The US dollar rose slightly while global equity markets were largely unchanged last week as a positive start to the earnings season was overshadowed by concerns that central banks are not yet done tightening. The MSCI All Country World Index was largely unchanged, and the US Dollar Index (DXY Index) rose 0.1%.
In equities, the S&P 500 ended the week down 0.1%, while the Nasdaq 100 Index lost 0.6%. Germany’s DAX 40 rose 0.5% and the UK’s FTSE 100 rose 0.5%, while Japan’s Nikkei 225 rose 0.3% and the Hang Seng Index fell 1.8%. Meanwhile, one-year US credit default swaps – the price of hedging against a US government default over the next 12 months – rose to their highest level since at least 2008.
Price action last week was largely dominated by the earnings season, comments from the US Federal Reserve, better-than-expected data from China and global inflation figures. As of 21 April, 18% of companies in the S&P 500 index have reported actual results for Q1-2023, of which 76% have reported actual EPS above estimates, while 63% of companies have reported actual earnings above estimates. In the coming week, 180 companies in the S&P 500 index (including 14 Dow 30 components) will report their first quarter results, according to FactSet.
Year to Date Equity Market Performance
Source Data: TradingView
Several Fed speakers have recently advocated another 25 basis point hike. Market participants have priced in an 83% probability, with many expecting the Fed to start cutting rates by the end of 2023. US macro data was largely mixed: economic activity accelerated to an 11-month high in April, but weekly jobless claims rose, suggesting the labour market may be showing signs of slowing.
China’s GDP data beat expectations, prompting analysts to raise the outlook for the world’s second-largest economy this year, which bodes well for the rest of Asia and emerging markets. UK core inflation did not fall as expected last month, holding steady at 6.2% y/y and beating estimates of 6.0%, so investors are now fully pricing in a 25bp rate hike to 4.25% on 11 May.
Meanwhile, New Zealand’s Q1-2023 inflation data surprised to the downside, increasing the likelihood that inflation has finally peaked, but not enough to deter the RBNZ from another 25bp rate hike in May. Japan’s CPI rose 3.2% yoy in March, in line with expectations, but still far from the BOJ’s 2% target.
Year to Date Performance of Key Currency Pairs
Source Data: TradingView
Important data/policy focus in the coming week: German IFO business climate for April on Monday; US consumer confidence and housing data on Tuesday; Australian Q1 inflation, German GfK consumer confidence and US durable goods data on Wednesday; US Q1 GDP on Thursday; BOJ interest rate decision, euro area Q1 GDP and US core PCE price index on Friday.
Of lesser importance next week and more likely for June-August is the US debt ceiling. The jump in yields on 3-month T-bills and US credit default swaps signals growing uncertainty. If lawmakers do not raise the federal debt ceiling by June, the government risks defaulting on its obligations, as Treasury Secretary Janet Yellen said in January. Democrats and Republicans seem to disagree on a possible solution, but there is hope that some kind of compromise will eventually be found. However, the road to a solution could be bumpy and keep markets on edge.
Euro week ahead: Will heavyweight data breathe life back into a lethargic EUR/USD?
Volatility in the EUR/USD pair is at a two-month low, hovering in a 90-point range this week. Next week’s data releases are likely to challenge this range.
Weekly outlook for sterling: is GBP/USD ready for an upside breakout?
The British pound’s recovery against the US dollar has stalled recently, and there is a good chance that the consolidation could continue for a while before it starts a new upward move.
AUD/USD weekly forecast: ominous signs for the Aussie dollar
AUD/USD looks set for a US-dominated week, while technical analysis is more negative for the Aussie dollar.
US Dollar Weekly Outlook: Is the US facing uninspired economic growth?
After persistent losses, the US dollar finally caught a break this week. However, this could be short-lived if GDP points to uninspiring growth. What are the key DXY values to watch out for in the week ahead?
Gold price forecast: XAU/USD trials point to breakdown ahead of US GDP
The precious metal fell sharply at the end of the week as impressive US purchasing managers’ indices boosted the weakening dollar. Next week’s US GDP data is likely to be directional.
S&P 500 weekly forecast: Bullish momentum wanes, bears flirt with comeback
The S&P 500 and Nasdaq 100 rose slightly during the week, but upward momentum faded as interest rate expectations began to rise from levels seen a few weeks ago.