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Markets struggle to pin down a turning point in US expansion The dollar hit a corrective low yesterday following release of US labor market data: The US Dollar Index (DXY) fell below the 104.40 level, marking a low point in the retracement since the beginning of June, which sparked some buying interest around 103.30 as discussed in the previous article. Breaking below the horizontal low further "solidifies" the correction pattern, so the majority of buyers may now shift their focus to the lower boundary of the channel and start buying the dollar against major counterparts once it reaches that level. This coincides with the key round level of 103 points. Unexpectedly, initial jobless claims rose from 233K to 261K (forecast was 235K), which intensified the sharp decline in the US currency yesterday (the magnitude of the drop exceeded 0.6%). Typically, the release of jobless claims passes unnoticed, even in the case of a surprise, but not this time. This, firstly, indicates an intensified search for a turning point in the trend of US economic expansion in the market and, secondly, reflects the lack of consensus regarding the upcoming FOMC meeting next week. The bond market also showed sensitivity to the report, with the yield on 10-year bonds decreasing by approximately 10 basis points after the release: Next week, we can expect three key events: the US inflation report for May on Tuesday, the FOMC meeting on Wednesday, and the ECB rate decision on Thursday. The consensus for monthly US inflation is 0.4%, and anything higher could tilt the scales in favor of a hawkish decision by the Federal Reserve. Considering that the market currently prices in about a 33% chance of a rate hike, a reassessment could lead to a significant strengthening of the dollar and a rebound in bond yields, especially since the FOMC meeting follows the next day. The market also assigns a high probability of a 25 basis point rate hike by the ECB, so a bullish outcome for the Euro implies a clear hint from the ECB that it’s not done with tightening. It is worth noting that in the case of the Fed pausing and an uncertain forecast for tightening in July (the market consensus expectation), we may experience a significant decline in the dollar, as historically, after a pause, the Fed had mostly been cutting rates after some time. The case for a rate hike is supported by the labor market (+330K jobs in April), as well as unexpected policy tightening by the Bank of Canada and the Reserve Bank of Australia, which may indicate an underestimation by the market of rebound in global inflation. The case for a decline is supported by comments from top Fed officials suggesting that it may be prudent to get more information about economy’s response to policy tightening. Among other major reports next week, US retail sales, industrial production, and consumer sentiment from the University of Michigan should be noted. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Dollar extends pullback but buying pressure may resurface in the run-up to May CPI report The trend corridor for USDCAD held its ground despite the unexpected decision by the Bank of Canada to raise interest rates by 25 basis points at yesterday's meeting: Based on numerous touches of the lower boundary line, the range of 1.33-1.3350 has proven to be an area of increased interest for buyers, so sellers did not dare to push further. Uncertainty related to the June meeting of the Federal Reserve is also weighing on the market, as its outcome could boost the dollar. The Canadian regulator justified the rate hike by noting that inflation has remained significantly above the target level, which is not desirable because anchoring high inflation expectations in consumer minds reduces the effectiveness of monetary policy. However, the accompanying statement no longer includes the formulation that the central bank is ready to raise rates further if necessary. The Bank of Canada expects inflation to slow down to 3% in the summer, but achieving the target level by the end of 2024 is once again in question as that corresponding wording also disappeared from the statement. Two major central banks, the Bank of Canada and the Reserve Bank of Australia, have now re-engaged in the race for monetary tightening. Interestingly, after the Bank of Canada's meeting yesterday, the likelihood of the Federal Reserve raising rates in June increased from 22% to 32%. Expectations for tightening by the European Central Bank also had to be revised: As seen in the chart above, the yields on 10-year US and German bonds jumped by 10 basis points after the Bank of Canada announced the rate hike yesterday. However, according to the latest Reuters poll, only 8 out of 84 economists surveyed expect a 25 basis point rate hike. The majority believe that Fed policy will remain unchanged in June. The dollar is on the defensive today, but a key risk event, the CPI report, gives hope for a reversal closer to its release next Tuesday. Two critical levels where buyers may make their presence felt are 103.30 (June low) and 103 (lower boundary of the correction channel): Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Dollar index: Bearish channel keeps short-term buying pressure in check The dollar upturn eventually lost steam yesterday as there was no significant correction in risk assets following new local high in the S&P 500. The dollar index (DXY) dipped below 104 points: A bearish correction channel continues to form, as mentioned in the previous article. However, the price is trying to press against the upper bound, as some investors are definitely hoping for a surprise from the Federal Reserve next week. This is also indicated by the technical chart of gold, where the price is pressing against the lower bound of the key channel: The probability of a rate hike, according to rate futures, is decreasing. This week, the disappointing ISM report on the service sector contributed to this. There is hope that the inflation report for May (scheduled for release on June 13) will once again tilt the scales towards tightening: Officials from the Federal Reserve (Richard Clarida) and the European Central Bank (Klaas Knot), who spoke yesterday, confirmed their intentions to tighten policy. Knot allowed for two more rate hikes in June and July, after which the course of policy will be determined by incoming data. Clarida stated that the tightening cycle is likely not over and that the rate is unlikely to be lowered before the beginning of 2024. The Bank of Canada is expected to leave its policy unchanged today, but if there is a rate hike, it will be the second central bank, following the Reserve Bank of Australia, that is not hesitating to tighten. Considering the economic proximity between Canada and the United States, the market may interpret this event as a signal that the Federal Reserve will not lag behind, leading to dollar purchases. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Is dollar rally losing steam? New banking sector shocks prevent the Fed from rising too high and too fast Contrary to expectations, the number of job openings per unemployed person in the United States increased again in April. JOLTS reported this yesterday: After several months of decline, demand pressure in the US labor market starts to rise again. The previous reading has also been revised upward. Since Federal Reserve Chair Powell started focusing market attention on labor market imbalances as the primary source of inflation, the importance of JOLTS data has significantly increased. That's why lower-than-forecasted readings in January and February induced a stock market rally and a decline in the dollar, while yesterday's hawkish surprise led to a pullback in risk assets and some strengthening of the American currency. However, despite the initial boost after the release, the dollar rally has started to lose momentum. The market paid attention to yesterday's comments from a top Federal Reserve manager, Jefferson, which clearly attempted to shift expectations regarding a rate hike from June to July. The main arguments cited were conflicting statistics and vulnerabilities in the banking sector. This is how the situation looks on the hourly chart of the dollar index: In the latter half of the two-week rally, the price began to press more closely against the trendline and eventually broke below it, followed by a retest from below. The double test of the 104 level marked it as a short-term support level. Concerns about potential shocks to the banking sector are reflected in the correction of the financial sector of the S&P 500, which has retreated by 4% from its local peak set on May 22. The decline was also fueled by yesterday's report from the FDIC that deposit outflows occurred at a "record" pace of 2.5% in the first quarter. Interestingly, this decline coincides with the weakening of the dollar rally. Remember that new shocks in the banking sector are one of the main factors preventing the Federal Reserve from hiking too high or too fast: Inflation data from France and Germany took away bullish interest from the Euro, as rumors circulated that a 50-basis-point tightening by the ECB, which was widely expected before, may be too much. Market sentiment has also been influenced by the weak activity in China's manufacturing sector, with the corresponding PMI index falling deeper into contraction territory, from 49.2 to 48.8 points. ADP and NFP reports are due today and tomorrow. Based on incoming information, if job growth and wages align with expectations, it may reinforce the belief that the Federal Reserve will postpone a rate hike. Hawks can only be saved by a significant surprise on the upside, particularaly in wage growth. However, JOLTS data allows for some hope in that regard. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Inflation surprise for the ECB EURUSD slipped by almost half a percent during Asian trading on Wednesday: As mentioned in the previous article, it might be wise to hold off on shorting the dollar. Other majors are also losing ground, except for the Japanese yen, which is holding up quite well. The moderate decline in USDJPY coincided with a correction in the stock markets, which could be the first sign of risk-off sentiment as Japanese investors are known to be active players in foreign bond and equity markets. The US economy is expanding, accompanied by rising interest rates. However, borrowing costs will eventually become burdensome. The Federal Reserve is curbing demand in the economy and intends to continue doing so (how else to tame inflation?), which will inevitably dampen revenue and dividend growth forecasts for companies. Without revenue and dividend growth, holding stocks loses appeal. The question is when the market perception of the Fed "overdoes it." Recently, the Fed played catch-up (expectations of economic expansion outpaced expectations of policy tightening), but the gap is gradually closing. A bear market will emerge when the market perception expects a tightening that will soon derail expansion. In the context of the growing fragility of the market, the following chart is also interesting: the ratio of FAANG stocks (the major big tech companies) to SPX, which serves as an indicator of concentration risk in the US stock market. It has rapidly risen since the beginning of 2023 and is now near a key resistance level: In the Eurozone, inflation appears to be taking a step back. In France, price growth slowed from 5.9% to 5.1% in May, while in Germany, it dropped from 7.2% to 6.1%. The decline was expected, but not to this extent. In the German services sector, inflation slowed by 0.2% to 4.5%: In a scenario where ECB officials are concerned about the "second-round" inflation through the wage-demand feedback loop, inflation behavior in the services sector is one of the best indicators of how effectively rate hikes are working. Both Fed and ECB officials have mentioned this multiple times. Therefore, the ECB will have to slow down, at least in its communication. The market has already started reassessing the odds, and a 50 basis point hike is now highly questionable. In this situation, the dollar is unquestionably favored over the euro, leading to a sharp decline today. The decline in EURUSD since the beginning of May has been characterized by very weak attempts to resist it. Today's inflation data create unfavorable informational asymmetry for the euro: key data for the EU has been released, and it is negative for the euro, while releases for the US are scheduled on Thursday (ADP) and Friday (NFP), with expectations leaning toward hawkish surprises. These two observations increase the likelihood of downward breakout moves, and meaningful support for the pair, in my view, may only emerge around 1.0550-1.06. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

US data surprises on the upside, confirming Fed concerns about inflation rebound Core PCE for April confirmed market concerns that consumer inflation in the US is accelerating again: Overall, it is not surprising as top Federal Reserve officials complained about sustained high inflation throughout the past week. They argued that interest rates should be higher, and some officials even hinted quite transparently about their voting intentions in June. This behavior is atypical and even risky for central bank officials, as they consciously risk losing flexibility in their response, which could result in significant costs (loss of credibility => less predictable response to policy decisions) if incoming data suggests otherwise. Nevertheless, the Core PCE, the first-quarter GDP estimate, and other data have put everything in its place. Regarding the assessment of US GDP data for the first quarter (the second estimate), output growth also exceeded expectations, reaching 1.3% compared to a forecast of 1.1%. Once again, consumer demand stood out with strong growth. This is the component that the Fed can and should suppress with a higher interest rate to achieve its inflation target. Consequently, the pressure on the Fed to raise rates has increased further after the report. Other data, such as jobless claims and durable goods orders, also exceeded expectations in a positive sense. The chances of tightening in June, as priced in by interest rate futures market, have risen to 66%. Just twenty days ago, the chances did not exceed 1%, meaning this outcome was not seriously considered: This week, on Monday, there is a calm atmosphere as the market has largely priced in the aggressive move by the Fed in June. Therefore, entering long positions on the dollar or shorting gold in the first half of the week can be risky. Most likely, there will be a slight correction of the previous week's movements. The overall target for gold seems to be achieved, and a rebound from the lower boundary of the trend channel and the 50-day moving average is looming: On Friday, the US unemployment report for May is expected. Considering the obvious positive momentum in the economy, the risks are skewed towards stronger readings than the forecast. The market will likely try to factor this in. This should be reflected in a resumption of long positions on the dollar and short positions on gold. Therefore, breaking the lower boundary of the trend channel remains a relevant idea, but for the second half of the week. EURUSD may rise before the inflation report for May (scheduled for Thursday), but it is unlikely to offer the market anything more interesting than the Non-Farm Payrolls (NFP) report at the moment. Therefore, as a catalyst for strengthening the Euro, the inflation report may prove to be short-lived. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

UK inflation spike sparks global market concerns. S&P 500 on the point of breaking downside The data on British inflation has seriously concerned the markets about the prospect of a renewed acceleration of inflation worldwide. The core inflation (which excludes volatile goods) jumped from 6.2% to 6.8% in April. It was expected that the pace of price growth would remain unchanged. In just one month, the price level rose by 1.2%. Let me remind you that central banks in developed countries try to keep price growth at around 2% per year. In the UK, more than half of the annual norm was reached within a month. Inflation in developed countries, especially in open economies, tends to quickly spread to other countries. In other words, the rise in price levels is more or less synchronous. Therefore, financial markets hurried to factor in a higher chance of aggressive measures from the central banks of leading economies into prices, resulting in the start of a correction. Bears dominated the American session yesterday, and today the decline continues in major European markets and US index futures. The dollar and gold are rising, as the best way to weather the storm in financial markets is to temporarily give up the search for yield. The flight-to-safety factor outweighed the factor of rising alternative costs in gold quotes, thus strengthening the asset. In the bond market, the capital outflow from stocks to bonds outweighed the factor of aggressive central banks. Yields are moderately decreasing after a seven-day rally. Currencies sensitive to expectations of an expansion phase in the global business cycle, such as the AUD and NZD, were hit hard, declining by 0.5% and 1.8% respectively. Oil prices are trying to hold steady as rumors grow that OPEC+ will decide to voluntarily cut production again. Currently, considering the absence of significant competition from shale oil, it is reasonable to expect that the alliance will be inclined to exercise price control by selling less but at higher prices. Of course, there is also an element of forecasting future demand growth, which can also affect sentiments in the risk asset markets. The acceleration of inflation in the UK fits well with the picture where Fed officials have recently started hastily preparing the markets for a higher interest rate this year. There is a high probability that, given the synchronous inflation growth, a similar dynamic can be expected in the United States. During the correction, the S&P 500 index declined into the range of a two-month consolidation, where both investors and speculators with short positions were indecisive: Considering the growing concerns about a renewed acceleration of inflation and the counter-reaction of central banks, the intensity of which could prematurely disrupt the expansion phase of the economy, risks are shifting in favor of breakthrough downward movements. The immediate attractive target for sellers appears to be the 50-day moving average, which is in the range of 4110-4115 points. The release of the Federal Reserve meeting minutes, scheduled for today, could act as a catalyst for the movement. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Financial Markets Update: Gold's Technical Chart Signals Potential Downside, Hawks Gain Momentum After a fragile and fleeting Monday equilibrium following the "balanced" statement by the head of the Federal Reserve, Powell, the markets have once again begun reassessing the chances of a rate hike in June. Gold prices have declined, US Treasury bond yields have risen, and the dollar is growing. An interesting technical setup is being formed on the gold price chart: The first thing that catches the eye is a very clearly formed ascending channel, which increases the probability of channel boundaries being tested as support and resistance zones (as a significant number of market participants are likely to see the same on the chart). In early May, the gold rally encountered resistance near the upper boundary of the trend corridor, which coincided with the historical high formed in March 2022. Subsequently, the price entered a correction phase. There was a retest of the 1950 zone, followed by a rebound after Powell's statement on Friday, which, judging by the subsequent downward movement, was used as an opportunity to short on the retracement. There is a high probability that there will be a retest of the 1950 zone followed by a downward breakthrough, after which the obvious target will be the lower boundary of the channel in combination with the 100-day moving average (represented by the blue curve on the chart). This corresponds approximately to the zone of $1925-1930 on the chart. Now, let's discuss why there is growing excitement among hawks. Yesterday, two other top Federal Reserve officials, Kashkari and Bullard, expressed clear hawkish inclinations in their comments. Kashkari mentioned the possibility of raising the rate to 6%. Bullard effectively stated that he would vote for at least another 50 basis points of rate hikes this year, as more efforts would be required if inflation were to accelerate again, compared to overshooting with tightening. Jamie Dimon, the CEO of JP Morgan, called for preparing for higher rates this year, while BlackRock changed its outlook on credit instruments from "overweight" to "neutral," apparently anticipating pressure on credit papers due to potentially higher rates. Earlier, two other representatives of the Federal Reserve, Logan and Jefferson, also made explicit calls to raise the rate. A similarly interesting situation has developed for the USD/CAD pair: After a period of one-week consolidation near the 1.35 level, forming a triangle pattern, the price broke above the upper boundary and tested the 1.3550 level. A similar triangle pattern has formed on the WTI chart since the beginning of May, but the price seems to be heading upward ahead of the OPEC+ meeting in early June. The Saudi Arabian Energy Minister warned speculators this week that being short on oil positions may end poorly for them, as it did in April. Speculators' short positions in oil futures have reached their highest level since 2020, increasing the chances of a short squeeze if OPEC+ announces another production cut. However, before the OPEC meeting, there are expected to be several events related to Federal Reserve policy (Core PCE, FOMC meeting minutes), so there may be developments regarding the USD/CAD pair, with a move towards 1.36 and then a correction downward on strengthening oil prices. Today's economic calendar is not particularly interesting. The activity indices in the manufacturing and services sectors of the Eurozone indicate continued weakness in the industry, with moderate expansion in the services sector. This has negative implications for the Euro, as it is an export-oriented economy (contributing 50% to GDP), and foreign currency supply is shrinking. Later, data on activity in the US manufacturing and services sectors will be released by S&P Global, as well as data on new home sales in the US. Additionally, Fed official Logan will make comments. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Powell disappoints market hawks, dollar braces for Fed Minutes surprise Risk-free rates in the US have decreased by 5-10 basis points, and gold prices have risen after Powell's speech on Friday. The head of the central bank avoided the hawkish "chorus" of other top Fed managers and chose a more cautious tone: Key highlights from Powell's speech: - Financial markets have been trying to price in a slightly different (i.e., more hawkish) trajectory of the central bank's interest rate for some time. - Incoming data confirms the FOMC's position that it will take some time to reduce inflation. - There is still time to monitor the incoming data. - There is no consensus on whether the policy tightening conducted so far is sufficient. - Credit market shocks may limit the scope for policy tightening. Compared to the statements of other officials last week, Powell's comments are much less definitive and seem like an attempt to restrain the rapid reassessment of the chances of a June hike while not completely ruling out tightening in June. European currencies have moderately risen against the dollar, and the yen is consolidating near a multi-month resistance level (138 yen per dollar). Analyzing the technical chart of EURUSD, we can generally speak of an equilibrium: the price broke the bullish trendline, thus delaying the euro's rally against the dollar this year, which was widely advertised in April. However, upon reaching horizontal support at 1.08, it found sufficient buyers, while sellers tempered their enthusiasm after Powell's speech: This week, there are two potential catalysts for a potential bearish breakthrough: the Fed minutes (Wednesday) and Core PCE on Friday. The inflation forecast is 4.6% YoY, but it should be noted that the market has underestimated inflation as measured by Core PCE in recent months. Even in the case of a downward movement, strong support should emerge near 1.07 with the formation of a double bottom. The rationale is simple: the ECB has no intention of backing down on rate hikes. Earlier last week, one of the ECB officials admitted that a strong tourist season may boost inflation. The technical chart for USDJPY resembles a true resistance breakout: the price above 138 met some bearish pressure in anticipation of a rebound, but the movement quickly run out of steam and draw buying interest: With the scheduled reports for this week, the risk is increasing that the price will move towards the 140 area, where profit-taking bearish momentum emerge, and a correction will ensue. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Treasury Yields Rally And Recession Fears Abate. No Fed Pause in June? The rally in Treasury yields is encountering minimal resistance, and mid-March levels have already been reached: Recently, comments from top Federal Reserve (Fed) officials arrived with unusually unambiguous positions. The emphasis was on "no signs of significant decline" in certain service sectors (Jefferson) or that “a year is not long enough to feel the full effect of interest rate hikes so far” (Jefferson), that the fight against inflation remaining a "critical priority" (Logan), and that "data doesn’t yet show that pause in June is appropriate" (Logan). In less than a week, the market revised the odds of a June pause from 98% to 58%: It should be noted that central bank officials rarely express their position on future monetary decisions clearly for two reasons: firstly, the market would immediately incorporate it into prices, rendering the future decision ineffective, and secondly, due to inherent future uncertainty, it is desirable to leave room for maneuver. The tone of the above comments, in my view, clearly indicates that officials are preparing the markets for a rate hike in June. Even the centrist Powell needs to adjust his position; the market expects additional hawkish surprises in today's speech by the head of the Fed. Bowman and Williams, two other Fed officials, will also make verbal interventions today. Market optimism was supported by data on the US labor market and the manufacturing sector: initial jobless claims interrupted their rising streak and decreased from 264K to 242K in the week ending May 13 (forecast was 254K). Continuing claims also declined, decreasing from 1.807 million to 1.799 million (forecast was 1.818 million). The Philadelphia Fed's Manufacturing Activity Index, an indicator with moderate significance for the market, also surprised on the upside. The overall index rose from -31.3 to -10.4 points (forecast was -19.8 points). The leading contributor to the positive change was the sub-index of new orders, which rose from -22.7 to -8.9 points (forecast was -25.7 points). Increasing yields, strengthening dollar, and the surprisingly "carefree" position of investors in stocks (VIX near multi-year lows, another sharp decline yesterday) are observed in the absence of any significant news on the macroeconomic front, changes in fiscal policy, etc. The statements from Fed officials arrived slightly later, only this week when the market had already priced in most of the Treasury yield rally. In my opinion, the key to understanding what is happening in the market lies in the April NFP report. Wage growth turned out to be significantly higher than expected (0.5% vs. 0.3% forecast), and unemployment dropped to an extremely low 3.4%. Incoming data, judging by the market's reaction and the comments from central bank officials, should soon indicate an acceleration in inflation. However, this should already be priced in and have a minimal effect. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Dollar Index Surges to Highest Level in Months, US Equities Rally The dollar index has risen to its highest level since the end of March, the rally yesterday was accompanied by a pickup in US equity market and bond rout (a signal that the Fed may be again behind the curve). Major US stock indices closed in positive territory, US futures extend the rise today, with the S&P 500 consolidating near 4200 points before a potential breakout. Interestingly, gold has left the $2000+ zone, trading near $1970 per ounce on Thursday. This is likely due to the increase in risk-free rates in the US, which represent opportunity costs for the yellow metal. When the real interest rate rises, the missed opportunity cost of investing in gold also increases, as gold is known to offer zero yield. The yield on the 2-year Treasury bond has surged to 4.16%, and the yield on the 10-year bond has reached 3.59%: As seen in the chart above, yields are currently at their highest level since mid-April and are essentially reaching the resistance levels from early March (4.2% for the 2-year bond and 3.6% for the 10-year bond). Interestingly, within just one week, the bond market has apparently priced in another 25-basis-point rate hike by the Federal Reserve in June. Overall, it becomes clear where the dollar is gaining strength: higher expected interest rates in the US (relative to other countries) are stimulating capital inflows into US bonds. The EURUSD pair, after bouncing back to the 1.09 level as expected, has retested the general ascending trendline. The price is likely to attempt to test the 1.08 level and seek support in the 1.07-1.08 area: A similar situation is observed in the GBPUSD pair: the price has bounced off the key resistance line and may return to the upper bound of the short-term ascending channel, which will now act as support (1.235): Tomorrow, Powell's speech is due, and judging by the bond market's near-term performance, the comments from the central bank's head will likely indicate a hawkish stance. However, the bar for surprising the market should be set high, as expectations for June decision have already been significantly revised. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Mixed Economic Signals: Eurozone GDP in Line with Expectations, Weakened Sentiment, and Potential Dollar Surge Second estimate of Eurozone GDP for the first quarter came in line with expectations, showing a modest quarterly growth of just 0.1% and a YoY output gain of 1.3%. However, the ZEW Economic Sentiment Index for the Eurozone and Germany fell more than anticipated, indicating worsened sentiment. With EURUSD nearing 1.09, buyers remain cautious as potential surprises loom ahead, including Powell's upcoming speech this week. Despite lingering concerns over the US banking sector shocks, stock markets are holding up well, with the expected volatility index of the S&P 500 (VIX) near its lowest levels in two years. Market nervousness is also fueled by political games surrounding the issue of raising the US debt ceiling. Today's focus lies on the US retail sales report and speeches by top Federal Reserve officials, Williams and Bostic. After a 0.6% decline in March, a rebound of 0.8% in total retail sales and 0.4% in retail sales excluding automobiles is expected. The Federal Reserve has emphasized its data dependence in deciding future rate actions, and with low chances of rate hikes (10-20%), strong retail sales data could shift the risks towards an increase in the dollar and bond yields. Disappointing data from the Chinese economy, including retail sales, investment in fixed assets, and industrial production, came in below forecasts: Demand for safe-haven assets increased following the release of the Chinese data, leading to a decline in yields of major world government bonds: Considering that the VIX index is near the lower end of its historical range, the probability of a potential upward spike is growing, wherein stock indices would climb, and the role of the dollar as a safe-haven asset would come to the forefront once again. Commodity markets also weakened after the Chinese data. Oil prices dropped by approximately a dollar, while commodity currencies such as the AUD, NZD, and CAD are trading near opening levels or on the defensive. Looking at the NZDUSD pair, a rising triangle pattern can be observed on the daily timeframe, indicating a slight bullish bias. The nearest resistance levels are at 0.64 and 0.655, while support is found in the 0.613-0.615 zone. It is expected that the price will continue to move within the triangle and, after a possible retest of 0.615, aim for 0.64: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Mixed US inflation data add odds to potential dollar reversal After reaching a maximum level since the beginning of April last week, the dollar retraced on Monday, previously breaking upward from below a bearish channel that began in October 2022. An interesting idea now emerges of a bullish breakout as an early signal for the dollar reversal: For EURUSD, a buy signal emerged, at least in anticipation of a short-term upward retracement: the price made a retest of the general ascending trendline, which should generate some bullish pressure. However, the rally of EURUSD since October 2022 is at stake: Sellers are unlikely to give up so easily, and the price is likely to return to test levels below the trendline. Within this assumption, shorting the pair from 1.09 can be considered. The US inflation report last week left a mixed impression. While overall inflation was below expectations, the more important core inflation from the Fed's perspective decreased reluctantly in line with expectations (5.5%). The US unemployment report two weeks ago had an inflationary bias (acceleration in wage growth, decrease in unemployment). The University of Michigan Consumer Sentiment Index released last Friday was significantly below expectations (57.7 points against an expected 63 points), prompting a rise in the dollar index from 102.20 to 102.60. Market participants seemed to increase demand for the dollar as a safe haven asset, as weak consumer sentiment increased recession risks. Two potential factors for a dollar rally this week are Powell's speech on Thursday and a sudden surge in volatility in the stock markets (VIX index near lows since the beginning of 2022). Although the FOMC meeting is still a few weeks away in June, markets are pricing in a high probability of a pause, which poses risks of a correction in case of hawkish data or corresponding Powell's comments. If expectations for interest rates correct, the dollar should strengthen. This week, investors may also pay attention to the final GDP and inflation estimates for the Eurozone for the first quarter and April, as well as the inflation report in Japan, which will be released on Thursday. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Inflation Report Boosts Dollar, Fed's Pause Looms: Market Insights The inflation report gave the dollar a little boost, causing it to gain almost half a percent against the euro and Swiss franc on Thursday. Commodity currencies took a hit alongside the commodity market, with the Australian dollar dropping by 0.7% and the New Zealand dollar by 0.4%. Despite an overall decrease in consumer inflation in the US during April, core inflation remained steady at 5.5%. The dollar gains ground without the help from equity market corrections and with the solid likelihood of the Fed taking a break in June (chances are now almost 100%), suggesting that the factors driving its performance lie in worsening growth prospects outside the US. Yesterday's inflation report showed a drop in consumer inflation overall, but core inflation remained stable. However, a significant sign of decreasing inflation in the upcoming months was the consistent weakening of shelter inflation: This component carries significant weight in the Consumer Price Index (CPI) and is one of the most influential factors (as rental prices follow housing prices, and contract terms lead to price stickiness). Additionally, it affects future inflation through inflation expectations. This isn't surprising considering that a considerable portion of consumer spending goes toward rent and housing maintenance. Treasury yields slip reflecting the market's growing confidence that the Fed will announce a pause in June: The Producer Price Index (PPI) didn't meet expectations, with a monthly price increase of 0.2% compared to a forecast of 0.3%. This further indicates weakening consumer inflation since businesses will have fewer incentives to raise prices. Today, the Bank of England raised interest rates by 25 basis points and stated that further increases are possible if inflation doesn't respond to policy changes. The central bank revised its economic growth forecast to higher values, and the "boost in optimism" is the strongest since 1997. Market participants suspect that the central bank won't stop and will raise rates up to 5%. Looking at the technical chart for GBPUSD, the price has approached a crucial bearish line. If it breaks through and consolidates above this line successfully, it could easily gain bullish momentum. The presence of a hawkish central bank, as revealed in today's meeting, serves as a foundation of bullish Pound outlook: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

FOMC Indicates Possible Pause in Interest Rate Hikes, ECB Raises Rates Amid Inflation Concerns The FOMC meeting on Wednesday indicated that the Fed is very close to announce a pause and the range-bound response in Treasury yields suggests that there was no significant shift in rate expectations: FOMC members voted unanimously to raise interest rate by 25 basis points, bringing the federal funds rate to 5-5.25% range. Consensus before and after yesterday's meeting was for a pause in further rate hikes. To truly embody caution in line with FOMC expectations, the accompanying statement emphasized a "data-dependent approach," with attention to incoming economic data and credit availability (lending standards and market interest rates). There will also be greater focus on policy lags. At the press conference, Powell tried to calm the markets by stating that the banking sector is gradually recovering from the shock and things are overall improving, even despite the defaults of SVB and FRC. The head of the Federal Reserve also stated that stress in the banking system and the resulting rise in borrowing costs and reduction in loan supply (increased bank requirements for borrowers) should put pressure on economic activity, hiring rates, and inflation. In my opinion, this aspect of policy is very important because a rate adjustment by the Federal Reserve will only work if banks want and are willing to take risks (increase lending). Next week, there will be a survey of U.S. banks on lending rates (Senior Loan Officer Survey), which will shed light on how much bank lending activity may have shrunk due to increased uncertainty. This variable is a leading indicator of changes in the unemployment rate. The graph below shows two curves: the share of banks tightening requirements for borrowers and the change in unemployment over the past 12 months. It can be seen that the unemployment rate responds with some lag to banks' tendency to seek yield, i.e., issue loans. If the Federal Reserve leaves rates unchanged at the next meeting, given that historically, the period between the last rate hike and the first rate cut has averaged about 6 months, market participants, may start to expect a rate cut in November-December. The yield curve implies a 75-100 basis point policy easing next year. It should be reminded that according to the latest economic forecasts of the Federal Reserve, a soft recession is expected at the end of the year, i.e., two quarters of negative GDP growth in a row. The European Central Bank also raised its rate by 25 basis points today and did not rule out further increases this year. The ECB expects high inflation to persist for some time. Nevertheless, the phrase "future decisions will provide a sufficiently restrictive policy" indicates that the ECB is also close to a pause. In the EURUSD pair, a bearish impulse appeared after the regulator's meeting, and sellers are likely planning to retest the lower bound of upward trend channel before the rally can resume: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

US GDP Falls Short of Expectations and Inflation Rises: A Closer Look at the Numbers The risk appetite in global markets came under pressure while safe-haven demand has increased after US GDP and inflation data on Friday. The US GDP for the first quarter posted a big "bearish" surprise, rising by only 1.1% compared to the forecast of 1.9%. Looking at GDP separately for the four main components (consumption, investment, government purchases, and net exports), it is evident that it was the investment component that dragged down the headline reading while consumption and government purchases maintained a good positive momentum: In annual terms, consumption grew by 3.7%, with a strong jump in January when unusually warm weather stimulated early activity rebound after December. Government purchases increased by 4.7% in annual terms, and net exports added 0.11% to the annual GDP growth rate. Nevertheless, the weakness of the main indicator was hidden in downside momentum of investments (21% of GDP). It consists of three main components: investments in fixed assets, firm inventories, and households' residential investments. While firm investments in fixed assets grew by 0.7% (quite weakly), investments in housing decreased by 4.2%. In quarterly terms, this indicator has been decreasing for 8 consecutive quarters due to pressure from mortgage rates combined with sticky high housing prices that accelerated during the period of low rates after the pandemic. Firms also reduced their inventories in the first quarter (which is considered negative investment), which took away 2.26 percentage points from the GDP growth rate. As for inflation, the core GDP deflator (one of the inflation metrics) increased by 4.9% on an annual basis, up from 4.4% in the previous quarter and above the consensus of 4.7%. Along with disappointment over the GDP data, the market was forced to reprice the risks of the Federal Reserve's monetary policy tightening in light of hawkish inflation data today. The rise in Core PCE exceeded expectations - 4.6% versus the forecasted 4.5%. The February figure was revised upward to 4.7%. Monthly inflation was in line with expectations at 0.3%. In the next quarter, consumption is likely to make a less significant contribution to GDP, given recent consumer trends (decline in retail sales). Weak investments suggest a reduction in corporate optimism about the short-term prospects of the US economy. CEO surveys of US companies and the NFIB small business index indicate preparations for a downturn and recession, which will further depress hiring and investment in capital goods. The consensus for Q2 GDP growth is shifting closer to 0, and the actions of the Fed, which is forced to fight inflation, will likely bring the onset of a recession in the US economy closer. Also, we cannot underestimate the possibility of new banking shocks, which could lead to a sharp tightening of credit conditions and further hit economic activity. The dollar received a boost today due to increased demand for the US currency as a safe haven asset. Looking at the EURUSD pair, it can be seen that the price is consolidating around the lower boundary of the uptrend channel, which can be seen as a signal that the uptrend may be petering out and closer to the Fed meeting, there may be a break downward: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Dollar rebounds but risk of a fresh slide persists US and European stock indices are on the slippery slope, the Dollar index found enough buyers to rebound from 101 level after the dip on Monday. The selling catalyst was disappointing report from the Dallas Fed regarding activity in US manufacturing sector. The corresponding index dropped to -23.4 points missing the forecast of -14.6 points. This is the lowest reading since July 2022: Investors apparently opted to reduce risk exposure ahead of earnings releases of major US companies this week, such as GOOG, META, AMZN and MSFT. Comments of the ECB representative Schnabel supported European currency. According the official, it is still possible that the ECB will raise rates by 50 basis points next week. US Treasury yields are gradually drifting lower, as the scenario of a significant slowdown in US growth in the second quarter (which the Fed also warned about) becomes more likely. The incoming data speaks in favor of these concerns. Of the latter - retail sales and the Dallas Fed index, which turned out to be significantly weaker than expectations. Investors' attention today will be riveted to the data on consumer confidence from the Conference Board, as well as the index of activity in the manufacturing sector from the Richmond Fed. Risks on both indicators are shifted towards weaker prints, which may further constrain the activity of buyers in the US stock market and increase pressure on the Fed to provide the markets with a more friendly forecast for policy path at the upcoming meeting. Some interest may cause data on the real estate market in the US, in particular the price index from Case-Schiller. It is well known that consumer inflation, with a lag of several months, reacts to changes in housing prices (through changes in housing rental rates, from which, among other things, consumer inflation is calculated): As for the Fed meeting next week, the main question is what the Fed will do after the May rate hike (which seems to be beyond doubt). And while future policy is once again heavily dependent on incoming economic data, shocks to the banking sector are back on the radar, with First Republic Bank reporting a larger-than-expected deposit outflow. The news pulled the US bank stock index down after five days of rally: Tomorrow there is a risk of a fresh sell-off of the dollar after release of data on orders for durable goods in the US. After a 1% decline, a 0.7% rebound is expected, the market may not be prepared for a weak print and may shift Fed expectations towards a more dovish one in cases of a downbeat print. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Euro rises against dollar, technical chart signals new rally On the US and European stock markets, there is a lull, with US index futures trading near Monday's opening levels, and European indices slightly weaker. The dollar has gone on the defensive, indicating a search for yield in the market. Moderate selling pressure has resumed in commodity markets, with oil prices falling. The yields on US Treasuries and German bonds, which stabilized last Friday, are fluctuating in a narrow range on Monday. The euro has gained quite well today compared to other major currencies, almost 0.3%, and it seems that the 1.10 level will play a role as a foundation for a new rally. This is indicated by the technical picture of the dollar index. On the chart below, it can be seen that, after forming a double bottom at the level of 100.75, the price bounced back very uncertainly, pulling away a short distance from the level. This suggests that buyers did not particularly resist, which in turn may allow sellers to build up pressure more confidently. Buyers may therefore appear near the level of 100, where there will also be a short-term support level along the trend line: The fundamental component of dollar expectations also points to the risk of a weaker dollar in the medium term. The Fed is leaning towards raising rates one last time and then announcing a "pause" (smoothly transitioning to a signal of the end of tightening and a discussion of when to start lowering interest rates). The inflationary challenge for the ECB is more serious, so it may not be limited to just one rate hike this year. If you look at the difference in short-term market rates between the US and Germany (which largely explains the EURUSD exchange rate), the indicator clearly leans towards lower levels and a potential turning point is seen at a spread of 1%: If such a scenario is realized, the euro will obviously be more expensive relative to the dollar. The news calendar today is quite boring. The business climate index in Germany from the IFO agency rose for the seventh month in a row, from 93.2 to 93.6 points. The change, while modest, was positive, and the absence of negative news was enough to boost euro buyers. Expectations of German firms improved once again, but remain below the historical average. The assessment of current conditions decreased. Overall, the report indicated that the decreasing gas prices and the resuming expansion of China's economy, which is a trading partner with Germany, have positively affected the country's business climate. However, there is no talk of a strong expansion of the economy. From a fundamental events perspective, this week will be interesting on Thursday when data on US GDP for the first quarter of this year will be released, and on Friday when the second most important consumer inflation indicator in the US (Core PCE) for March, Eurozone GDP for the first quarter, as well as the inflation report in Germany will be released. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

NY Empire State Manufacturing Index Surprises with Acceleration in April The NY Empire State Manufacturing Index surprised with its acceleration in April, as the main index not only did not decrease according to the forecast from -11.5 to -18.0 points, but even jumped to 10.8 points, which is the highest point of expansion since July 2022: The forecasts of 34 experts ranged from -25 to -11.5 points, with a median forecast of -18 points, so the change in the indicator became the second most unexpected in the history of observations (the first was in one of the post-COVID months). The leading indicator of new orders changed the most sharply in a positive direction - from -21.7 to 25.1 points. In second place was the shipments index, which changed from -13.1 to 23.9 points. The weak point of the report was the employment data - the hiring index remained at -8 points for the third month in a row, and the average workweek index fell by -6.4 points. The data confirmed the worrying trend that emerged in early March: at that time, the number of job openings sharply decreased (JOLTS data), and the growth of initial claims for unemployment benefits accelerated: Yesterday was another positive day in risk asset markets, and today the rally continues, while the dollar is on the defensive. As expected, the upward correction of the dollar did not develop, and EURUSD found support near 1.09. Sentiments significantly improved after today's economic data from China exceeded expectations, pushing talks of a recession to the background for a while. China's GDP grew by 4.5% in the first quarter of 2023, which is significantly higher than the forecast of 4.0%, also indicating a sharp acceleration compared to the previous quarter (2.9%). Retail sales in March grew by 10.6% in annual terms, with a forecast of 7.4% (a two-year high), and the pace of industrial production growth was the highest in 5 months. Unemployment, according to a population survey, dropped to a 7-month low. The UK labour market data significantly strengthened the position of the pound ahead of the upcoming Bank of England meeting. The number of employed increased by 169K in March, which was significantly higher than the forecast of 50K. However, the unemployment rate did not meet expectations and increased to 3.8% with a forecast of 3.7%. The key point of the report was the 5.9% increase in wage growth in annual terms, which was 0.8% higher than forecast. Taking into account that consumer spending correlates with income growth (there is a linear relationship between them, but the coefficient is less than 1, since a portion goes to savings), we can expect consequences for inflation, which means that the Bank of England may need to exert more effort to keep price pressure under control. GBPUSD strengthened by about half a percent today and buyers are likely to test the 1.25 zone again. From a technical point of view, the pair has broken out of the formed flag and has the potential to rise to the 1.265 level, where the trend line passes: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

US Bond Yields Rise Despite Dovish Retail Sales Figures The chances of the Federal Reserve keeping its policy unchanged in May have increased after the release of US production inflation data for March. Overall production inflation unexpectedly turned negative in March: prices fell by 0.5% in a month, although it was forecasted that they would remain at the same level: The market enthusiastically received another signal that price pressure in the US economy is abating, and as a result, the probability that the Fed will abandon the idea of raising rates in May has increased. Key US stock indices gained more than 1% on Thursday, but Nasdaq stood out, closing the session with a 2% increase. Since growth stocks, which dominate the technology sector, have a longer duration, they should be more sensitive to changes in expected inflation. Therefore, the greater rise of the index yesterday suggests that investors are betting on further inflation reduction. Meanwhile, the bond market suggests that investors are not yet overly concerned about a recession in the economy: demand for bonds has not only not increased recently, but has even slightly decreased, as can be seen from the rise in Treasury yields. Even a 1% monthly decline in retail sales, as shown in the report on Friday, turned out to be unconvincing: bond yields rose, and the 10-year Treasury yield crossed the 3.5% mark. Apparently, the market does not fully share the Fed's concerns about an impending recession. Credit spreads, which reflect investors' preference for high-yielding bonds over protective bonds, although still higher than the March lows, continue to decline after the US banking sector shock: There are still almost three weeks left before the Fed meeting, and futures on interest rates show that risk appetite may still increase: the chances that the Fed will still raise rates in May are almost 67%, but slightly decreased after yesterday's PPI report (from 71%): However, there is still a growing weakness in the US labour market: initial jobless claims are consistently increasing, with yesterday's data showing an increase of 239K (forecast 232K). The situation with long-term claims has improved slightly, with the number falling to 1.81 million (forecast 1.814 million). The inflation report in France pleased euro buyers as it contained another hawkish surprise: year-on-year inflation slowed in March, but not as quickly as the ECB would like - 5.7% versus a forecast of 5.6%. In the near future, the market is likely to continue to expect no changes in the Fed's policy in May, which will provide additional support to the market, especially to the assets which offer higher yields. Dollar should remain under pressure, despite uptick after retail sales data. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

US CPI report boosts hunt for yield but rates markets remain cautious The report on inflation in the US boosted risk appetite on Wednesday, causing a sharp decline in the dollar. Overall inflation in the US slowed to 5% per year, which was better than the forecast of 5.2%. The dollar index lost about half a percent yesterday, dropping to around 101.50. Today, the correction continued - EURUSD rose above 1.10, and GBPUSD rose above 1.25. The content of the FOMC protocol was somewhat discouraging, as it stated that members of the Open Market Committee expect a moderate recession by the end of the year, but risk assets shrugged off the negative news quite quickly - after a "red" session on Wednesday, US stock indices rebounded on Thursday, with the S&P 500 up 0.6%, DOW up 0.4%, and Nasdaq up more than 1%. The currency market was apparently more interested in the inflation report than the interest rate market. Interestingly, the dynamics were different - the dollar fell, while the yield on treasury bonds, after a brief downward movement, returned to levels prior to the release of the CPI report: The treasury bond market (the largest in the US) and the dollar are inversely proportional - when investors sell bonds, they increase demand for the dollar, and vice versa. The decline in the dollar in the absence of an increase in bond prices (or a decrease in their yields) apparently indicates a purely currency phenomenon of the weakening of the dollar: investors in American assets gradually prefer to seek yield abroad, which increases the supply of dollars and lowers its exchange rate against other currencies. However, one should be very cautious: although overall inflation in the US is slowing down, core inflation has changed little over the past four months, which cannot but worry the Federal Reserve. In March, it reached 5.6% (in line with the forecast). If not for the situation with SVB Financial, such behaviour of inflation would have served as a basis to raise the rate by 50 basis points at the upcoming meeting. There is something to think about... Data on the Chinese economy today additionally fuelled demand for risky assets, as they demonstrated a serious surprise. China's exports unexpectedly grew by 14.8% year on year in March, which is a sharp deviation from market forecasts of a 7% reduction: This also fundamentally changes the outlook for the expansion of the Chinese economy this year, as exports have been in a downward trend over the past five months. The growth in exports in March was due to the same drivers as in previous months, only this time the impact of these drivers turned out to be unexpectedly strong. The overall indicator grew due to the export of electronic components and products, which, in nominal terms, ranks first in China's export structure. Exports in this category grew by 12% in annual terms, and its contribution to overall exports remained stable at 58%. Electronics exports recorded growth for the first time since October 2022. Imports decreased slightly by 1.4% year on year, but still recorded a monthly growth of 15.3%. Imports of electronic components, which should be considered as part of processing trade and is an indicator of future export growth, decreased by 16% year on year. Its contribution to overall imports also decreased from an average of 38% in 2022 to 35% in March. Presumably, this is due to a substitution effect from the increase in energy imports since 2022. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Optimism gradually gives way to caution? The US stock indices closed slightly down on Tuesday, despite a decrease in risk-free rates after the release of US job market data (JOLTS report). The S&P 500 and Dow indices fell by 0.58 and 0.59%, while the technology sector stocks (which are more defensive assets) lost slightly less - 0.37%. At the same time, bond yields (risk-free rates) reacted downwards after the data was released - the two-year rate lost more than 18 basis points in the moment, while the 10-year rate lost about 12 basis points. To understand what a decrease in bond yields along with a negative reaction in the stock market means, two scenarios need to be considered: 1. Bond yields are falling, and stock prices are rising: This scenario is characterized by capital inflows into both bonds and stocks. It is clear that this happens when expectations shift towards monetary policy easing and the expectation of firm income growth or a decrease in uncertainty. For this to happen, moderately negative information (aka "bad news - good news") is necessary, which should trigger a monetary stimulus that is expected to be sufficient to provide expansion. 2. Bond yields are falling, and stock prices are also falling: This same scenario rather characterizes the capital outflow from stocks into bonds (rotation between asset classes), i.e., a flight from risky assets into defensive ones. This also happens when expectations shift towards monetary policy easing, but at the same time, expectations regarding firm income growth worsen or uncertainty increases. This is usually facilitated by the release of excessively weak economic indicators ("bad news - bad news"), and there is concern that the central bank may provide insufficient stimulus when changing policy. Yesterday's JOLTS report, which, as I previously mentioned, is currently in focus for the Federal Reserve due to the increased importance of the labour market in inflation forecasts, surprised with a sharp decline in job openings from 10.5 to 9.9 million, with a forecast of 10.4 million: The sharp reduction in excess job openings indicates that employers are less willing to compete for workers (which should slow down wage growth and then inflation) and that firms' expectations regarding demand for their goods/services may have worsened, causing them to reduce hiring rates. Considering the leading nature of this indicator and the sharp negative change, the market's reaction to the report in stocks and bonds yesterday may well be the first sign of a shift towards caution. For this scenario to gain traction, market participants may prefer to wait for reports on service activity today (with a focus on hiring components) and Non-Farm Payrolls on Friday. If wage growth did indeed slow significantly in March, concerns about an economic downturn could increase, and the market may experience a sell-off that will "demand" interventions from the central bank (hints of an end to the tightening cycle or rate cuts). Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

As banking system shocks subside the focus shifts to central banks’ battle with inflation The dollar index struggles to bounce back up after dropping to 102.50 level, in line with the earlier idea that the Fed is avoiding clear policy recommendations, while the ECB is showing more readiness to raise rates. This shifts the interest rate differential in the direction that works against the US currency. European indices bounced up more than 1% on Wednesday, almost recovering to pre-SVB Financial correction levels: UBS and Deutsche Bank stocks, which are indicators of the Eurozone's perception of banking stress, continued to rise today, up 2.49% and 3.94% respectively. It's a pretty positive sign that market participants are becoming more confident that shocks in the banking system are successfully isolated and their impact is diminishing. Significant declines in US crude oil and gasoline inventories according to EIA data supported oil prices, with WTI and Brent rising to two-week highs. Crude oil inventories fell by more than 7 million barrels (forecast +0.1 million), while gasoline inventories fell by 2.9 million (forecast -1.61 million). The inventory drop suggests increased demand from refineries and fuel distributors, such as gas stations, which in turn positively characterizes the dynamics of consumer demand, a key driver of economic expansion. The reduction of concerns about banking stress in the US and EU will inevitably intensify search for yield (rotation from quality to risk), and therefore a narrowing of credit spreads (lower borrowing costs). As shown in the chart below, the spread between investment-grade bonds and high-yield bonds, after rising in mid-March, has stabilized and is likely to soon begin to decline: As a result, there will also be an increase in inflation risks (thanks to credit expansion), which will inevitably reactivate hawkish rhetoric from the Fed as inflation is still quite high. That's why it may make sense to approach the current rally with great caution and consider the possibility of short positions on risk assets or profit-taking ahead of upcoming speeches by the Fed officials, especially Powell. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Stock market rebound may help the Fed to gain confidence in its tightening course News related to Deutsche Bank shook financial markets on Friday, but the trend on Monday suggests that the market overreacted with panic: SPX futures topped 4000 points, gold fell by more than 1.5%. Shares of American banks, which are probably some of the best proxies for broad market volatility, bounced back in pre-market trading, ensuring that Monday's trading will be driven by a search for yield. The catalyst for the rebound is believed to be the news that the FDIC has approved the purchase of SVB Financial by another US bank. Together with full deposit insurance, the purchase of a troubled bank significantly reduces the risks of a domino effect in the US banking sector, which until recently "hung like a stone around the market's neck." Earlier, an official from the Fed stated that the situation with SVB Financial is unique, hinting that if the threat of "contagion" can be prevented, the central bank can return to its main task at the moment - combating inflation. The interest rate differential between EU and US bonds continues to change unfavourably for the dollar, as the Fed leans towards a gradual tightening of its program, while ECB officials continue to express concern about inflation and pedal the topic of prolonged policy tightening. Thus, ECB official Nagel spoke about QT on Monday, saying that its pace should be accelerated closer to the summer. It is well known that the interest rate differential on short-term bonds explains large portion of exchange rate movements in the short term, and EURUSD is no exception. Since the beginning of March, the interest rate differential on 2-year bonds between the US and Germany has decreased by more than 30 basis points, but the strengthening of EURUSD has not been significant: One of the main reasons for the "lag" in the EURUSD rate from the dynamics of the corresponding differential may be the reluctance to part with the dollar due to high volatility and the recent surge in bearish sentiment. In other words, demand for the dollar as a protective asset may now be holding back its depreciation, and if the risks of new episodes of bank stress dissipate, EURUSD is likely to grow at a "leading" pace. However, along with the increase in risk appetite, expectations for aggressive actions by the Fed at upcoming meetings will be simultaneously revised. Powell said that the recent risk-off worked like a rate hike (credit spreads widened, yields on high-yield bonds rose, increasing the cost of borrowing), therefore an increase in risk appetite will have the opposite effect and should add work to the Fed. Overall, this can be seen already: along with the market rally, the chances of a Fed rate hike in May have doubled, from 17 to 35%: It is obvious that the prospects of a prolonged market rally under such conditions are not visible. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Stock markets plunge on Deutsche Bank worries as contagion risks grow The stock market is once again under pressure as worries about the banking crisis increase again, this time mainly on the European continent, after a brief respite. The STOXX 50, DAX, and French CAC 40 are all down more than 2%. The trigger for the correction was a surge in concerns over Deutsche Bank's position - the cost of default insurance on the bank's bonds jumped from 142 to 193 points on Friday. This was preceded by news that the bank intends to redeem Tier 2 subordinate bonds, which raised concerns about the bank's ability to service its debts (this type of bond offers perpetual income) and caused outrage in the subordinated debt market (AT1 bonds), which was the source of volatility for the entire EU banking sector a few days ago. Source: Bloomberg The risk-off sentiment has also spread to the American continent, with Treasury yields across the maturity spectrum falling and hitting a local low. The yield on the 10-year bond fell to 3.28%, the lowest since the beginning of September 2022. The derivatives markets which have federal funds rate as underlying asset, now completely rule out the possibility of a rate hike in May. Defensive assets rose sharply on Friday, with gold once again testing the $2,000 per ounce level. This time, the breakout move is likely to push the price higher than the previous local maximum. The potential target for buyers could be $2,050 per ounce. Oil prices also collapsed, signalling a rise in recessionary sentiment. Both main benchmarks lost more than 3% in the moment. Regarding the economic calendar for today, data on orders for durable goods added pessimism to the US economy, with a decrease of 1%, against a forecast of 0.6% compared to the previous month. Recall that Powell stated at the press conference that stress in the banking sector would be reflected in a slowdown in economic activity and faster inflation decline, so market sensitivity to incoming data, particularly negative surprises, may be reduced as investors may discount negative deviations. The PMI indices for the economies of the European bloc produced a mixed impression: activity in the manufacturing sectors of countries once again fell below expectations, while the positive momentum in the service sector persisted, so the corresponding indices exceeded expectations. On the American market, the focus is back on the financial sector of the S&P 500: the price has dropped to the support level (500 points). Next week, it's important to keep an eye on whether the price can hold below the level, as in case of successful consolidation, a technical signal may trigger further selling and then this sector will continue to generate risk aversion. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.