GLOBAL CAPITAL MARKETS OVERVIEW:
Wall Street's sell-off accelerated in the final hour of trading, with the Dow Jones Industrial Average closing 653 points below 4,000. At the same time, the S&P 500 and Nasdaq fell 3.2% and 4.3%, respectively, pushing the three major indexes to one A level not seen in years. Investors are increasingly concerned about the impact of tightening global monetary policy on the growth momentum. As the world's second-largest economy grapples with a strict lockdown, signs of slowing economic activity in China and further Western sanctions on Russia have fueled inflation and heightened discontent. All sectors except consumer staples are in the red. The declines were again most pronounced among high-growth stocks, including Meta platforms, Google owner Alphabet, and Amazon. com, Microsoft, Apple, and Tesla fell from 2% to 6%. On top of that, the energy sector was also under intense selling pressure, with Chevron plunging 7% on falling oil prices. Canada's main stock index, the S&P/TSX, fell 3% to close at 20,009 on Monday, as China's ongoing lockdown and strict health restrictions dented demand prospects for metals and crude oil, oil, gas, and materials. Prices fell sharply, extending losses to their highest levels since July last year. Tech stocks were also under pressure as further acceleration in prices fueled fears of a sharp interest rate hike as key U.S. inflation data is expected on Wednesday. Meanwhile, Shaw Communications shares tumbled 7 percent after Canada's competition commissioner said it intended to oppose a proposed C$20 billion merger with Rogers Communications Inc. On the data front, building permits fell 9.3% year-on-year in March, beating expectations as two large hospital permits inflated February's figures due to high base effects. European shares fell for a fourth straight session on Monday to their highest levels since early March. The energy and technology sectors dragged the regional Stoxx 600 and DAX 30 down 2.8% and 2.1%, respectively. Investors braced for a much-anticipated U.S. inflation gauge later this week, with the risk of a further acceleration in prices adding to fears of a sharp rate hike. Meanwhile, the ongoing blockade in China and the war in Ukraine continue to weigh on global growth prospects. Germany-based Delivery Hero fell more than 12% on the corporate front, the main headwind for both indexes. On Monday, the CAC 40 index fell 2.8% to 6,086, its lowest level in two months, pressured by technology and energy stocks, monetary tightening measures by major central banks, and worries about uneasy Chinese growth. A stronger dollar and tighter coronavirus lockdowns in Chinese cities forced shares in the energy sector down 5%, with CGG down 9.3% and TotalEnergies down nearly 5%. Concern about the Chinese economy also hampered the heavyweight luxury sector, with LVMH and Kering down 3.4 percent. Meanwhile, tech stocks also fell sharply, tracking the U.S. Nasdaq Composite as investors awaited new inflation data. Dassault Systèmes closed down 4.4%, leading to losses in the sector. The FTSE MIB index closed down 2.7 percent at 22,833 on Monday, extending last week's slump to its lowest level in two months on fears of rising inflation and expectations of tighter monetary policy. Technology stocks led losses in Milan, tracking risk aversion on the tech-heavy Nasdaq ahead of this week's release of U.S. consumer price data for April. Meanwhile, healthcare stocks fell sharply, with DiaSorin and Amplifon down 5.3%. Elsewhere, shares of Telecom Italia fell 2.5% as investors continued to focus on the company's potential merger with Open Fiber to unify the country's fixed network assets while digesting an 11% drop in first-quarter profit. On Monday, the FTSE 100 fell 2.3% to close at 7,217, its lowest level since March 15, tracking a global sell-off as worries over inflation risks, a Chinese blockade, and a war in Ukraine continued to spook investors. Basic resources had a big impact on the index, with Antofagasta, Glencore, and Anglo American falling more than 5%. Rightmove shares fell more than 3% after news that its chief executive would step down after 16 years of running the UK property portal. Meanwhile, investors awaited key U.S. inflation data, with the risk of a further acceleration in U.S. prices and fears of a sharp rate hike. The Shanghai Composite rose 0.1% to close at 3,004 on Monday. The Shenzhen Composite fell 0.41% to close at 10,766, opening the week cautiously as China's latest trade data showed the coronavirus outbreak continued to block foreign trade and the broader economy. Impact. China's export growth slowed to its weakest pace in nearly two years, while imports were little changed in April as stricter and broader Covid-19 restrictions halted factory production and weighed on domestic demand. Consumer and auto stocks led losses, with Kweichow Moutai (down 2.3%), Wuliangye Yibin (down 1.5%), BYD (down 3.9%), and Chongqing Changan (down 3.4%) falling sharply. Chinese banks also weighed on the index, including China Merchants Bank (-3.8%), Industrial Bank (-1.7%), and Ping An Bank (-2.7%). New Zealand S&P/NYSE fell 227.68 points, or 1.96%, to close at 11,381.70, its lowest close since June 21, 2020, tracking a sharp drop in U.S. stock futures on expectations of U.S. There will be a series of rate hikes and tough communication from policymakers. Traders were also nervous about China's zero-coronavirus policy, as Beijing warned against criticism of the practice. Meanwhile, speculation that Russian President Vladimir Putin may declare war on Ukraine to raise reserves during his speech at Victory Day celebrations also hurt sentiment. On the business front, New Zealand's Fonterra lowered its forecast range for the price it pays farmers for milk for the 2021/22 season, as the Chinese blockade, conflicts in Russia and Ukraine, and the economic crisis in Sri Lanka hit demand for milk. The biggest decliners were DGL Group Ltd (-14.8%), Marlborough Wine Estates Group (-6.7%), and ikeGPS Group Ltd (-6.3%). Nikkei 225 lost 2.53% to close at 26,319, while the broader Topix lost 1.96% to close at 1,878, giving up gains from the previous session and taking advantage of an early slide in U.S. stock futures. With the revelation, investors weighed the global tightening of monetary policy against high inflation and challenging growth prospects. Index heavyweights SoftBank Group Corp and Fast Retailing led losses, down 3.5% and 6.3%, respectively. Resource-related stocks also fell, with JFE Holdings (-7.1%), Nippon Steel (5.1%), and Sumitomo Metal (4.4%) falling sharply as higher raw materials and freight rates squeezed margins. Other notable decliners included Toyota Motor (down 1.4%), Sony Group (down 2.4%), and Oriental Land (down 4.7%). Meanwhile, Japanese Prime Minister Fumio Kishida said Japan would ban Russian oil imports "in principle" as part of the G7 campaign, despite Russia's heavy reliance on energy imports. Australia S&P/ASX 200 index fell 1.18% to close at 7,121 on Monday, closing at its lowest level in nearly two months, led by technology and mining stocks. Investors digested the latest monetary policy statement from the Reserve Bank of Australia. Inflation is likely to beat expectations this year, and the bank needs to raise interest rates further as unemployment is expected to fall to the lowest level since 1974, the statement said. Losses in the technology sector were led by Xero Ltd (-2.6%), Wisetech Global (-4.9%), and Block Inc (-6.2%). Heavy miners also fell on weaker iron ore prices, including BHP Billiton (down 1.1%), Rio Tinto (down 2.3%), and Fortescue Metals (down 5.8%). Elsewhere, Magellan Financial fell 8.4% after selling its stake in Guzman for $140 million, while Westpac Banking rose 3.2% after a half-year profit.
REVIEWING ECONOMIC DATA:
Looking at the last economic data:
- RU: Russia’s GDP is expected to contract by 12% in 2022, according to internal forecasts by the Ministry of Finance, far exceeding the Ministry of Economy’s forecast of 8%. It was the worst contraction since Russia's transition to a market economy in 1994, as the country felt the effects of sweeping Western sanctions. Significant restrictions include an oil embargo in the US and a fossil fuel phase-out in the UK, while several EU utilities seek alternative sources of natural gas. In addition, several foreign companies have left Russia, while large banks have withdrawn from the SWIFT payment system, and their assets have been frozen. Uncertainty over forecasts remains high as the European Union proposes to phase out oil imports over six months in what could be the biggest hit to Russia's economy so far, with more onerous restrictions likely to follow. According to the central bank, annual inflation is expected to accelerate to 18-23% in 2022.
- US: U.S. consumers’ inflation expectations for the year ahead fell to 6.3% in April 2022 from a record 6.6% in March. Expectations of price changes over the coming year saw a sharp drop in natural gas prices by 4.4 percentage points to 5.2%, with other declines in food (down 0.2 percentage points to 9.4%) and healthcare (down 0.1 percentage points to 9.5%). On the other hand, expectations for median house price (6%) and income growth (3%) were unchanged, while consumers expected higher prices for college education (0.6% to 9.1%) and rents (0.1% to 10.3%) quick. In addition, inflation expectations three years ago rose by 0.2 percentage points to 3.9%.
- US: In March 2022, U.S. wholesale inventories rose 2.3% month-on-month to $840.3 billion, in line with preliminary estimates. Previously, it rose 2.8% in February. Stocks of durable goods rose 2.2%, namely furniture (4.5%), appliances (4.2%), and hardware (3.7%) equipment. Meanwhile, wholesale inventories of non-durable goods rose 2.6%, led by apparel (4.4%), agricultural products (3.8%), and groceries (3.6%).
- TW: Taiwan's trade surplus narrowed to $4.91 billion in April 2022 from $6.06 billion in the same month last year, compared with market expectations of $4.88 billion. Exports rose 18.8% year on year to $41.46 billion, beating expectations for a 16.05% increase, reflecting growth in shipments of electronic components (27.5%); and information, communications, and audio-visual products (10.2%). Shipments to South Korea (40.2%) and the United States (26.6%) saw the most significant increases among the major destinations. Meanwhile, imports rose 26.7% to $36.56 billion, higher than analysts' forecast of 20.0%, due to electronic parts (28.2%) and minerals (53.7%). Among the major trading partners, imports from South Korea (34.8%) and the United States (19.5%) increased more.
- UK: Like its European counterparts, the FTSE 100 gained momentum on Monday, falling below 7,300, its lowest level in eight weeks. Essential resources weighed heavily on the index, with shares of Rio Tinto, Antofagasta, and Anglo American plunging more than 4%, weighed down by global growth woes amid ongoing Chinese lockdowns and strict health restrictions. Rightmove shares slumped more than 6% to their lowest level in two years after news that Rightmove's chief executive would step down after 16 years of running the UK property portal. Later in the week, investors awaited a much-anticipated measure of U.S. inflation, where prices risked further acceleration, fueling fears of a sharp rate hike.
- FR: France's current account deficit fell to 3.2 billion euros in March 2022 from a downwardly revised 940 million euros the previous month. Considering the first quarter of 2022, the current account deficit widened to 5.4 billion euros, down from 8.7 billion euros in the fourth quarter of 2021. The goods deficit narrowed but remained high at 23.9 billion euros, and the energy bill reached its highest level ever at more than 19 billion euros. The services sector surplus rose to 16 billion euros.
- FR: France's trade deficit widened to 12.4 billion euros in March 2022 from 10.4 billion euros the previous month. Imports edged up 3.5% to 58 billion euros, while exports were almost unchanged at 45.7 billion euros. Considering the first quarter of 2022, France recorded a trade deficit of 31 billion euros.
- CN: In April 2022, China's trade surplus surged to $51.12 billion from $40.89 billion a year earlier, beating market expectations of $50.65 billion. It was the largest trade surplus since January as exports rose while imports remained unchanged. Exports rose 3.9% year-on-year; this was the first single-digit increase in 18 months. On the other hand, Imports were unchanged after falling the previous month. Consider that the commodity account posted a $214 billion surplus in the first four months.
- CN: In April 2022, China's exports rose 3.9% year-on-year, beating market expectations for a 3.2% increase and a 14.7% increase in March. It was the first single-digit increase in exports in 18 months amid ongoing uncertainty over the war in Ukraine.
- CN: In April 2022, due to the continued suppression of the COVID-19 outbreak in some major Chinese cities and the continued uncertainty caused by geopolitical tensions, compared with the market forecast of a decline of 3% and a decline of 0.1% a month ago, China's Imports were unexpectedly flat year-over-year. China's copper imports fell 4.0% year on year due to slumping demand.
- JP: In April 2022, the au Jibun Bank-Japan composite PMI was 51.1, compared with 50.9 after the final PMI in March was 50.3. It was the second straight month of growth in private sector activity and the fastest since December, reflecting the easing of COVID-19 control measures that have allowed businesses to operate more freely. Activity by companies in the service sector picked up again, while manufacturers said growth rates were unchanged and moderate. Employment rose for the 15th straight month, at the fastest pace in seven months. Meanwhile, new orders stagnated, service providers, slumped again, and manufacturers saw slower growth. As a result, the company's excellent business declined for the third time in 4 months. On the price front, the cost burden grew at the second-fastest rate in the series' history, tied to material shortages, delivery delays, and price increases. Meanwhile, output costs have risen most since survey records began in April 2014. In the end, the mood remains optimistic.
Today, investors will receive:
- USD: NFIB Small Business Index, FOMC Member Williams Speaks, IBD/TIPP Economic Optimism, FOMC Member Waller Speaks, and FOMC Member Mester Speaks.
- EUR: Italian Industrial Production m/m, ZEW Economic Sentiment, German ZEW Economic Sentiment, and German Buba President Nagel Speaks.
- CNY: M2 Money Supply y/y, and New Loans.
- AUD: NAB Business Confidence.
- GBP: BRC Retail Sales Monitor y/y.
- JPY: Household Spending y/y, and 10-y Bond Auction.
KEY EQUITY & BOND MARKET DRIVERS:
- AU: The yield on the benchmark 10-year Australian government bond rebounded strongly and briefly touched a more than seven-year high of 3.60%, buoyed by inflation concerns and expectations of further rate hikes by the Reserve Bank of Australia. RBA governor Lowe, who is responsible for reining in more than 20 years of high inflation, said it would be flexible on rate hikes. Investors expect the upcoming first-quarter wage growth data to support a rise of more than 25 basis points. Growth, if it proves too fast. The RBA hiked rates by 25 basis points to 0.35%, beating expectations and reducing the odds of further rate hikes, but well behind the Fed, which walked its fund's rate by 50 basis points, adding to Australian bond yields pressure.
- US: U.S. stock futures, which track the broader market, fell more than 1 percent, with the major indexes on track to extend losses as investors fretted about the impact of global monetary tightening on the growth momentum. Nonfarm payroll data showed U.S. employers added far more jobs than expected and reinforced the talk of an extremely tight labor market. Meanwhile, the Fed raised its benchmark policy rate by half a percentage point for the first time since 2000 and needs now see a more than 90% chance of a 75 basis point hike in June. All eyes are currently on the U.S. inflation report for May, which could influence the pace of Fed tightening. Last week, the Nasdaq Composite fell 1.54%, the S&P 500 lost 0.21% for the fifth straight week, and the Dow lost 0.24% for the sixth consecutive week.
- US: The yield on the 10-year U.S. Treasury note, which sets the tone for global corporate and household borrowing costs, topped 3.2%, its highest level since November 2018, as investors digested a looming cycle of policy tightening amid slowing global growth statement. The Federal Reserve raised its benchmark policy rate by half a percentage point for the first time since 2000, and markets are now pricing in a more than 90% chance of a 75 basis point hike in June. With inflation at its highest level in 40 years and the labor market exceptionally tight, the Fed has no choice but to change the narrative and signal faster tightening.
- JP: The yield on benchmark Japanese 10-year government bonds rebounded sharply to a six-year high of 0.255%, surpassing the 0.25% target ceiling set by the Bank of Japan following a series of rate decisions the previous week. The Federal Reserve and Bank of England raised their respective rates to 1%. In contrast, the Reserve Bank of Australia raised its key rate this week by 25 basis points, beating expectations, to 0.35%, as warnings of double-digit inflation reverberated overseas. In Japan, the reality contrasted sharply as the latest inflation gauge rose to a more than three-year high of 1.2 percent. At its most recent meeting, the Bank of Japan kept its monetary policy steady. It reiterated its commitment to defend its yield target by buying any amount of government bonds daily.
- UK: Futures linked to the FTSE 100 were down 0.8% ahead of Monday's open, in line with their European counterparts, as China's ongoing lockdown and strict health restrictions continue to dampen growth prospects, while the Victory Day parade celebrating the end of World War II will be highly appreciated around the world. Monitor. The most anticipated speech will be from Russian President Vladimir Putin, who may announce an escalation of the war in Ukraine. Rightmove's chief executive will step down after 16 years of running the UK property portal in terms of company updates.
STOCK MARKET SECTORS:
- High: Consumer Staples, Utilities.
- Low: Energy, Information Technology, Real Estate, Consumer Discretionary
TOP CURRENCY & COMMODITIES MARKET DRIVERS:
- CNY: The offshore yuan depreciated by more than 6.75 yuan against the dollar on May 9, hitting a fresh 18-month low and extending a steep loss in April, as fears of a global economic slowdown and expectations of rising global interest rates prompted investors to turn to the greenback. Safety. China's zero-tolerance approach to the coronavirus has also weighed on the yuan as authorities in Shanghai extended the lockdown until the end of May, and Beijing further expanded mass testing to an almost daily routine. New data showed that China's export growth slowed to its weakest pace in nearly two years, while imports were little changed in April as stricter and broader coronavirus restrictions halted factory production and weighed on domestic demand. Economists have lowered their forecasts for China's full-year GDP growth to reflect the economic damage from the coronavirus outbreak, putting downward pressure on the yuan.
- USD: The U.S. dollar index rose above 104 on Monday, hitting a fresh 20-year high, as expectations of further monetary policy tightening by the Federal Reserve to fight inflation and worries about slowing global growth drove investors to the greenback's safety. Uncertainty surrounding the inflation outlook, the Ukraine war, and the Chinese blockade fuel safe-haven demand for the dollar. Meanwhile, the Federal Reserve last week raised its benchmark funds rate by 50 basis points, and the vital jobs report reinforced bets for a further sharp hike. Investors are now looking forward to Wednesday's new inflation data for the central bank's likely next move. Futures markets expect the Fed to raise 75 basis points at its next meeting in June and tighten by more than 200 basis points.
CHART OF THE DAY:
The euro fell to a 2016 low of $1.05 in the second week of May as the dollar strengthened and investors remained concerned about the risk of stagflation in Europe. In addition, expectations that the European Central Bank will raise interest rates much slower than the Federal Reserve have made it difficult for the euro to attract investors. According to the latest MLIV Pulse survey, many market participants see an opportunity for parity between the euro and the dollar for the first time in nearly 20 years. - EURUSD - D1, Resistance (consolidation) around ~ 1.08014, Support (target zone) around ~ 1.03387