European stocks look set to open high on the final trading day of what has been a pretty wild week in the markets.
· USD eases after rising to a fresh 20-year high yesterday, EUR/USD remains below 1.04
· Stocks rebound but inflation and slowing growth fears could keep gains capped
· Gold is set for its worst weekly performance in 2-months pulling $1800 into focus
Wall Street closed relatively flat yesterday after a volatile session that saw investors continue to weigh up fears of high inflation against the prospect of tighter central bank policy. The Nasdaq fell to an 18-month low before rebounding higher to finish the day just 0.1% lower.
Like CPI data earlier in the week, PPI inflation fell in April but by less than expected, reinforcing the idea that the Fed has its work cut out to bring stubbornly high inflation back towards the 2% target.
King USD
Fears were most acutely played out in the FX markets, which saw the US dollar strengthen to a 20-year high, while the safe-haven yen rose to a two-week top versus the USD, and the pound fell to a fresh 2-year low. Data showing that the UK economy stalled in February and contracted in March supported the BoE’s dire forecasts and will likely keep gains in the pound capped.
The euro was the weakest link among the major currencies experiencing its worst one-day decline since March 2020 and falling to a fresh 5-year low. USD strength, concerns of a recession in Europe, and escalation tensions with Russia as Finland applied to join NATO hit demand for the currency. Today the USD is easing but the pair continues to trade sub 1.04 as attention turns to comments from ECB’s vice president Luis De Guindo who could shed more light on the prospects of a July interest rate hike.
Looking ahead
Stock markets are steadier today, which is not surprising given some of the big moves yesterday. The FTSE is set to open 1% higher, and the DAX 1.1% higher after as the mood improves but inflation and slowing growth fears persist and are likely to keep gains limited.
The European economic calendar is relatively quiet, with just industrial production figures from the bloc being released.
Today’s primary focus will be on US consumer confidence data, due later, which is expected to show that morale fell in May to 64, down from 65.2 in April. Consumer sentiment continues to be depressed; however, this still hasn’t affected consumer habits. Retail sales in the US remain strong.
Gold
Gold remains depressed after a steep selloff yesterday. The precious metal is set for weekly declines in the region of 3.2%, marking its largest weekly drop in two months on USD strength and hawkish Fed fears.
Federal Reserve Chair Powell reiterated the need to get inflation back under control calling stable prices the “bedrock” of the economy.
Gold closed below the 200-day moving average, now the first line in the sand that buyers will need to recapture. Meanwhile, sellers will look for a move below 1810 to continue the bearish trend.
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