Contradictory Data Leaves Markets Uncertain After A Mixed Week
This week most assets ended up with little changes after several reversals as the data from the US keeps showing mixed signals
This week, the changes were pretty small in most major currencies apart from the CAD which had its own story, but there was drama nonetheless. The US Empire State Manufacturing Index on Monday surprised markets when it showed a jump in activity after being in contraction for four months. The headline number for April increased to 10.8 points from -24.6 in March, coming after a jump in UoM Inflation Expectations on Friday last week.
That improved the sentiment for the USD, implying that the FED might continue with rate hikes after May. But the deterioration in the Philly FED Manufacturing Index on Thursday brought back the thinking that the FED would definitely stop in May, so the USD continued lower.
Although, on Friday we got another positive surprise from the US services and particularly manufacturing PMI reports, released by S&P Global. That sent the US dollar rallying higher again, with USD/JPY gaining more than 100 pips. The report was surprisingly strong, with high numbers on new orders and price pressures that few analysts anticipated.
However, the USD gave back Friday’s gains as skepticism set in after the numbers ahead of the weekend. Ultimately, the USD rally reversed completely. USD/JPY held onto about 60 pips of gains from the low, but that was still not enough to erase the losses from European trading.
So, after this week’s economic data, there is uncertainty in the markets. For every data point that suggests a recession, there is another that shows the US economy is coming back to life. Next week, there is another round of data, but the market is less likely to be swayed by second-tier data points unless there will be a few reports running in the same direction.
Although, a worrisome sign was the underperformance of commodity currencies and crude Oil, which lost around $5. Other commodities such as Copper and Gold ended up slightly down as well. Some attributed this to softer global manufacturing PMIs besides the US, indicating a concerning sign for global resource demand.
The CAD, in particular, was weak due to weak details in the Canadian retail sales report. According to Adam Button, chief currency analyst at ForexLive, “High mortgage rates are starting to bite Canadians’ wallets. Canada is particularly sensitive to higher interest rates, and that will lead to divergence in US and Canadian economic performance in the second quarter and beyond.”
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