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The week finished with prevalent negative market sentiment. US equities recorded hefty losses, between 2.77% and 4.17%. China’s coronavirus outbreak which has lasted for the last couple of weeks threatens to disrupt supply chains. The US central bank’s increasing rate hikes to tackle inflation and the Ukraine-Russia conflict, further entering its third month, were the drivers of the last trading day of the month.
Economic Data
US inflationary readings for March were released on Friday. The Fed’s favorite measure of inflation, the Core Personal Consumer Expenditures (PCE), rose by 5.2% y/y lower than expectations, indicating that inflation excluding volatile items is peaking. The data further strengthens the case for a Fed’s rate hike next week, as the US central bank’s Chair Jerome Powell expressed during the month that a 50-bps increase is “on the table.”
According to the final version of the University of Michigan’s Consumer Sentiment survey, the headline Consumer Sentiment Index for April came in at 65.2, a tad below the flash estimate released earlier in the month of 65.7. Consumer exuberance can translate into greater spending and faster economic growth, implying a stronger labour market and a potential pick-up in inflation, helping turn the Fed hawkish.
The Chicago Business Barometer, also known as the Chicago PMI, fell to 56.4 in April from 62.9 in the prior month. Economists had expected little change, with analysts polled by the Wall Street Journal forecasting a 62 reading. The index is 14.4 points below its reading from April 2021. The index is produced by the ISM-Chicago with MNI.
The Eurozone docket featured inflationary figures. France’s inflation rose above expectations and the previous reading, to 4.8% y/y, while French HICP reached 5.4%. Regarding the whole Eurozone, general inflation climbed to 7.5%. Additionally, GDP for Q1 rose to 5%, aligned with estimations.
Other Developments
Market sentiment turned sour late in the New York session. Analysts expect the Fed to deliver three consecutive 50bp hikes (in May, June, and July) and subsequently hike rates by 25bp per meeting until they reach a terminal funds rate of 3.25% by March 2023.
The EUR/USD recovers some ground after being battered in the week, so far down 2.30%, but the hefty monthly losses amount to 4.68%, the most relevant since January 2015. At the time of writing, the EUR/USD is trading at 1.0541.
Next week’s economic docket will witness the Eurozone’s Retail Sales data, PMIs, Industrial Production, and Unemployment rates from Germany, Italy, Spain, France, as well as other EU member states.
In the US, the docket would reveal S%P Global PMIs, ISM PMIs, the Federal Reserve monetary policy meeting, ADP Employment Change, as well as the Nonfarm Payrolls report.
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