Daily Market Pulse

Dollar consolidates its losses


The market stays relatively quiet on Tuesday morning after steep losses on Monday. The U.S. dollar appears to be consolidating its losses after closing 0.03% lower in the previous session. Meanwhile, investors are concerned about a global economic downturn as China's Covid-related trade restrictions continue to weigh on international trade activities. Furthermore, ongoing supply-chain problems are projected to keep global inflation higher for longer than planned. Meanwhile, there are no signs of the Russia-Ukraine crisis deescalating. Even while the market mood remained fragile, U.S. equity-index futures rose as dip buyers emerged from the wreckage of Monday's fall. Later in the day, the NFIB Business Optimism Index will be presented. Market investors will also pay close heed to central bankers' comments. 


The Euro closed 0.1% higher in the previous session before consolidating its losses this morning. The common currency sank back to 2016 lows in the second week of May, as the U.S. dollar remains strong and investors remain concerned about European stagflation. Furthermore, predictions that the European Central Bank will hike interest rates considerably more slowly than the Federal Reserve make the Euro difficult to attract investors. According to the most recent MLIV Pulse study, many market players perceive the possibility of Euro-dollar parity for the first time in nearly two decades. Elsewhere, Officials from the European Union are to meet with Hungary and its neighbors again in an attempt to persuade Budapest to remove its opposition to proposed penalties on Russian oil imports.


The Pound sterling closed 0.12% lower yesterday before consolidating its losses on Tuesday morning. The cautious market mood triggered by the Chinese lockdown, inflation, and growth concerns keeps the Pound sterling undermined. Meanwhile, on the data front, retail sales in the United Kingdom fell 1.7% on a like-for-like basis in April 2022, easing from a 0.4% drop the previous month, as rising living costs undermined consumer confidence and slowed consumer spending. Retailers are facing increasing costs as a result of rising commodity prices, transportation costs, labor shortages, port delays, and the Ukraine war. Traders now await GDP growth figures from the Office of National Statistics (ONS) due Thursday for an update on the health of the UK economy. Elsewhere, The FTSE 100 traded marginally higher on Tuesday, attempting to recover from a 2.3% decline the previous day on the back of banks and miners, however, volatility is expected to remain as investors are wary about the global economic outlook and the possibility of stagflation.


The Japanese Yen closed 0.05% higher in the previous session against the greenback. In the recent news, Household spending in Japan fell by 2.3% in real terms from the previous year in March 2022, compared to market expectations of a 2.8% loss and reversing a 1.1% rise the previous month. The latest data was the first drop in personal consumption since last December, as consumers were apprehensive of growing living costs despite modest relaxation of Covid-restrictions. Elsewhere, On Tuesday, the Nikkei 225 Index sank 0.58% to a near 2-month low, while the wider Topix Index fell 0.85%, mirroring a severe selloff on Wall Street as concerns about rising interest rates and their impact on economic growth dented risk appetite.


The Loonie closed 0.92% lower in the previous session before reviving its momentum on Tuesday morning. The Canadian currency reached its lowest level since November 2020, as the U.S. dollar strengthened and oil prices fell. Last Friday's strong labor market data from the United States raised expectations of further monetary policy tightening, dragging on riskier assets. Meanwhile, crude oil prices were down nearly 6% on continuing concerns about decreasing global demand, particularly from top consumer China as a result of tightening lockdowns. Domestically, the Bank of Canada is expected to maintain its hawkish stance amid the fact that Canadian unemployment set a historic low of 5.2% in April and annual inflation hit a 31-year high of 6.7% in March.


The Mexican Peso plunged 1.19% in the previous session before recovering its momentum slightly against the greenback on Tuesday morning. The Mexican Peso weakened to move closer to a 6-week low amid global risk aversion due to concerns about aggressive tightening, fresh concerns about China's economy, and the ongoing war. On the domestic economic front, Mexico's annual inflation rate increased to 7.68% in April 2022, up from 7.45% in March but falling short of market expectations of 7.72%. This raises the likelihood that Mexico's Central Bank - Banxico - will raise interest rates at its scheduled meeting this week. Mexico's central bank raised interest rates for the seventh time in a row in March, to 6.5%, in an effort to reduce inflationary pressures caused by the Ukraine war. Meanwhile, the government launched a six-month strategy last week to manage inflation by increasing the output of staple crops such as corn, rice, and beans. 


The Chinese Yuan closed 0.40% lower against the greenback in the previous session. In the latest news, Chinese markets edged higher with the Shanghai Composite surging 1.06% and the Shenzhen Component rising 1.37% as China's central bank (PBOC) committed to utilizing all of its monetary policy instruments to assist the economy amid a Covid-induced slowdown. There was also evidence of bargain shopping in the market's growth-oriented sectors, with analysts saying that China's bear market has reached its conclusion as sellers shrink. Coming up, Investors anticipate Consumer price data later in the week for fresh impetus. 


The Brazilian currency started the week with slight losses of 0.38%. The domestic environment continues to be challenging in the country, with economic growth being put to the test in the face of monetary tightening that makes borrowing cost more expensive, amid cooling global demand due to the renewed Covid outbreak in China and the war in Eastern Europe. In addition, the electoral cycle, as well as greater aversion to risk stemming from a Fed being more aggressive creates an environment of uncertainty mainly for emerging economies. In this sense, investors believe that there is room for the Real to remain devalued in relation to its fair value in the coming months. Meanwhile, the level of tension between the Executive and the Legislature remains high, particularly on the issue of electronic voting machines. Election polls' intention to vote continues to show only a slight difference between Lula (44%) and Bolsonaro (31%). On the radar in this election season, parliamentarians and government officials approve various measures to increase public expenditure, the so-called ¨fiscal mini-bombs¨, that is, fuel necessary for re-elections. 


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