Central bank moves were the focus this week, with the Federal Reserve’s statement topping the list as the most anticipated event as usual.
But it was the Swiss National Bank that surprised traders on Wednesday, prompting the Swiss Franc to spike higher and take the top spot against the majors through the Friday close.
Notable News & Economic Updates:
10-year Treasury yield topped 3.45% on Tuesday, the highest in 11 years
OPEC says war threatens to slow pace of oil demand rebound
Chinese retail sales were down by 6.7% y/y vs. estimated 7.0% slump
The Federal Reserve raised the Federal Funds rate by 75 bps on Wednesday to 1.75%
On Thursday, the Swiss National Bank hiked its interest rate to -0.25% and the Bank of England raised its interest rate to 1.25%
The Bank of Japan held the interest rate at -0.10% in their latest statement; mentioned that currency movements are now on their list of risks to the economy
Intermarket Weekly Recap
It was a busy week in the markets as traders positioned and reacted to four major central bank events.
On Monday, after a surprisingly strong inflation print from the U.S. last Friday, it appears traders were pricing in higher odds of more aggressive central bank rhetoric and higher interest rates. There were even calls from market pundits and gurus that the Fed should go ahead with a 100 bps hike, 25 bps more than last week’s forecast of a 75 bps hike.
Price action largely reflected this sentiment as bond yields hit new highs early in the week, while risk assets like equities and crypto dumped on the idea that rising global interest rates will likely bring on a global recession. The recession angle is likely why we got dovish commentary from OPEC this week on future demand, correlating with a dip in oil prices (WTI crude was down as much as -11.44% at its lows this week).
On Wednesday, we got the first central bank statement from the Federal Reserve, and the most highly anticipated one at that, who raised the Federal Funds rate by 75 bps to 1.75% as expected. This was followed by the Swiss National Bank, who surprised traders with a 50 bps hike to -0.25%, and the Bank of England who also raised the rate 25 bps to 1.25%, which was less aggressive than expected.
It appears that the SNB event was the top event of the week for forex traders as there were no signals or hints of a hike in the weeks ahead of the event. The Swiss franc immediately popped higher after the announcement, and has pretty much stayed elevated, somewhat expected given the surprise and general risk-off vibes we saw in the broad markets.
The Bank of Japan capped off the week’s central bank events with its statement on Friday, holding off on policy moves as expected, but it did mention for the first time that the rapid decline in the yen may be a risk to the Japanese economy.
Crypto was arguably the other major focus for traders, likely on rising fears of Ethereum network Merge delay, and on headlines of a major crypto institution, Celsius, banning withdrawals due to extreme market conditions and rumors of insolvency.
The drama for digital assets didn’t end there as we also got word from the street that a major crypto fund, Three Arrows Capital (3AC) may also be on the brink of insolvency. This is a very large, wide reaching player in crypto who began selling parts of its $10B portfolio (as of March) to cover debts and avoid liquidations.
This event understandably is sparking speculation that the large downturn in crypto prices could lead to more liquidations and price declines ahead, and likely why both bitcoin and ether are both down more than -20% since the week open.
U.S. producer price index rose to 0.8% m/m in May vs. 0.5% m/m in April; 10.8% y/y
NAHB Housing Market Index: 67 in June vs. 69 in May; Average rate of 30-yr fixed mortgage hits 6.28%
U.S. Import prices rose by 0.6% in May vs. 0.4% in April
U.S. Retail Sales in May: -0.3% vs. downwardly revised -0.7% in April; car sales plunged by -3.5%
Fed hikes its benchmark interest rate by 0.75 percentage point, the biggest increase since 1994
NY manufacturing index contracts for a second month, up from -11.6 to -1.2 in June
U.S. Housing Starts in May: -14.4% to 1.55M, Building Permits came in below expectations at 1.7M vs. 1.78M forecast
Philly Fed manufacturing index fell in contraction territory in June, the first time since May 2020, to -3.3 vs. 2.6 in April
U.S. weekly initial unemployment claims: 229K vs. 232K previous
The Federal Reserve reiterated its commitment to reining in inflation on Friday its semi-annual report to Congress
U.K. industrial production sank by 0.6% in May, manufacturing production down 1.0%
U.K. economy contracted by 0.3% in May vs. projected 0.2% growth
U.K. goods trade deficit narrowed from 23.9B GBP to 20.9B GBP
UK to enter recession this year, think-tank NIESR forecasts
U.K. unemployment rate up from 3.7% to 3.8% in the three months to April, the first uptick since late 2020
U.K. claimant count change clocks in at -19.7K vs. -40.3K expected
U.K. average earnings slows down from 7.0% to 6.8%
Bank of England raised the interest rate 25 bps to 1.25% on Thursday; Pound falls as BOE was less aggressive than markets expected
ECB’s Kazimir ‘clearly’ sees need for half-point September hike
German ZEW Economic Confidence rises in June to -28 vs. -34.3 in May
ECB’ policymaker Klaas Knot said that September hike not limited to 50 bps; rates likely to rise again in October and December
Euro area Industrial Production was up +0.4% in April; +0.3% in the European Union
Euro area international trade in goods deficit was €32.4B in Aprill 2022, €43.6B in the European Union
The European Central Bank announced Wednesday that it plans to create a new tool to tackle the risk of euro zone fragmentation
ECB will “rapidly” roll out anti-fragmentation instrument: de Guindos
ECB rate rises will be more gradual than Fed’s, says Draghi
Annual inflation was up +8.1% in the euro area in May; up +8.8% in the European Union
SECO Economic Forecasts: The Swiss downgraded its growth forecast to 2.6% in 2022 from its March forecast of 2.8%; 2023 was downgraded to 1.9% vs. 2.0%
The Swiss National Bank unexpectedly raised the key interest rate from -0.75% to -0.25%
Canada Manufacturing Sales was up 1.7% in April to $72.3B
Canada Wholesale Sales: -0.5% vs. upwardly revised 0.6% previous
Canada Housing Starts for May: 254K vs. 257K in April – CMHC
$29.2B of foreign securities purchased in April 2022 by Canadian investors; foreign investors purchased $22.2B of Canadian securities
Canadian Industrial PPI for May 2022: 1.7% m/m; Raw Materials prices rose by 2.5% m/m
New Zealand food prices index jumped by 6.8% y/y in May 2022 vs. a 6.4% y/y increase in April
New Zealand visitor arrivals up by 89.7% m/m in May
New Zealand Q1 2022 Current Account was in deficit by NZ$8.5B vs. NZ$6.6B in the previous quarter
New Zealand’s economy contracts by 0.2% in Q1 2022 (vs. 3.1% in Q4) as exports slump
AU NAB business confidence and business conditions both eased in May as RBA raised rates
According to Westpac Banking Corp, consumer confidence dropped in June by 4.5% to an index level of 86.4
Melbourne Institute inflation expectations higher from 5.0% to 6.7% in June
Australia’s unemployment rate steady at 3.9% in May
Japanese BSI manufacturing index down from -7.9 to -9.9
Japan’s industrial output dropped for the first time in three months, down 1.5% in April
BOJ ramps up bond buying to defend yield cap, undermining jawboning
Japanese Finance Minister Shunichi Suzuki repeated his concerns about recent rapid yen falls
Japanese tertiary industry activity up by 0.7% vs. 0.8% forecast, 1.7% previous
Japanese core machinery orders rebounded by 10.8% vs. estimated 1.2% slump
Japan Trade Balance for May 2022: -2.38T yen vs. -842B yen
The Bank of Japan kept interest rates on hold at -0.10% as expected on Friday; no changes to policy settings for yield curve control and asset purchases