Investors Weigh on US Dollar
The DXY has seen a slight fall from its recent twenty-year high peak of 104.85 as investors weighed on a relief rally across equites earlier in the week and signs that China’s restrictions may ease off as Covid cases fall. This subsequently saw the safe haven currency lose some of the ground that it gained over the past week or so. Moreover, given the prevalence of inflation across the eurozone and UK, investors are considering how the ECB and BoE will need to enact a more aggressive monetary policy stance. Nevertheless, the DXY remains at levels not seen since December 2002 as inflationary pressures have caused CPI to hit highs of 8.5% (falling to 8.1% last month) in the US, forcing the Federal Reserve to tighten their monetary policy far greater than previously anticipated. As such the general market consensus is that the FOMC will make two further 50bpt rate hikes during their June and July meeting, and that the base interest rate will edge around 3.25% by the end of the year. This comes as the Fed begin to unwind their $9tn balance sheet by reducing their holdings of government treasuries and mortgage-backed securities by $47.5bn per month from June, which they intend to ramp up to $95bn per month over subsequent months.
Global Equities Take a Hit
While there has been something of a relief rally across equities over the past week, the US stock market saw significant falls yesterday as early trading saw the S&P 500 and Nasdaq drop 2.3% and 2.6%, respectively. By the end of the day, the S&P 500 has fallen 4% which represented the greatest one day fall since June 2020, with just one in fifty finishing the day higher. One stock that has seen considerable depreciation is Walmart which ranks as the world’s 19th largest company by market-cap and has seen a 21% decline in its share price over the past month. Indeed, on Tuesday alone, Walmart plummeted 15% which represented its greatest loss since 1987 after they raised concerns over inflation and supply chain disruptions hitting their profits.
Following yesterday’s CPI print in the UK and subsequent fears over the prospect of inflation, the FTSE 100 closed down over 1% while the FTSE AIM 100 fell 1.4%.
The FT has more:
Erdoğan Seeks to Block Sweden and Finland’s NATO Accession
Following last week’s developments concerning Finland and Sweden’s submission to join Nato, President Erdoğan has blocked accession talks. Erdoğan maintains that Sweden’s links with the Kurdistan Workers’ Party (PKK) and other Kurdish organisations undermine Turkey’s security. Erdoğan’s Justice and Development Party (AKP) has been long been hostile to Kurdish secessionists and those living in the Northern Kurdistan region in Southwest Turkey. Indeed, following Trump’s decision to remove US troops who were assisting Kurdish forces fighting ISIL, in 2019 Erdoğan initiated a ground offensive and military occupation into the Kurdish region of north-eastern Syria. Many western states and EU members condemned the operation with Amnesty International stating that Ankara “have displayed a shameful disregard for civilian life, carrying out serious violations and war crimes, including summary killings and unlawful attacks that have killed and injured civilians”. As such both Sweden and Finland emplaced an arms embargo on Turkey, and diplomatic ties have since been strained.
Accession protocols mean that any Nato member state could veto either Finland and Sweden from joining the organisation and thus Turkey’s leverage here is considerable. Hence, all eyes will be on Jens Stoltenberg’s next move as he tries to navigate this internal dispute as most member states welcome Sweden and Finland’s bid to join the organisation.
The FT has more:
UK Retail Sales and Consumer Confidence Tomorrow
Tomorrow, all eyes will be on UK retail sales which are expected to fall -0.2% and consumer confidence expected to lower to -39pts. Last month’s print saw the index drop to -33 which represents the second lowest reading since records began almost half a century ago. The Major Purchase Index also fell eight points to -32 pts, further indicating that consumers are holding off major purchases given their assessment on the future economic climate and personal finances. These low levels of consumer confidence manifested themselves in poor retail rales which indicate that m-o-m figures fell 1.4% in March. Hence, as inflation hits 9% – and is expected to peak above 10% – all eyes will be focused on the extent to which retail sales and consumer confidence may fall, especially as households grabble with the cost-of-living crisis. These poor retail sales last month followed the IMF reducing the UK’s growth forecast from 4.7% to 3.7% over 2022. Citing the rising cost of living, Brexit and persisting supply chain issues they also indicated that the UK will lag severely behind in 2023 and have the second slowest growth amongst the G20 (behind Russia).” As we looked at yesterday, the BoE latest monetary policy report forecasted that the UK economy will likely contract in Q4 and continue to slide in a technical recession with the UK economy falling by 0.5% over 2023.
Have a great day.