Europe set for negative opening as Chinese trade slows in April

youSouthern markets had another disappointing week, falling for the fifth week in a row, although until Wednesday things looked much more promising following the Fed’s decision to hike rates by 50 basis points. , the largest one-month rate hike since May 2000.

In less than 24 hours, the positive mood generated by the Fed’s announcement and Fed Chairman Jay Powell’s press conference had evaporated faster than an ice cube in the desert, after Governor of England’s Andrew Bailey offered his own rather gloomy view of the economic environment, downgrading the UK’s economic outlook to a contraction of -0.25% in 2023.

This had investors wondering if the Federal Reserve was being honest about what was going on. You certainly don’t have to look too far to see where the problems are coming from. Russia’s war on Ukraine is in full view, but anyone who thinks that China’s easing of monetary policy will make things easier for the Chinese economy probably needs to take a closer look at the events now unfolding there- low.

As China continues to pursue its misguided zero Covid policy, restrictions in Shanghai are already having a chilling effect on economic output there, as well as port activity, or rather the lack thereof, as container ships continue to sit off the coast of China waiting to be unloaded. Any prospect of easing supply chain issues looks even more remote than it did a few months ago.

This morning’s China trade data for April only serves to strengthen it further. The March figures were disappointing and the April figures were not much better, with imports down 0.1% in March and unchanged in April. Exports were also a disappointment at 3.9%, down sharply from 14.7% as transport difficulties and port stoppages impacted the flow of goods and services.

For now, the US economy appears to be holding up reasonably well, but if you look closely enough there are areas of concern, particularly the housing market, with rising mortgage rates already dampening home sales. homes, as US Treasury yields rise. On Friday, US 10- and 30-year rates hit their highest levels since late 2018 at 3.125% and 3.22%. At the end of last year, they were at 1.51% and 1.9% respectively.

As for the labor market, there wasn’t much to complain about in April’s US payrolls report, other than a drop in the labor force participation rate, which looked rather odd, while the unemployment rate remained stable at 3.6%.

You would have thought that with over 11 million vacancies in the US economy, people would join the workforce, not leave it, but that’s what happened last month.

428,000 new jobs were added in April, while the March figure was revised down to 428,000, so a nice symmetry there. The average hourly wage remained stable at 5.5%, which still seems counterintuitive with so many vacancies.

This suggests that employers in the United States are reluctant to pay too much given that all their other costs are rising.

It was an equally disappointing week for European markets, with the DAX ending lower for the fifth consecutive week, while the FTSE100 closed at a seven-week low.

Today’s European opening is expected to be negative, after Asian markets also fell, with little sign that Chinese leaders plan to change their zero covid policy.

This week, the main focus on a macro basis will be whether US inflation shows signs of plateauing with the release of the US CPI and PPI for April on Wednesday and Thursday.

Any sign that this is the case could provide respite for investors who are increasingly worried about the persistence of this upward trend in inflation.

With no end in sight to the Russia-Ukraine conflict and little sign of an easing of covid restrictions in China, the global economy is shaping up for two much tougher years than forecast at the start of the year.

It’s also May 9e, which is Russia’s Victory Day military parade, commemorating the defeat of the Red Army against Nazi Germany. Unfortunately for them, they won’t be able to celebrate a victory in Ukraine, with the war going so badly for them, which means we could get another escalation from the Russian president to try to restore his image with the people. Russian.

EUR/USD – the support at 1.0470 seems to be holding for now. A move below argues for a move down to the 2017 lows at 1.0340. To stabilize we need to get back above the 1.0650 level to signal a move back towards 1.0820.

GBP/USD – fell to 1.2275 before recovering a bit. The outlook looks gloomy with a break below 1.2250 opening the 1.2000 zone. We need a recovery above 1.2470 to open the 1.2600 zone.

EUR/GBP – holding below the 0.8600 area and December highs for now. Support is seen at the 0.8470/80 area.

USD/JPY – looks set for a retest of the highs at 131.25, with a break targeting the 135.00 area and the 2002 highs. Support has now returned to last week’s lows at 128.60.

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Mary I. Bruner