Last Friday ended the last full trading week in May. The next trading week (May 30 to June 3) will be a transitional week between the two months. Its main event, perhaps, will be the publication on Friday of the monthly report of the US Department of Labor with data on the state of the US labor market. As usual, this report is published on the first Friday of the month and is of great interest to market participants in terms of assessing the prospects for the Fed's monetary policy, which, in turn, has a huge impact on the dynamics of the dollar, US stock indices and the entire global financial market as a whole.
Meanwhile, the dollar is weakening. Thus, the dollar index (DXY) ended the last week, the second in a row, with a significant relative decline (-1.02%).
As follows from the minutes published last Wednesday from the May meeting, the Fed's leaders intend to raise the Fed's interest rate, each time by 0.50% at the next meetings (June and July). However, then they intend to take a break to assess the "results of the work done" and the state of the American economy, the labor market, and the inflation rate. As you know, the key indicators for the Fed in determining the parameters of the current monetary policy and its prospects are GDP, labor market, and inflation in the United States. The only bright spot among them is, perhaps, the American labor market, while GDP unexpectedly declined in the 1st quarter of 2022, and inflation remains at levels of 40-year highs. This situation is beginning to look too much like the beginning of stagflation in the American economy (a slowdown in the economy with rising inflation).
If the situation in the labor market starts to deteriorate, then the Fed leaders will have more arguments in favor of stopping the process of tightening monetary policy. Participants in the US stock market, which has significantly sagged in recent months, will take this pause with relief, but the dollar may suffer. As Fed Chairman Jerome Powell recently stated, the upcoming interest rate hikes by 50 basis points at the next 2 meetings of the central bank, for the most part, have already been taken into account in prices.
Also, market participants will pay attention next week to the publication of important macro statistics for Germany, the Eurozone, China, Switzerland, the USA, Canada, and Australia, as well as the results of the meeting of the Bank of Canada.
As always, a number of important macroeconomic data and a number of important news are expected to be published during the new trading week. It is also worth noting that changes may be made to the economic calendar during the coming week.
* the specified time is GMT
Monday, May 30
In the United States, this day is celebrated as Memorial Day. Banks in the country do not work. And since they are closed, the trading volumes (primarily during the American trading session) will be low, and the market will be less liquid. However, this does not mean that volatility will also remain low. In some cases and in short periods of time, it can rise sharply as a result of speculative actions of some market participants or when unexpected news of an economic or political nature is released.
12:00 Germany Harmonised Index of Consumer Prices ( HICP) (preliminary release)
Consumer prices account for the bulk of overall inflation. Under normal economic conditions, rising prices force the central bank of the country to raise interest rates in order to avoid excessive inflation growth (above the target level of the central bank). One of the dangerous periods of the economy is stagflation. This is rising inflation in a slowing economy. In this situation, the central bank must act very carefully so as not to harm the recovery of economic growth.
The index (CPI) published by the European Statistical Office (Eurostat), is an indicator for assessing inflation and is used by the Governing Council of the ECB to assess the level of price stability. Usually, a positive result strengthens the EUR, a negative one weakens it.
The growth of the indicator is a positive factor for the national currency (under normal conditions). Data worse than the previous value and/or the forecast will have a negative impact on the euro. Previous values of the indicator: +7.6% in March, +5.5% in February, +5.1% in January (in annual terms). Forecast for May : +0.4% (+8.0% YoY).
Tuesday, May 31
01:00 China Federation of Logistics & Purchasing (CFLP) business activity PMI indices in the manufacturing and service sectors of the Chinese economy
This report is an analysis of a survey of 3,000 purchasing managers, in which respondents are asked to rate the relative level of business conditions, including employment, production, new orders, prices, supplier deliveries, and inventory. Since purchasing managers have perhaps the most up-to-date information about the situation in the company, this indicator is an important indicator of the state of the Chinese economy as a whole. A result above 50 is seen as positive and strengthens the CNY, below 50 is negative for the yuan. Previous values: 47.4, 49.5, 50.2, 50.1 for PMI in the manufacturing sector, and 41.9, 48.4, 51.6, 51.1 for PMI in the services sector.
Since the Chinese economy is, according to various estimates, the first in the world (at the moment), Chinese macro data can have a big impact on the financial market and investor sentiment, especially on the markets of the Asia-Pacific region.
The relative growth of the index and the value of 50 should have a positive effect on the CNY. The data above the value of 50 indicate an increase in activity, which has a positive effect on the quotes of the national currency. Forecast for May: 49.6 and 50.7, respectively.
07:00 Swiss GDP
The dynamics of the Swiss GDP curve remains one of the smoothest among the world's major economies, growing steadily since the beginning of the history of observations. Although the share of the Swiss economy itself in world GDP is only about 0.8% (39th), in terms of percentage per capita it is already the 2nd largest in the world with approximately $80,000 per person.
The economy of the country, where the key elements are industry and trade, is very dependent on constant inflows of foreign investment. Interestingly, Switzerland is the world leader in gold refining, processing two-thirds of the world's gold production.
GDP is considered an indicator of the general state of a country's economy and evaluates the rate of its growth or decline. The GDP report expresses in monetary terms the total value of all final goods and services produced by Switzerland in a given period of time.
In addition to being one of the world's major currencies, also included in the calculation of the DXY index, and a popular defensive asset, the growing trend in GDP is considered a positive factor for the national currency (franc), and a low result is considered negative.
Previous values of the Swiss GDP indicator (in quarterly terms): +0.3%, +1.9%, +1.8%, -0.4%. Forecast for Q1 2022: +0.4%. The data point to continued recovery in the Swiss economy, albeit at a relatively slow pace, which is positive for the franc.
If the data turns out to be weaker than the forecast, the franc may decline in the short term. Better-than-expected data will have a positive impact on the franc.
09:00 Consumer price indices in the Eurozone (preliminary release)
The Consumer Price Index (CPI) determines the change in prices in a certain basket of goods and services over a given period, being a key indicator for assessing inflation and changing consumer preferences.
In the core consumer price index (Core Consumer Price Index, Core CPI), food and energy are excluded from the calculation for a more accurate assessment.
A high indicator strengthens the EUR, and a low one weakens it.
Previous CPI values +7.4%, +7.4%, +5.9%, +5.1%%; Core CPI +3.5%, +3.0%, +2.7%, +2.3%. If the data for May turn out to be worse than the previous values, then this may negatively affect the euro. Better-than-expected data is likely to have a positive impact on the euro. Forecast for May: +7.7% and +3.5%, respectively.
12:30 Canadian GDP
This Statistics Canada report is the broadest indicator of economic activity and the main indicator of the state of the economy. High GDP figures will have a positive impact on the CAD quotes, and, conversely, a weak GDP report will have a negative impact on the CAD.
Previous reports came out with values of +6.7% in the 4th quarter, and +5.5% in the 3rd quarter of 2021. Forecast for the 1st quarter of 2022: +5.7%, which in general should have a positive impact on CAD quotes. Despite the relative decline, the data show the continued recovery of the Canadian economy after its strong fall in early 2020 due to the coronavirus pandemic (in the 1st quarter of 2020, Canada's GDP fell by -8.6%, and in the 2nd -44.2%). Better-than-expected data will also have a positive impact on CAD.
Wednesday, June 1
01:30 Australian GDP
The Australian Bureau of Statistics will publish another report with data on the country's GDP for the 1st quarter of 2022. As the world's largest exporter of coal, iron ore, gold, and liquefied natural gas, the Australian economy is benefiting tangibly from rising commodity prices. This indicator is the main indicator of the state of the Australian economy, and along with data on the labor market and inflation, GDP data are key for the country's central bank in determining the parameters of its monetary policy.
A strong report will strengthen the AUD. A weak GDP report will have a negative impact on the AUD. Forecast : +0.6% (+1.6% YoY) vs. +3.4% (+4.2% YoY) in Q4, -1.9% in Q3, +0.7% in Q2, +1.8% in Q1 2021.
06:00 German Retail Sales
This report, published by the German statistics office, reflects the change in retail sales. The change in the indicators of the report on retail sales affects the indicator of consumer spending, indirectly indicating also the state of the German economy and the level of income of citizens.
A high result strengthens the euro, and vice versa, a low result weakens it. Previous values: -0.1% (-2.7% YoY) in March, +0.3% (+7.0% YoY) in February, +2.0% (+10.3% in annual terms) in January.
Data better than the forecast and/or the previous value is likely to have a positive impact on the euro, but–in the short term. April Forecast: 0% (+4.0% YoY).
14:00 US Manufacturing PMI
The monthly report of the Institute for Supply Management (ISM) publishes (among other data) the PMI index of business activity in the manufacturing sector of the US economy, which is an important indicator of the state of this sector and the American economy as a whole. A result above 50 is considered positive and strengthens the USD, below 50 is considered negative for the US dollar. The data above the value of 50 indicate an acceleration of activity, which has a positive effect on the quotes of the national currency. If the indicator falls below the forecast and, especially, below the value of 50, the dollar may sharply weaken in the short term.
Previous values of the indicator: 55.4 in April, 57.1 in March, 58.6 in February, and 57.6 in January. Forecast for May: 54.5
14:00 Bank of Canada interest rate decision, Bank of Canada accompanying statement
The Bank of Canada estimates that the neutral level of the interest rate, at which it does not stimulate or slow down economic activity, is 2.25%. Most economists expect the key interest rate to reach 2% by the end of 2022 (compared to expectations of 1.75%–2.0% of the Fed rate by the end of the year, with a 0.25% increase at each meeting).
Inflation in the country has accelerated to a thirty-year high (in February 2022, consumer prices in Canada rose at an annualized rate of 5.7% after rising by 5.1% in January). This is the highest figure since August 1991.
The current level of the interest rate is 1.0%. It is widely expected that at this meeting the Bank of Canada will raise interest rates again (by 0.50%, as economists predict).
In an accompanying statement, Bank of Canada officials will explain the decision and possibly share plans for the monetary policy outlook.
The tough tone of this statement will cause the Canadian dollar to strengthen. The propensity of the bank's leaders to carry out a soft policy may provoke a weakening of the Canadian dollar.
Thursday, June 2
In the UK, Spring Bank Holiday. The banks of the country and the Commonwealth countries will be closed, which will affect the trading volumes (they will be reduced), especially during the European trading session. However, this does not exclude the possibility of a sharp increase in volatility in short periods of time due to speculative actions of market participants. This year the "Spring Bank Holiday" will last 2 days (due to the celebration of the 70th anniversary of the reign of Queen Elizabeth II).
08:00 OPEC meeting
The June meeting will begin at 08:00 (GMT) and will last all day. As you know, since August 2021, the oil coalition has increased production by 400,000 barrels per day every month. During the May meeting, its participants decided to increase oil production in June by 432,000 barrels per day, and by September, OPEC+ plans to completely exit the production restriction regime. Participants in the oil market will be closely following this meeting to better assess the prospects for rising oil prices.
12:15 ADP private sector employment report
ADP will present a monthly report on employment in the private sector of the US economy for May. This report usually has a strong impact on the market and dollar quotes, although, as a rule, there is no direct correlation with Non-Farm Payrolls. Strong data has a positive effect on the dollar; a decrease in the indicator can negatively affect it. An increase of +280,000 in the number of employees in the US private sector is expected (against +247,000 in April and +455,000 in March).
In any case, during the publication of this report, there may be an increase in volatility in the market and, above all, in dollar quotes.
Friday 03 June
12:30 NFP (number of new jobs created outside the agricultural sector) and unemployment rate
The central event of Friday will be the publication of the monthly report of the US Department of Labor with data on the main indicators of the country's labor market for May. Market participants are closely following this report, and market volatility during the period of its publication usually rises sharply, especially in dollar quotes.
The growth of this report's figures (average hourly wages and the number of new jobs created outside the agricultural sector) and the decrease in the unemployment rate are positive for the dollar.
Previous values (average hourly wages / number of new jobs created outside the agricultural sector / unemployment rate): +0.3% in April, +0.4% in March, 0% in February, +0.7% in January 2022 / +0.428 million in April, +0.431 million, +0.678 million in February, +0.467 million in January 2022 / 3.6% in April and March, 3.8% in February, 4.0% in January 2022 of the year. Forecast for May : +0.4% / +0.310 million / 3.6%, respectively.
The figures show continued improvement in the US labor market. However, the market reaction to the publication of the US Department of Labor report may be unpredictable, because the indicators of previous monthly reports can often be revised, and not always for the better.
Due to the traditionally expected surge in volatility around the time this report is released, it may be best for conservative traders to stay out of the market during this time frame.
After 2:00 (GMT), the US Treasury will release the Treasury Monetary Report, providing a detailed overview of global politics, exchange rates, economic conditions, and the actions of central banks and governments around the world. The report can have a high impact on the market if it contains unexpected information, for example, allegations of currency manipulation by the central banks of some countries.
14:00 US Services PMI (from ISM, Institute for Supply Management)
The ISM Index is the result of a monthly survey of the largest US companies from 62 segments of the service sector, which accounts for almost 90% of US GDP and about 80% of the country's working citizens.
Previous values: 57.1 in April, 58.3 in March, 56.5 in February, and 59.9 in January. Forecast for May: 56.0. Despite the relative decline, this is a high figure. A result above 50 indicates an increase in activity and is seen as a positive factor for the USD. However, a stronger relative decline in the index could negatively impact the dollar in the short term.
