 0 to 100, with a score above 50 indicating expansion in the manufacturing sector, and a score below 50 indicating contraction. The PMI is broken down into sub-indices for new orders, production, employment, supplier deliveries, and inventories.
How the PMI Affects Economic Decisions
The PMI is closely watched by economists, investors, and policymakers, as it provides valuable information on the state of the economy. A high PMI reading suggests that the manufacturing sector is expanding, which can lead to increased employment, higher wages, and a stronger economy. A low PMI reading, on the other hand, suggests that the manufacturing sector is contracting, which can lead to job losses, lower wages, and a weaker economy.
Policymakers use the PMI to guide economic policy decisions. For example, if the PMI indicates that the economy is weakening, policymakers may consider lowering interest rates or implementing fiscal stimulus to stimulate economic growth.
Why is PMI important
The PMI is an important economic indicator because it provides real-time information on the health of the manufacturing sector. The manufacturing sector is a critical component of most economies, as it provides jobs and drives economic growth.
A strong PMI reading suggests that the manufacturing sector is expanding, which can have positive spillover effects on other sectors of the economy. A weak PMI reading, on the other hand, suggests that the manufacturing sector is contracting, which can lead to job losses and lower economic growth.
The PMI is also important for investors, as it provides information on the performance of individual companies and sectors. For example, a high PMI reading for the technology sector may signal that technology stocks are likely to perform well in the coming months.
The PMI is typically released on the first business day of the month and covers the previous month. For example, the PMI for January would be released on the first business day of February. Investors and economists closely watch the PMI release date, as it can have a significant impact on financial markets.
The Industrial Production Index (IPI) is an economic indicator that measures the production output of the industrial sector of a country. It includes the manufacturing, mining, and electric and gas utilities sectors. The IPI provides insight into the health of the economy and is used by policymakers, investors, and analysts to make informed decisions. The IPI is an important tool for predicting future economic growth or contraction.
How Does the Industrial Production Index (IPI) Work?
The IPI is calculated by the Federal Reserve Board in the United States and other central banks around the world. It is based on a survey of businesses and covers approximately 100 products across various industries. The survey tracks the quantity of goods produced, as well as the changes in production levels over time. The IPI is reported monthly and is seasonally adjusted to account for variations in production levels throughout the year.
How to Calculate the IPI
The IPI is calculated using a base year that is set at 100. The current production levels are compared to the base year, and the percentage change is reported as the IPI for that month. For example, if the production levels in the current month are 10% higher than the base year, the IPI for that month would be 110. This allows for easy comparison of production levels over time, as well as between different industries.
Benefits of the Industrial Production Index (IPI)
The IPI provides valuable information for businesses, investors, and policymakers. Businesses can use the IPI to monitor production levels in their industry and adjust their operations accordingly. Investors can use the IPI to make informed decisions about which companies to invest in based on their production levels. Policymakers can use the IPI to make decisions about monetary policy and to anticipate changes in economic growth.
The IPI can also be used in conjunction with other economic indicators, such as the Gross Domestic Product (GDP), to provide a more comprehensive picture of the economy. The IPI is particularly useful for predicting changes in GDP, as it provides an early indication of changes in production levels.
When is Industrial Production released?
The Federal Reserve Board releases the IPI monthly, typically around the middle of the month. The data is available on the Federal Reserve website and is widely reported in the media. Investors and analysts typically pay close attention to the IPI release, as it can have a significant impact on the stock market and other financial markets.
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