The Canadian dollar failed to capitalize on better than expected data today. Instead, the USDCAD pair stayed above its 200-day moving average, signaling further gains for the pair (losses for the Canadian dollar). At the time of writing, the Loonie was down 0.7% against the USD, with the USDCAD pair trading at 1.2670, the highest level since 17 March. Earlier today, Canadian retail sales for February fell from 3.3% to 0.1%, but higher than -0.1% expected. At the same time, retail sales ex-autos decelerated from 2.9% to 2.1%, also better than analysts forecast of 0%. Additionally, the Canadian raw material price index, which measures the prices of key raw materials paid by Canadian manufacturers, nearly doubled in March, printing 11.8% from 6.4% previously, confirming inflation pressures are rising. Later today, the US manufacturing and services PMI for April are on schedule, projected to decline slightly, but these numbers rarely influence the USDCAD pair. The Canadian dollar also lost some ground as the WTI oil seems to be unable to rise significantly above the 200-day moving average. At the same time, the US dollar continues to dominate the markets, boosted by rising US yields and the recent hawkish Fed talk. The next level for bulls could be near 1.28, while on the downside, the support seems to be at the 200-day moving average near 1.2620.

Outlook: It doesn’t show up on the Econoday calendar but we get the US April flash PMI today. The Baker Hughes rig count this afternoon may be of more interest again. Fed chief Powell seemed to endorse not only a 50 bp rate hike at the May meeting, but perhaps additional 50 bp hikes at the June and July meetings, too. See the CME Fed watch tool chart. It shows 49.8% of traders expect Fed funds to be at 2.75-3.0% by the December meeting, while 40.8% sees 3.0-3.25%--that bunch was only 4% a week ago. Two things: weirdly, the 2/10 breakeven as reported by the St. Louis Fed fell to +0.22% yesterday from 0.39% on Monday. Apparently, the Powell remarks failed to move everybody. You’d think the yield curve would steepen. It’s still better than the negative 0.5% we had on April 1. Also, critics point out that the Taylor Rule calls for Fed funds to be higher than the inflation rate, so with inflation at 8.5% (CPI version), Fed funds really should be 10%, or something. Let’s play our record again–with the Fed balance sheet at some $9 trillion after many years of QE, nobody knows where Fed funds “should” be, especially given a rapidly changing inflation rate. To use the Taylor rule, you need an established inflation real-data baseline. We don’t have that. Inflation was 4.2% a year ago in April 2021. It was steady at 5.4% all summer. Inflation started to go crazy only in October, and while it’s true the Fed was still talking about inflation being “transitory” in December, we can hardly take the newer numbers as a baseline for the Taylor Rule. Inflation has become an obsession for everyone, down to the smallest details about supply chains in far-off places. An impressive chart is from Deutsche Bank, courtesy of the Daily Shot. In a nutshell, it shows inflation may reach up to near 10% near-term, but by year-end will fall back to under 6% and most of that is due to services. On the whole, the big bank economists are awfully good, if a bit wordy. If this forecast is reasonably close to actual developments, decelerating inflation stops being a drag on growth, something the stock market will like. It may not be so hot for gold. A big question is whether it slows down the Fed from what seems like a super-strong dose of hiking. We are leery of saying anything about the hypothetical schedule of rate hikes because when the time comes, it will be the end of QE that has more effect on just about everything, starting with yields and moving, via the banks, to economic activity. Frankly, my dear, we just don’t know. And we have to wait for June, presumably, to see that happening. If growth starts to fumble, we could catch the Japanese disease–weak growth and worries, again, about deflation. It may seem silly to speak of deflation when we still haven’t seen the expected inflation peak, but such an outcome is not totally ridiculous, and you can bet some backroom Fed economists have penciled it into the tail of a distribution curve. The Economist has a scornful story about how the Fed failed, revealing again its fundamental anti-Americanism. It uses a picture of Benjamin Franklin, who favored a national bank but obviously never had anything to do with today’s Federal Reserve. The Fed’s “historic mistake” was failing to raise rates when the US Government was handing over a fortune in pandemic payments–really? A commitment to full employment was catastrophic (and never mind it’s a Congressional mandate). “In September 2020 the Fed codified its new views by promising not to raise interest rates at all until employment had already reached its maximum sustainable level. Its pledge guaranteed that it would fall far behind the curve. It was cheered on by left-wing activists who wanted to imbue one of Washington’s few functional institutions with an egalitarian ethos. “The result was a mess which the Fed is only now trying to clear up.” And its crystal ball was cloudy–it failed to see the end of the pandemic, or the invasion of Ukraine. Central banks need to stick to their knitting and turn away from non-essential issues like climate change. The whole thing is biased and shameful. Meanwhile, the ECB’s Lagarde and BoE’s Bailey will speak this morning about monetary policy. Again we warn that what they say in big forums like G7/G20 can be overvalued and what counts is what they do. Various members in both central bank policy committees are talking up rate hikes while the leaders are not denying it, but words are not deeds. We suspect that weaker growth in both places is going to stay central banks hands. Markets want hikes. Markets crave hikes. They expect...

Sterling and UK stocks declined on Friday after the weak retail sales and PMI numbers from the UK. Data by the Office of National Statistics (ONS) showed that retail sales fell sharply in March as prices of most items rose. Sales fell by 1.4% in March while core sales fell by 1.1%. On a year-on-year basis, sales rose by 0.9% while core sales fell by 0.6%. Further data by Markit showed that PMIs declined in April, signaling that the economy is slowing substantially. Therefore, there are worries that the Bank of England will implement a strategic pause on rate hikes. Global stocks declined sharply over concerns of higher interest rates in the United States. Bond yields rose to the highest level in years. In Europe, the DAX and CAC 40 indices dropped by 1.77% and 1.45%, respectively. In the UK, the FTSE 100 declined by 0.85%. Elsewhere, in the United States, futures tied to the Dow Jones fell by 100 points while the ten-year bond yields rose to 2.92%. Some of the worst performers in premarket trading are tech firms like Nvidia, Netflix, Amazon, and AMD. Some of the companies expected to publish their results today will be Coca-Cola, Verizon, American Express, and Crown Holdings. Cryptocurrency prices crashed as their correlation with American stocks continued. Bitcoin dropped by more than 4% to about $40,000 while Ethereum is hovering around the $3,000 level. The total market cap of all digital currencies dropped to $1.8 trillion. Another reason why coins declined is the decision by Binance to block many Russian customers. The company will not allow Russian clients with over 10,000 euros to access its services. It attributed this to the new sanctions imposed by the European Union. ETH/USD The ETHUSD pair is hovering at about 3,000, which is slightly below this week’s high of 3,181. It has moved below the important support at 3,087. It has also formed what looks like a bearish flag pattern, which is usually a bearish sign. It dropped below the 25-day moving average, while the MACD has moved below the neutral level. Therefore, the pair will likely keep falling as bears target the key support at 2,885. GBP/USD The GBPUSD pair crashed to the lowest level since 2020. On the four-hour chart, the pair dropped below the important support level at 1.300. This price was along the lower side of the descending triangle pattern. It has also moved below the 25-day and 50-day moving averages while the Stochastic oscillator has moved to the oversold level. The momentum oscillator has dropped to the lowest level since last week. Therefore, the pair will likely keep falling. EUR/USD The EURUSD pair declined after the worrying EU manufacturing and services PMI data. It moved to a low of 1.0790, which was the lowest level since Wednesday. The shares have declined to between the middle and lower lines of the Bollinger Bands while the Stochastic oscillator has moved to the oversold level. Therefore, the pair will likely keep falling today.

Europe It’s been a disappointing end to the week for markets in Europe, after Fed chair Jay Powell signalled that the Federal Reserve could well go much harder, and a lot quicker when the central bank pulls the trigger on the first of what might be several 50bps rate hikes, starting next month. Financials appear to be taking the biggest hit, after a narrowing of yield differentials, prompted concern about the prospect of a policy mistake by central banks, and a possible recession by the end of the year. This has manifested itself in weakness in the likes of Schroders, Abrdn and Hargreaves Lansdown, as well as HSBC, and Barclays ahead of the start of UK bank Q1 results, which are due out next week. Fears about an economic slowdown are an easy conclusion to draw, especially when you look at today’s disappointing UK retail sales numbers for March, and consumer confidence in April falling to its lowest levels since July 2008. B&M European Retail is the largest faller on the announcement that its CEO Simon Arora will be retiring in 12 months’ time. Even without that it’s still been a weak session for the sector as a whole after retail sales in March plunged by 1.4%, which has translated into weakness in the likes of Kingfisher, Next and Marks and Spencer. Today’s retail sales numbers are a wake-up call, if any were needed, that consumer spending could be weak for some time to come, as households prioritise food and energy over non-essential spending, with this week’s fall in Netflix subscriber numbers revealing an interesting trend that is likely to get worse. Quite simply, food and energy are people’s priorities now, not watching “Stranger Things”   US US markets, having finished sharply lower yesterday on Powell’s comments on rate hikes, have continued where they left off, amidst rising caution about what next week could bring as investors gear up for a big week of tech earnings. Next week we get the holy trinity of tech with the release of Microsoft, Apple, Amazon, Alphabet and Meta numbers, against a backdrop of a slowdown in Asia and a squeeze on consumer discretionary as the fallout from Netflix’s surprise miss continues to impact on the broader appetite for risk.    As we look ahead to next week, last night’s Snap numbers could well be the canary in the coalmine for Meta’s numbers, after the social media company reported a challenging Q1, that missed on sales and profits, and also posted weak guidance. The company posted a loss of 2c a share, while average revenue per user came in short at $3.2c. Q2 revenue is expected to rise by an upper limit of 25%, well below expectations of 28%. American Express shares look set to bring the curtain down on US bank earnings by reporting better than expected Q1 profits and revenue of $2.73c a share and $11.74bn respectively. The bank did see a 34% rise in expenses, while also setting a full year EPS forecast that came in light, with an upper boundary at $9.65c a share. On the retail front Gap cut its sales growth outlook for Q1, citing difficult trading at its Old Navy operations, with the shares trading sharply lower in early trade. FX The US dollar is amongst the best performers today after Powell’s comments last night. The pound is one of the worst performers today, sliding to its lowest levels since November 2020 after UK retail sales plunged by -1.4% in March, hurt by declining consumer confidence, as well as a sharp fall in fuel sales as the rising cost of living prompted consumers to pare back non-essential spending. Consumers will also have had one eye on the upcoming surge in energy bills which has now hit their wallets this month, as well as the fiscal own goal of the Chancellor of the Exchequer Rishi Sunak in going through with his National Insurance tax hikes. It is true that he has taken some measures to alleviate the hit to people’s finances but it is very much the fiscal equivalent of tinkering around the edges, and points to a very challenging few months for consumers, exacerbated by tax rises which could and should have been postponed. Today’s numbers also look set to play into the calculus around next month’s Bank of England rate decision with the prospect that we could get a split between those members who may want to go down the 50bps rate hike route and those who would prefer to hike by 25bps. With consumer confidence levels back at levels last seen in July 2008 the likelihood of further declines in consumer spending looks quite high, even as the warmer weather helps to reduce energy usage as we head into the summer.   Commodities We appear...

Stocks are falling hard this afternoon, as the gains of earlier in the week disappear in a flurry of selling that reflects nerves about central bank tightening and poor earnings. Stocks reverse course on tightening fears “Yesterday’s optimism has vanished now that Powell appears to have moved into the 50-basis point rate hike camp. The market had seemed to have adjusted to a faster pace of hikes, but the view is now that, if Powell is happy with 50 basis points, then it gives cover for others to call for even faster tightening. This has cut the foundations from underneath the rally in stocks over recent days, and suggests that the second half of April will be just as tough as the first for most equities.” Tech stocks spell trouble for the market “The big tech names are still reeling from Netflix’s earnings, but the pain isn’t over it. While the sector is relatively quiet today, next week’s earnings may spark another cycle of selling. When set against the huge losses suffered by Meta and Netflix, Apple’s 9% decline is minor.  But even Apple can’t hold up the whole market forever, and with stocks dropping again today it looks like there is worse to come.”

The dollar index regained traction after brief pullback was strongly rejected at 100 zone and hit new 25-month high on Friday. The greenback was lifted by a hawkish message from Fed Chair Powell about possible 50 basis points hike in the next policy meeting, which contrasted repeatedly dovish tones from the ECB’s President Lagarde, who hinted that the central bank might need to cut its growth outlook and sidelined some positive signals, sent by ECB policymakers previous day. Daily chart points to bullish continuation as shallow pullback ended in hammer candle on Thursday and Friday’s fresh bullish acceleration  added to positive signals. Rising bullish momentum and diverging ascending daily Tenkan-sen and Kijun-sen in positive setup, support the action, which is expected to maintain bullish bias above 100 level. Fresh bulls look for close above previous high at 101.03 to open way towards immediate targets, Fibo projections at 101.50 and 101.79, but could extend above 102 mark on stronger acceleration, as the greenback remains supported by safe-haven buying. Res: 101.32; 101.50; 101.79; 102.00 Sup: 100.73; 100.33; 100.54; 100.00