The big events ahead in trading news are the Federal Reserve’s June interest rate decision and US Retail Sales for May. Today we take a look at their potential impact on sentiment and different asset classes.
The Federal Reserve is expected to hike its key interest rate guidance by 0.5 percent, taking the overall rate to 1.5 percent in its quest to beat high inflation. One of the Fed’s main purposes is to keep the inflation rate at the target level of 2 percent, but after data showed that prices grew by 8.6 percent in May, there’s a long way to go.
The US Dollar itself is the headline asset in focus against a blurry background of uncertain-to-bearish market sentiment. The Federal Reserve’s hawkish stance appears set for the foreseeable future, meaning a steady increase in key interest rates and a stronger USD. On the other side of the scale are the USD’s counter currencies like the EUR or GBP, both of which are weaker against the USD at the time of writing.
USD-denominated assets include crude oil, US Treasuries, USD-denominated business loans and mortgages, along with savings and other types of bonds such as bank bonds. It’s reasonable to expect that as the USD rises on safe-haven buying, asset classes that are linked to the currency are set to appreciate in the short term, provided the economy stays in growth territory. That’s a big ‘if’ to digest because of the lingering effects of the COVID-19 downturn and the conflict in Ukraine. In addition, monetary tightening means the end of the Federal Reserve’s asset purchase program, so the weight is now on other market participants to maintain demand for US Treasuries.
As the Fed walks a tightrope with recession on one side and inflation on the other, economic benchmarks like Retail Sales carry even more importance. Retail Sales for May are expected to have fallen to 0.2 percent growth from 0.9 percent growth in April. The actual results may move the USD currency pairs depending on whether there are any surprises to the upside or downside.
Retail stocks are another asset class that may feel the impact of the latest Retail Sales report, which surveys more than 10 types of US retailers. Large-cap retailers like Walmart, Amazon, and Home Depot rely on consumer spending for their income and with prices soaring, they are likely feeling a squeeze on their bottom lines.
Trading news in other parts of the global economy includes New Zealand’s first-quarter GDP release, which is expected to have risen to 3.3 percent compared to 3.1 percent previously on an annual basis. An expected result may not be the actual result, and NZD currency pairs may move depending on how the benchmark develops.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.