22 May 2023 Weekly Analysis
GCMAsia Weekly Report: May 22 – 26
Market Review (Forex): May 15 – 19
US Dollar
The dollar index, which trades against a basket of six major currencies, extended gains to 103.00 after the market regained confidence over the debt ceiling talks, but the gains were limited on Friday.
Last week, the dollar index traded down in the early week after Treasury Governor Janet Yellen’s speech on the US 13.4 trillion debt ceiling issues. If the debt ceiling problem is not resolved before the 1st of June, it will lead to severe consequences for the US economy. To avoid a catastrophic financial crisis, US President Joe Biden and Republican leader Mitch McConnell showed their strong willingness to raise the debt. Biden had shortened his Asia trip to Papa New Guinea and Australia after the G7 leader summit in Japan. With such a backdrop, investors regain their confidence after increasing expectations that debt ceiling issues will be solved sooner or later.
It is noteworthy to highlight that the US delivered mixed economic data during the week. Consumer spending showed some sign of improvement after the retail sales and core retail sales data were announced. The monthly retail sales increased to 0.4% from -0.7%, while the core retail sales improved to 0.4% from -0.5%. Besides, the initial jobless claim dropped from 264k to 242k, lower than the market expectations of 254k. Retails and initial jobless claims indicated an improvement in consumer spending and prompted the Fed for further tightening for the next monetary policy.
The May Philadelphia Fed manufacturing index remains in contraction condition, despite the reading improved to -10.4 from -31.3, with higher market consensus estimates of -19.8. In addition, investors are eyed on the Fed Jerome Powell interview to get more cues on the dollar direction after a few Fed members gave a hawkish speech. However, Powell made his dovish remarks in his speech and said the interest rate might not need to raise as tightened bank credit conditions. As a result, the dollar index traded under pressure last Friday.
USD/JPY
The USD/JPY pair edged higher to end the market at 137.91 as the greenback strengthened consumer confidence. Before that, Japan’s trade deficit stood at -$432.4 billion, the 21st straight month of deficit, as exports rose 2.6% and imports fell 2.3%, the finance ministry said. Shipments of auto parts and electronics picked up, while imports fell, as energy costs soared compared with a year ago. Japan imports almost all of its gasoline and natural gas, and a weaker yen has also helped push up imports. As an export decline, demand for Yen has fallen.
EUR/USD
The pair of EUR/USD was traded down last week while closing its market price at 1.0804 after the series of mixed economic data. According to the European Commission forecast of the EU economic outlook for 2023 and the following year was revised to 1.0% and 1.7% from 0.8% and 1.0%. The main factor attributed to the revised is the lower energy price allowing government budget deficit deductions to 3.1% and 2.4% in 2023 and 2024. The headline inflation expectation is to reduce further after the fall in energy prices. However, industrial sector production remains weak as the March reading dropped to -4.1% from 1.5%, lower than the market expectation of -2.5%. Besides, the yearly inflation is in line with market expectations, which remains high at 7.0%, while the monthly reading showed some easing to 0.6% from 0.9%. The mixed economic data failed to bring back the euro’s luster, coupled with investors’ optimistic attitude towards the US debt ceiling, the euro was sold against the dollar by investors.
GBP/USD
GBP/USD traded lower at 1.2446 after economic weakness loomed over markets. Average employment earnings including bonuses were unchanged at 5.8% in March, in line with expectations, while the 3-month labor market population change also increased to 182k. For the 3-month employment figures, economists predicted that the reading would drop to 160k from the previous 169k, but the actual reading was higher than the economists’ forecast. However, the UK unemployment rate unexpectedly rose to 3.9% as more workers returned to the job market. Jobless claims also surged to 46,700 from 26,500, well above market expectations of 31,200. The latest labor market suggests a less hawkish monetary decision as labor market condition deteriorates. Nonetheless, the Bank of England (BoE) Governor Baily issues a hawkish statement in his interview. BoE Baily has remarked inflation is far away from the BoE target, if the inflation remains more persistent higher level, then further tightening will be implemented by the BoE.
Market Review (Commodities): May 15 – 19
GOLD
Gold fell to as low as $1,997.64 a troy ounce after earlier falling below key support at $2,000. After last week’s constructive progress in the US debt crisis, investors’ confidence in the US dollar has increased significantly, and the strengthening of the US dollar has led to a sell-off of safe-haven tools. However, gold rallied as the dollar’s appeal waned following dovish comments from Federal Reserve Chairman Jerome Powell. Powell said that the interest rates may not need to be raised due to tighter bank credit conditions
CrudeOIL
Crude oil prices experienced a volatile at the end of last week’s session while closing at the price of $71.85 per barrel. After investor regain confidence over the US debt ceiling talks between Biden and Republications McCarthy, despite the API crude oil inventory and EIA crude oil inventory showed a surplus in stockpiles. The two-party politic leader showed their willingness on talks to raise the debt ceiling, this appears to have lifted the negative load on most asset classes, including oil. The increase in crude oil prices was limited last Friday, as the market expected that the Federal Reserve may raise interest rates by 25 basis points in the upcoming interest rate decision, which would affect the demand for crude oil.
Weekly Outlook: May 22- 26
For the week ahead, investors will continue to focus on crucial economic data such as US Service PMI, core durable goods data and core PCE index this week to determine further direction. Besides that, the latest situation of the debt ceiling issues, and banking turmoil in US will also be in the eyes of investors.
As for oil traders, they will be eyeing on US inventories level reported by API and EIA to gauge the strength of crude demand for world’s largest oil consumer.
Highlighted economy data and events for the week: May 22 – 26
| Time | Market | Event | Actual | Forecast | Previous |
| Monday – 22th May 2023 | |||||
| All Day | CAD | Canada – Victoria Day | – | – | – |
| 09:15 | CNY | PBoc Loan Prime Rate | 3.65% | 3.65% | 3.65% |
| 20:30 | USD | FOMC Member Bullard Speaks | – | – | – |
| Tuesday – 23th May 2023 | |||||
| 15:30 | EUR | German Manufacturing PMI (May) | – | 45.0 | 44.5 |
| 16:30 | GBP | Composite PMI | – | 54.6 | 54.9 |
| 16:30 | GBP | Manufacturing PMI | – | 48.0 | 47.8 |
| 16:30 | GBP | Services PMI | – | 55.5 | 55.9 |
| 20:00 | USD | Building Permits | – | 1.416M | 1.430M |
| 21:45 | USD | Manufacturing PMI (May) | – | 50.0 | 50.2 |
| 21:45 | USD | Services PMI (May) | – | 52.6 | 53.6 |
| 22:00 | USD | New Home Sales (Apr) | – | 663K | 683K |
| Wednesday – 24th May 2023 | |||||
| 04:30 | CrudeOIL | API Weekly Crude Oil Stock | – | – | 3.690M |
| 10:00 | NZD | RBNZ Interest Rate Decision | – | 5.50% | 5.25% |
| 10:00 | NZD | RBNZ Rate Statement | – | – | – |
| 11:00 | NZD | RBNZ Press Conference | – | – | – |
| 14:00 | GBP | CPI (YoY) (Apr) | – | 8.3% | 10.1% |
| 16:00 | EUR | German Ifo Business Climate Index (May) | – | 93.0 | 93.6 |
| 17:30 | GBP | BoE Gov Bailey Speaks | – | – | – |
| 21:00 | GBP | BoE Gov Bailey Speaks | – | – | – |
| 22:30 | USD | Crude Oil Inventories | – | -0.920M | 5.040M |
| Thursday – 25th May 2023 | |||||
| 02:00 | USD | FOMC Meeting Minutes | – | – | – |
| 14:00 | EUR | German GDP (QoQ) (Q1) | – | -0.1% | -0.4% |
| 20:30 | USD | GDP (QoQ) (Q1) | — | 1.1% | 2.6% |
| 20:30 | USD | Initial Jobless Claims | – | 250K | 242K |
| 22:00 | USD | Pending Home Sales (MoM) (Apr) | – | 0.5% | -5.2% |
| Friday – 26st May 2023 | |||||
| 09:30 | AUD | Retail Sales (MoM) (Apr) | – | – | 0.4% |
| 14:00 | GBP | Retail Sales (MoM) (Apr) | – | 0.4% | -0.9% |
| 20:30 | USD | Core Durable Goods Orders (MoM) (Apr) | – | – | 0.2% |
| 20:30 | USD | Core PCE Price Index (MoM) (Apr) | – | 0.3% | 0.3% |
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