With the week shortened in some regions and a plethora of economic data, there is potential for another volatile week ahead.
Last week, the RBNZ in turn raised interest rates by 50 basis points. This week, the Bank of Canada will have the opportunity to discuss interest rate policy at its meeting on Wednesday. Will the BOC increase by 50 basis points? OPEC+ will also meet this week and decide whether or not to increase production beyond the planned 432,000 bpd. Additionally, there have been many comments over the past week regarding when and by how much the ECB will raise interest rates at its July meeting. Markets may have a clearer picture when the Eurozone CPI Flash is released on Wednesday. Additionally, the United States will release nonfarm payrolls this week. With Powell mentioning that lower inflation may come at the expense of a 3.6% unemployment rate, this will be an important NFP to watch!
The RBNZ raised rates last week by 50 basis points, bringing the key OCR rate to 2%, as expected. It was the 5e consecutive meeting, the RBNZ raised rates. However, the surprise came in the tips that followed. Members of the central bank noted that the neutral rate was between 2% and 3%, although they expect rates to rise above the neutral level. They also increased their OCR forecast to 2.68% in September from 1.89% previously, 3.88% in June 2023 from 2.84% previously and 3.95% in September 2023 from 3.1% previously. . The central bank also noted that it favored larger increases earlier in the tightening cycle to prevent inflation from becoming persistent. The hawkish outlook helped the Kiwi rally, with NZD/USD up nearly 2% on the week.
Bank of Canada
The Bank of Canada meets on Wednesday this week to discuss monetary policy. At the previous meeting, the central bank said interest rates should continue to rise as inflation persists above target. The BOC raised its inflation outlook for the first half of 2022 to 6%, from 5% previously, and said it saw inflation remaining well above the 2% inflation target for the ‘year. April’s CPI was 6.8% YoY, the highest since January 1991, while the core inflation rate was 5.7% YoY, the highest ever! The BOC is expected to hike rates by 50 basis points from 1% to 1.5%. However, given the hawkish inflation outlook from the last meeting, as well as recent high inflation readings, is it possible that the Bank of Canada could surprise markets and raise rates by 75 basis points?
OPEC+ is meeting this week to discuss whether to increase production by more than the 432,000 bpd expected in July. The price of crude oil was up last week, with WTI trading at a high of 115.17, near 2-month highs. With Shanghai reopening after a 2-month lockdown, many expect demand to increase. In addition, the EU is trying to finalize its embargo on Russian oil, which should be completed by May 31.st. This will increase demand from other parts of the world. However, despite the demand issues, OPEC+ sources have already said it will stick to existing expectations of 432,000 bpd at this week’s meeting.
With a troubling earnings season coming to an end, there are still a few names to watch this week. Here are some names to watch out for:
World Bank, HPQ, CRM, GME, AVGO
Many ECB members have called in recent weeks to discuss interest rate hikes at the July meeting, including ECB President Christine Lagarde. Last week, some members were even discussing the possibility of a 50 basis point hike at the July meeting! This helped send the EUR/USD bid. This week, the EU will release its Flash CPI estimate for May. Headline CPI is expected to come in at 7.7% YoY from 7.4% YoY in April. This reading may help paint a clearer picture of what the ECB might do next. In addition, the United States will release nonfarm payrolls data this week. 310,000 new jobs are expected to have been created in May. The unemployment rate is expected to remain unchanged at 3.6%. Keep in mind that Fed Chairman Powell recently said that lower inflation could come at the expense of a 3.6% unemployment rate. So expect the Fed to pay close attention to this data! Other important economic data due out this week include:
- EU: Economic Sentiment (MAY)
- EU: Consumer inflation expectations (MAY)
- Germany: CPI Prel (MAY)
- Japan: Retail Sales (APR)
- Japan: unemployment rate (APR)
- Japan: pre-commercial industrial production (APR)
- New Zealand: ANZ Business Climate (MAY)
- Australia: Pre-Building Permit (APR)
- Australia: Gross corporate profits (Q1)
- China: NBS Manufacturing PMI (MAY)
- China: NBS Non-Manufacturing PMI (MAY)
- Japan: Consumer Confidence (MAY)
- Japan: Housing starts (APR)
- Germany: Harmonized unemployment rate (APR)
- Germany: Evolution of unemployment (MAY)
- United Kingdom: Mortgages (APR)
- EU: IPC Flash (MAY)
- Canada: GDP growth rate (Q1)
- United States: S&P Case-Schiller Home Price (MAR)
- United States: Chicago PMI (MAY)
- US: CB Consumer Confidence (MAY)
- Global: Manufacturing PMI (MAY)
- Australia: GDP growth rate (Q1)
- China: Caixin Manufacturing PMI (MAI)
- Germany: Retail Sales (APR)
- UK: National House Prices (MAY)
- EU: Unemployment rate (MAY)
- Canada: Bank of Canada decision on interest rates
- United States: ISM Manufacturing PMI (MAI)
- United States: Beige Book
- OPEC+ meeting
- Australia: Balance of Trade (APR)
- EU: PPI (APR)
- United States: evolution of ADP employment (MAY)
- Canada: Building permit (APR)
- United States: Final unit labor costs (T1)
- United States: Final non-farm productivity (Q1)
- US: Factory Orders (APR)
- Crude inventories
- Global: Final PMI Services (MAI)
- Australia: home loans (APR)
- Germany: trade balance (APR)
- EU: Retail Sales (APR)
- United States: Nonfarm Payrolls (MAI)
- Canada: Ivey PMI sa (MAY)
- United States: ISM PMI non-manufacturing (MAI)
Chart of the week: weekly NASDAQ 100 (NDX)
Source: Tradingview, Pierre X
The NASDAQ 100 hit a pandemic low of 6671.91 during the week of March 23rd, 2020. NDX then rallied to an all-time high of 16764.86 during the week of November 22, 2021, a gain of over 147%. However, as it became increasingly clear that inflation was not as transitory as the Fed thought, the NDX began to pull back, including losses for the past 7 consecutive weeks. Rising interest rates are not good for stocks! Last week, the NASDAQ 100 retraced 50% from the March 2020 low to the November 2021 high, at one point trading below 11768.38. However, the index recovered, held the support level and closed the week up over 6.5%. The price also formed a bullish engulfing pattern on the weekly timeframe, indicating that NDX may have some more to run. The first resistance on the weekly time frame is located at 13020.4. Above, the price can reach weekly highs from March 28e at 15265.42 then to the all-time highs at 16764.86. First support is seen at recent lows of 11492.29, then the 61.8% Fibonacci retracement level from March 2020 low to November 2021 high at 10589.22. Below, the NASDAQ 100 may fall to horizontal support from February 2020 at 9736.57.
Monday is a US public holiday and Thursday and Friday are UK public holidays. Beware of illiquid markets during these time zones on these days. Additionally, this week will bring BOC, OPEC+ and a plethora of economic data. With the week shortened in some regions and a plethora of economic data, there is potential for another volatile week ahead.
Have a good week-end!