Chinese Rate Cut & UK Retail Sales Lift Sentiment – Daily Market Brief, May 20, 2022

After more losses on Wall Street, Asian markets jumped higher, and European bourses are set for a firmer open, rebounding from steep losses yesterday.

·         PBoC cut its 5-year loan lending rate by a record amount boosting shares in Asia

·         UK retail sales defy forecasts and rise 1.4% MoM, lifting the FTSE & GBP

·         German PPI inflation rises to a record high 33.5% helping EUR/USD look towards 1.06

Wall Street extended losses on Thursday, with US stock indices headed for another week of steep losses. US jobless claims rose to a 10-week high, and the Philadelphia Fed index dropped to its lowest level since October 2020, fuelling fears of recession.

The S&P is on the brink of a bear market, with the stock market leaving nowhere for investors to hide. Even defensive stocks such as consumer staples have been selling off, which raises the question of whether there is more downside to come? Stocks closed above the 2022 low, bringing some optimism. However, technically the indices aren’t oversold, and fundamentally stocks could keep selling off until peak inflation has been priced in.

The USD also dropped sharply yesterday as recession fears forced investors to cool bets of aggressive tightening by the Federal Reserve.

PBoC cut rates

Asian shares rose overnight after China cut its 5-year loan lending rate by a record amount to support its slowing economy. The measure helped calm the return to the financial markets after a rough ride across the week. However, more COVID cases in Shanghai raise doubts over whether the lockdown will end on June 1st.

European bourses are looking to start the final trading day of the week on the front foot, with the FTSE futures trading 1.2% higher and the DAX up over 1%.

UK retail sales

The FTSE is being helped higher by an unexpected jump in retail sales in April. Retail sales rebounded 1.4% MoM, defying expectations of a -0.2% decline and rebounding from a -1.2% fall in March. Even retail sales ex-fuel rose an impressive 1.4%.

The data shows that UK consumers kept spending despite inflation rising to a 40-year high and despite consumer confidence plunging to its lowest level since the 1970s.

Retail sales data is notoriously volatile, and so one good print is by no means the start of a new trend. However, the figures will at least bring some relief to the BoE, which is in the challenging position of needing to cut interest rates to tame inflation without tipping the UK economy deep into recession.

After rising 1% yesterday, GBP/USD is rising again today, with the pair set for its first weekly gain in 5 weeks.

German PPI

In Europe, German factory-gate inflation rose to another record high of 33.5% YoY in April, up from 30.9% in March. The data suggests that consumer prices, which are also at a record high, still have further to rise.

EUR/USD jumped 1.1% yesterday, bringing 1.06 back into focus. The DAX trades above 14000.

Looking ahead, Eurozone consumer confidence will be released and is expected to tick slightly high to -21.5, up from -22, despite a surge in prices.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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