With Friday’s decent rebounding in the broad equity markets, some may believe that the bottom has been established. But if you are a dip-buyer, please keep in mind that this broad risk-off sentiment may send the broad equity markets lower. The investment approach now is skewed to “Sell the rally” rather than “Buy the dip”. The macroeconomic negatives are now overwhelming individual stocks’ valuation, or in short, irrational selling.
Looking forward, the economic data to be released this week may not provide much optimism to the Asian markets. However, further rebounding may be expected in the Chinese stocks with Beijing’s efforts to cushion the slowdown of its economy. Also, one observation is that both European and Asian equity markets outperformed their US peers in May, suggesting investment funds are rotating to the more policy-pro markets due to the lawmaker’s guidance divergence.
- How long can the rebounding last in the US stocks? The US equity markets finished lower for the sixth straight week despite strong rebounding last Friday. The S&P 500 approached a bear market with a drop of 19% year-to-date on Thursday before bouncing back to a 15.57% loss YTD. See the latest market moves
- Has Bitcoin reached a bottom? Both Bitcoin and Ethereum rebounded sharply on Friday after hitting 52-weeks lows. The crash of the stablecoin, TerraUSD, and the related token, Luna, rattles the crypto markets, causing investors to doubt the encrypted system of its algorithm. Check-in on crypto markets
- USD/JPY finished lower for the first week since March, suggesting the biggest debtor of the US bonds, Japan, may start buying bonds back. Should this trend continue, the Japanese Yen may shrug off a 9-week devaluation phase. See the recent USD/JPY moves
- Where is the oil price heading next? After a recession fear-induced selloff, crude oil jumped back to above $110 on renewed supply worry amid a potential EU ban on Russia’s oil. The recent Moscow sanction measures of halting Gazprom supply and blocking the gas transit route by Ukraine also elevated the recent oil price. Watch oil's movements
Key economic data and events
Fed official speaks, US retails sales, industrial output
The Fed officials, including St. Louis President James Bullard, Cleveland President Loretta Mester, and Fed Chair Powell will give speeches this week, giving further guidance on the monetary policy. The April CPI data printed higher than expected, which may pressure the Fed to be more aggressively on its rate hikes. Any clues for a 75-basis points hike could send jittery shocks to the risk assets and cause further panic selling.
Both the US retail sales and industrial production are expected to have strong prints in April, despite growing concerns amid elevating inflation and rising rates. The positive economic data hopefully provide positivity to the broad sentiment.
China retail sales and industrial production
Negative prints of the Chinese economic data are expected this week due to the restricted Covid-lockdowns in April. Both retail sales and industrial output may be seen deterioration, with the earlier reported manufacturing and service PMIs sharply contracting in April.
The RBA meeting minutes, Australian wage growth, employment
The RBA raised the official cash rate by 25-basis-points vs. 15 bps expected in its last meeting. The meeting minutes will provide more clues for its policy roadmap, in which wage growth is a key economic gauge. The reserve bank may not accelerate the pace of rate hikes unless earnings growth catches up. However, the employment data to be released this Thursday may suggest that further tightening labor markets could reinforce higher hiring costs as consensus calls for a further drop of the unemployment rate to 3.9%.
New Zealand budget
The New Zealand Minister of Finance will deliver Budget 2022 on Thursday. It is highly expected the labor government will keep the current tax brackets and limit spending to rein in decades-high inflation, which printed at 6.9% in the first quarter. The government will certainly make efforts to cool down the economy rather than push it overheated. But the reality is that business confidence is still at its lowest level in history due to all the Covid-induced disruptions.
Japan has been encountering a sluggish economy with a deflationary spiral since the 1990s. Ongoing dovish policy guidance of JOB caused a severe Yen devaluation in March. However, the Japan CPI is expected to rise to 2.1% y/y in April due to weakened local currency and signs of economic activities recovery, which could change the view of the BOJ on its monetary policy.
Europe's Week Ahead
- US April CPI - Wednesday
Royal Mail full-year results- Thursday
EasyJet half-year results - Thursday