The markets had a mixed mood last week. The dollar is back close to where it started at the turn of the year as the first quarter gains fizzle out. There is still more to expect before the end of May as inflation concerns support yield growths.
Last week recap
The greenback is set back by over 1.1% to continue losses from April. The dollar did fight back the April NFP miss after the last week CPI data beat expectation by a large margin. However, all talks of inflation died down again in the last few days as the global currency reserve collapsed again. The dollar index dropped below 90 for the first time since February and close to retesting the year’s opening price. In the FX space, EURUSD is heading just in the opposite direction at a very similar pace, eyeing 1.22. GBPUSD recovered from the March-April setback to significantly stay above 1.4.
However, despite the bearish last days, the dollar still ended the last week on a slightly bullish note. The yen lost far more as it maintained its top position among the laggards which also include Aussie and Kiwi. Sterling and Loonie closed the week as the biggest winners with higher oil prices supporting the latter.
Commodities & Equities
Meanwhile, commodities are also on the front foot while equities staged significant rebounds last week. S&P 500 recovered most of the inflationary reversion as the volatility index fell back to the weekly breakeven point. Gold closed the second consecutive week upbeat as the long-term bullish trend resumed on a large scale despite the overall yield recovery. The commodity has gained an impressive 8% since April. WTI also maintained the upward momentum after jumping over 36% since the turn of the year and up by over 3% last week alone.
The crypto market has so far lost over $450 billion in May, aided largely by downbeat BTC on-chain metrics and the recent Elon Musk’s Bitcoin dovish comments in the last few weeks. BTC has shed over 23% so far in May – now exchanged for $44,000 (Sunday, 21:30 GMT). ETH and Doge, on the other hand, maintain a green month but have shed over half of the last two weeks’ pumps from $4,400 to $3,350 and $0.74 to $0.47 respectively. XRP recovers from $1.2 to $1.39 while LTC is back below $300, returning from a fresh ATH above $400.
The Week Ahead
Policy meetings from the Fed and RBA might dominate the headlines in the coming week. The Fed might address the inflation worries again. Also, SNB Chair and ECB’s Lagarde will be speaking at different events. Aside from the banks, the calendar is flooded with economic releases.
After the RBA minutes and SNB Chair’s speech on Monday, UK & CAD CPIs will follow on Tuesday alongside crude oil inventories before the FOMC ends the day. Traders will watch out for the Aussie employment data on Thursday before the Kiwi annual budget report in the Asian time while Lagarde’s speech and US unemployment claims will come later in the day. On Friday, the PMIs and Retail Sales in most of the G8 will complete a busy week.
Covid 19 and Vaccines Latest
Covid cases in the US have plummeted to the lowest in 11 months. However, rising cases in India and some of the Asian nations have continued to raise concerns. Singapore is set to close down schools from this week and restrict them to home-based learning. However, the UK is set to ease restrictions but will speed up its vaccination programs to combat the virus variant from India. Overseas travel out of the UK is set to resume this week. However, plans to end all restrictions by June 21 might be delayed for precautionary measures. Globally, over 627k new cases were reported on Saturday with about half of that coming from India alone.
On the other hand, the global vaccination rate remains on the increase. Over 1.45 billion doses have been given out globally across 176 countries at a daily rate of 23.7 million doses according to Bloomberg Covid-19 tracker. However, access to vaccines and distribution rates have been uneven as the advanced economies have done far more. Meanwhile, South Africa expects to fasten its vaccination rollout rate with Pfizer doses to start on Monday.
Currently, the daily vaccination rate is far bigger than daily reported virus cases which is good for the overall market risk sentiment. However, the fear of a sudden new strain of the virus will keep the policymakers on their toes.
The current US/EU cold war with China is one of the risk drivers traders could watch out for. However, the market doesn’t look in that direction just yet as the policymakers and market participants are more focused on bigger issues like Covid affairs and the state of the economy in inflation and employment terms. Aside from this, the current Isreal’s attack on Gaza might raise more eyebrows in the coming days and weeks but the potential direct effect on the market is expected to be very little or insignificant unless the situation aggravates and extend to other countries. Nevertheless, it’s something to keep track of.
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