A 261k weekly jobless claims print, the highest since October 2021 appears to have been all it took to push US markets higher on the day and rekindle the idea that the Federal Reserve would signal a pause when it meets next week.
This week’s rate hikes by the RBA and Bank of Canada have muddied the waters somewhat as to what the Fed might do next week, with both central banks taking the view that financial conditions are still too loose, posing the question as to whether the Fed might feel the same way based on recent data.
Nonetheless yesterday’s claims numbers prompted some US dollar weakness, along with a slide in yields perhaps in the hope that this would mean that there would be enough of a data deterioration between now and July, for the prospect of next week’s skip becoming a slightly more permanent state of affairs.
The danger is that we’ve been here before with a big jump in claims data which has subsequently been revised away, however such is the nature of market sentiment now that the markets are moving on the basis of one data point to the next.
While US markets finished higher on the day, European markets underwent a rather more mixed session, with the FTSE100 and Spanish IBEX closing lower, while the rest of Europe’s markets edged higher. The mixed session had little in the way of significant drivers, apart from the latest EU GDP data showing that the eurozone economy had fallen into a technical recession, at the end of last year and the beginning of this year.
The jury continues to be out as to whether we are likely to see the recent sharp falls in headline inflation start to act as a drag on core CPI, but there have been some encouraging signs, in spite of the resilience being seen in the services sector, and with respect to wage growth.
One of the encouraging signs that inflation is starting to turn into deflation has been recent economic data out of China which has shown that inflation has been slowing sharply, and that factory gate prices especially have been negative for the last 7 months.
In April we saw PPI come in at -3.6%, and this morning’s May numbers were even worse at -4.6%, the lowest levels since 2016.
Headline CPI was also subdued, rising 0.2%, as the slowdown in the Chinese economy showed little signs of coming to an end, raising the prospect that this period of low and negative prices could act as a broader headwind or leading indicator for the global economy. It also raises the prospect of further easing from the Chinese central bank, although how that would help the wider economy is open to question given the reluctance of Chinese consumers to spend after 3 years of restrictions, which were only recently eased.
Crude oil prices fell back again yesterday on reports that the US and Iran had agreed a deal on oil exports, a claim which was subsequently denied, but also saw oil prices slide to their lowest levels this week, and below last weeks close.
EUR/USD – rallied back through the highs of last week and needs to push up and beyond the 1.0820/30 area to kick on higher. We still have support back at the recent lows at 1.0635.
GBP/USD – pushed up beyond the highs of last week at 1.2540 and looks set to test trend line resistance from the 2021 highs at 1.2630. This, along with the May highs at 1.2680 is a key barrier for a move towards the 1.3000 area. We have support at 1.2450.
EUR/GBP – still feels like it wants to go lower towards support at the 0.8560 level and last week’s lows, just above the December 2022 lows at 0.8558. While below resistance at the 0.8660 area the bias remains for a drift lower, through 0.8550 towards 0.8520.
USD/JPY – still feels toppy above the 140.00 area, but needs a break below 138.30 to suggest a return to the 137.00 area. The main resistance remains at 140.95 area.