Overview: Equities are recovering from dramatic losses. Today, the Nikkei, Hang Seng, and Kospi surged by more than 2%. The large markets in the region advanced except India. Europe's Stoxx 600 is up about 1.2% near midday after falling 0.75% yesterday. It is nearly flat on the week after falling for the past four weeks. US futures are 1%+ higher. Benchmark 10-year yields are firmer across the board. The 10-year US Treasury yield is slightly below 2.90%, while European yields are 4-8 bp higher and the peripheral premiums are a little wider. The dollar is mixed with the Scandis, Canadian dollar, and Swiss franc posting modest upticks. The euro, sterling, and yen are struggling. Emerging market currencies are mixed with little obvious rhyme or reason geographically. The freely accessible emerging market currencies are also mixed. Gold extended yesterday's sell-off to test the $1812 area before stabilizing. Now near $1821, gold is off about 3.3% this week. June WTI posted an upside reversal in the middle of the week, after falling to $98.20. It is extending yesterday's gains and testing the $108 area. US natgas is edging higher. It has not fallen since Monday. Europe's benchmark surged 12% yesterday as Russia reduced gas supplies to Germany, but is almost 3% lower today. Iron ore is up about 1.2% to pare this week's loss to a little less than 8%. Copper is off slightly and is down 4% this week. It is the fourth consecutive weekly fall and it has shed around 15% during this run. After being up yesterday on the back of a sobering report from the USDA, July wheat has stabilized so far today. Asia Pacific News that the extended lockdown of Shanghai may end as early as this weekend appears to have helped global markets stabilize today. Reports suggested officials expect "no community spread" of Covid by mid-May. There was a slight rise in cases in Beijing but officials deny that it was edging toward a lockdown as it tries to calm fears that appeared to have spurred panic food shopping and hoarding. Separately, China reported its lending figures collapsed in April. Aggregate financing, which includes banks and shadow bank lending, fell to CNY910 bln. Economists had under-appreciated the impact of the lockdowns and had forecast (median Bloomberg survey) a CNY2.2 trillion increase. Bank lending accounted to about 2/3 of the increase. The Hong Kong Monetary Authority stepped up its intervention to defend the currency peg to the dollar. There have been three rounds of intervention over the past two sessions. After not needing to intervene to support the Hong Kong dollar since March 2019, the de-facto central bank has bought a little more than $1 bln between yesterday and today. The US dollar is allowed to trade between HKD7.75 and HKD7.85. If the broad upward pressure on the greenback does not subside, HKMA intervention could be more persistent. Despite Beijing's desire to reduce the influence of the US dollar, the officials remain committed to the peg. It has hiked rates alongside the Federal Reserve and will continue to do so. The US dollar is recovering after approaching JPY127.50 yesterday, which is low since April 27. It finished below the 20-day moving average (~JPY129.15) for the first time in two months. Higher US yields today helped the greenback recover to around JPY129.35. The dollar's nine-week advancing streak is coming to an end. Recall that last week, it settled near JPY130.55. The Australian dollar is also stabilizing, after falling around 2.25 cents in the past two sessions. The recovery off yesterday's low (~$0.6830) has stalled slightly above $0.6900, which leaves the Aussie more than 2.5% lower on the week. Without a stronger recovery in North America today, it will be the third week in the past four that it has recorded more than 2% depreciation. That said, a close above $0.6940 would help lift the tone. The greenback initially pushed above CNY6.80 for the first time since October 2020. The recovery of the mainland stocks and the broader pullback in the dollar steadied the yuan. The exchange rate is little changed net-net around CNY6,7860. Still, the dollar is up around 1.8% this week, its sixth consecutive weekly advance. Again, the PBOC set the dollar's reference rate lower than the market (Bloomberg survey) expected: CNY6.7898 vs. CNY6.7967. It was the ninth consecutive session, and the lower fix is a way officials can moderate the yuan's depreciation. Europe Tensions over the Northern Ireland protocol are rising and may come to a head next week. Apparently, no progress was achieved in yesterday's talks. The EC has indicated it could consider modifications in the agreement but the UK says it is untenable. Without greater EC flexibility, the UK is threatening unilateral action. The government is reportedly preparing domestic legislation to override large parts...

Outlook: The calendar today has import and export prices and revisions to various other data, but the only potential market-mover is the preliminary May University of Michigan's consumer confidence index. As we complain quite often, it’s based on a tiny sample and doesn’t deserve the headline. Weirdly, the market didn’t focus on PPI, which rose 0.5% m/m in April, pretty much in line with forecasts and better than 1.6% the month before–but only on the m/m basis. Trading Economics reports “Year on year, wholesale prices rose 11%, above market expectations of a 10.7% gain and compared to 11.5% in March. Still, producer inflation is running at the highest rate in 40 years and the report didn’t show much sign that price pressures will ease considerably in the near future.” The important news also went by with little notice–Fed chief Powell said we should expect 50 bp hikes at each of the next two meetings, meaning July as a well as June. He also said whether the US gets a recession is due to factors outside the Fed’s ability to control. We are glad to hear this–maybe it will shut up some of the more stupid commentators. Perhaps Powell is a little braver now that he was confirmed for another term. For what it’s worth, we think the ultra-dove Kashkari (Minneapolis) repeating that the neutral rate is about 2% is discrediting to doves. It’s a foolish statement that implies the current bout of inflation is, historically, an aberration. For what it’s worth, Musk put the acquisition of Twitter on hold to investigate whether the company accurately represented the percentage of users who are fake in any way. This moves the debate from freedom of speech to corporate lies and corporate management. Nobody know whether he has an ulterior motive here but he is sure getting enough publicity for any ego. Separately, all the cryptos are tanking, even those named “stable-something.” Told you so. This is very much a TGIF Friday. Volatility in equities has been exhausting. Even the retreat and recovery in the bond market has been troubling. We chose to stay out of pretty much everything today, not only because of all that uncertainty but also because on recent Fridays, traders have bailed from their positions in droves. It can go without saying that the dollar is overbought and some currencies are so oversold (pound, Swiss franc) that there is no justification to hold, lest something emerge from left field and restore normalcy. We continue to see a strong dollar, but beware the looming correction. This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes. To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

Summary United States: Don't Look Down Yet Consumer price inflation may have peaked, but the climb down from here will not be free of obstacles. The CPI and PPI rose 0.3% and 0.5%, respectively, in April. Small business optimism stalled during the month, as owners are concerned about their ability to continue to pass on higher costs to consumers. Next week: Retail Sales (Tues), Industrial Production (Tues), Housing Starts (Wed) International: Inflation Plague Continues in Emerging Markets Price growth is a global problem; however, inflation seems to be more of a problem across the emerging markets. With commodity prices still high and weak local currencies, most emerging market countries are experiencing above-target inflation. Next week: UK CPI (Wed), Japan CPI (Thurs), South Africa Reserve Bank (Fri) Interest Rate Watch: Will Tighter Financial Conditions Lead to a More Dovish Fed? In the post-FOMC meeting press conference last week, Chair Powell indicated that financial conditions would need to tighten to help the Fed restore price stability. The Bloomberg Financial Conditions Index began to tighten early this year when FOMC members signaled that the committee would become more aggressive in battling inflation. This week, conditions tightened further to the least-supportive posture in two years. Credit Market Insights: Consumer Credit Overdelivers for a Second Month Consumer credit grew by a record $52.4B in March as it more than doubled consensus estimates for the second month running. The surge was relatively well-balanced, with revolving credit—mostly linked to credit card spending—rising $31.4B, while nonrevolving credit climbed a slightly lower $21.4B. Topic of the Week: Fertilizer Crunch Threatens to Drive Food Prices Higher Rising food prices continued to sting consumers in April as grocery prices and prices for food away from home rose 1.0% and 0.6%, respectively. A global supply shortage of chemical fertilizers may put further pressure on already strained food commodity markets. Download the full report

There are currently increasing indications that global economic growth will slow down in the coming quarters. The leading indicator of the OECD for the world economy weakened in April to an index value of around 100.2. In the downturns since 2000, it took an average of around 12 months to reach the cyclical low from this index level in times of growth slowdown. Based on this data, the cyclical cooling of the global economy could therefore last until spring 2023. Currently, the significant increase in inflation in some economies such as the Eurozone is already putting a considerable strain on private consumption. The outbreak of war in Ukraine has exacerbated the rise in inflation at a global level through energy and food prices. Unfortunately, there are no signs of any significant relaxation here in the short term. The current cooling of commodity prices that are sensitive to the economy, such as copper, could dampen global inflationary pressures in the longer term. On the other hand, falling raw material prices are another indicator of a slowdown in the global economy. In addition, unexpectedly strict Covid-related containment measures in China are further clouding the global economic outlook. This could again exacerbate the problems within the value chains. The sharp slump in sentiment among purchasing managers in April suggests that China's economy is currently under severe pressure. Due to a health system that is still poorly developed compared to the EU, the Chinese government believes that the strict restriction measures are unavoidable. However, this also means that far-reaching restriction measures in the event of further virus mutations could lead to renewed burdens on China's economy in the coming years. In view of the high rates of inflation, unlike the cyclical cooling phases of the recent past, the global economy cannot initially count on any support from the important central banks. On the contrary, both the US Fed and the ECB are only just beginning to tighten their monetary policy. With the exception of southern Europe, there are no signs of any significant fiscal policy support for the economy in other countries in the Eurozone. We are currently expecting GDP growth of 2.8% for the Eurozone in 2022. In view of the increasing risks for the global economy, however, this forecast is subject to downside risks. Download The Full Week Ahead

A combination of negative factors dragged EUR/USD to a fresh multi-year low on Thursday. Aggressive Fed rate hike bets, the risk-off mood continued underpinning the safe-haven USD. Looming recession risk led by the Ukraine crisis exerted heavy downward pressure on the euro. The EUR/USD pair witnessed aggressive selling on Thursday and finally broke down through a near one-week-old trading range. The steep intraday decline dragged spot prices to the lowest level since January 2017 and was sponsored by a combination of factors. The US dollar rallied to a fresh 20-year high amid the global flight to safety. The markets now seem worried that a more aggressive policy tightening by major central banks to constrain inflation could hit global economic growth. This, along with the resurgence of geopolitical tensions, took its toll on the risk sentiment and forced investors to take refuge in the traditional safe-haven assets. In the latest developments surrounding the Russia-Ukraine saga, the latter announced that it would suspend Gazprom gas transit on its territory. Separately, Finland confirmed that it would apply to join NATO "without delay" and Sweden is expected to follow suit, citing security concerns following Russia's invasion of Ukraine. Meanwhile, Russia vowed an unspecified response. Given its proximity to the Ukraine war, the Eurozone's economy is expected to suffer the most from the crisis. This might prevent the European Central Bank from lifting interest rates and leave it even further behind the Fed, which exerted additional pressure on the euro. Meanwhile, the anti-risk flow led to the overnight sharp fall in the US Treasury bond yields and kept a lid on any further gains for the greenback. Apart from this, hawkish comments by ECB policymakers, hinting towards a July interest rate hike, extended some support to the pair amid extremely oversold conditions. Furthermore, a goodish rebound in the US equity futures undermined the safe-haven buck and assisted the EUR/USD pair in regaining some positive traction during the Asian session on Friday. That said, any meaningful recovery still seems elusive. Market participants now look forward to the Eurozone Industrial Production data and the prelim US Michigan Consumer Sentiment Index for some impetus on the last day of the week. Technical outlook From a technical perspective, the pair stalled the overnight slump near the 1.0350 area, just ahead of the 2017 swing low. The latter, around the 1.0340 region, should now act as a key pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders. The pair might then accelerate the downward trajectory towards the 1.0300 round figure en route to the next major support near the 1.0210-1.0200 zone. On the flip side, any meaningful recovery back above the 1.0400 mark is more likely to confront stiff resistance and remain capped near the 1.0475 region. This is closely followed by the 1.0500 psychological mark, above which a bout of short-covering has the potential to lift back towards the 1.0580-1.0600 area.

A combination of negative factors dragged EUR/USD to a fresh multi-year low on Thursday. Aggressive Fed rate hike bets, the risk-off mood continued underpinning the safe-haven USD. Looming recession risk led by the Ukraine crisis exerted heavy downward pressure on the euro. The EUR/USD pair witnessed aggressive selling on Thursday and finally broke down through a near one-week-old trading range. The steep intraday decline dragged spot prices to the lowest level since January 2017 and was sponsored by a combination of factors. The US dollar rallied to a fresh 20-year high amid the global flight to safety. The markets now seem worried that a more aggressive policy tightening by major central banks to constrain inflation could hit global economic growth. This, along with the resurgence of geopolitical tensions, took its toll on the risk sentiment and forced investors to take refuge in the traditional safe-haven assets. In the latest developments surrounding the Russia-Ukraine saga, the latter announced that it would suspend Gazprom gas transit on its territory. Separately, Finland confirmed that it would apply to join NATO "without delay" and Sweden is expected to follow suit, citing security concerns following Russia's invasion of Ukraine. Meanwhile, Russia vowed an unspecified response. Given its proximity to the Ukraine war, the Eurozone's economy is expected to suffer the most from the crisis. This might prevent the European Central Bank from lifting interest rates and leave it even further behind the Fed, which exerted additional pressure on the euro. Meanwhile, the anti-risk flow led to the overnight sharp fall in the US Treasury bond yields and kept a lid on any further gains for the greenback. Apart from this, hawkish comments by ECB policymakers, hinting towards a July interest rate hike, extended some support to the pair amid extremely oversold conditions. Furthermore, a goodish rebound in the US equity futures undermined the safe-haven buck and assisted the EUR/USD pair in regaining some positive traction during the Asian session on Friday. That said, any meaningful recovery still seems elusive. Market participants now look forward to the Eurozone Industrial Production data and the prelim US Michigan Consumer Sentiment Index for some impetus on the last day of the week. Technical outlook From a technical perspective, the pair stalled the overnight slump near the 1.0350 area, just ahead of the 2017 swing low. The latter, around the 1.0340 region, should now act as a key pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders. The pair might then accelerate the downward trajectory towards the 1.0300 round figure en route to the next major support near the 1.0210-1.0200 zone. On the flip side, any meaningful recovery back above the 1.0400 mark is more likely to confront stiff resistance and remain capped near the 1.0475 region. This is closely followed by the 1.0500 psychological mark, above which a bout of short-covering has the potential to lift back towards the 1.0580-1.0600 area.

Outlook: The data plate is skimpy today, just jobless claims and PPI. Someone is sure to try to make hay out of jobless claims. PPI is going to undergo the same scrutiny as CPI but we already know its input materials, especially energy and strange stuff like rare earths and specialty ingredients (fertilizer), driving prices. The market is expecting a dip in PPI but even if we get it, it won’t be believed–and rightly so. After PPI, the important data will be in. But instead of any upcoming data, what we need to care about is sentiment toward risk, and that is in the process of going full withdrawn-head turtle. As Bloomberg editor Joe Wiesenthal puts it, “Now the Fed is raising rates, and the meme stuff and crypto and growth stuff is getting crushed the hardest. But the question is why? What's the big deal if the Fed Funds rate goes from 0% to 0.8% or whatever? How does that change the value of Terra or a digital ape? Of course the Fed Funds rate alone actually doesn't matter. What matters is that the big risk-taking cycle is doing a 180, and the rate hikes while important are only a part of it.” The current withdrawal from risk-taking can be blamed on youth and inexperience–a whole generation of traders in every market who don’t understand inflation. They have been disrespectful of institutions, especially the Fed, without understanding their true importance. They flail around confusing personal belief (crypto is a viable alternative to sovereign money) with fairy tales. They got snookered on the crypto fable and now their feelings are hurt, like the 4 year-old that figures out fairies don’t really exist and didn’t put that quarter under the pillow. The whole thing has a Peter Pan quality. It’s not the crypto or even the S&P that should be scaring people, it’s China and its critical place in the supply chain for all those specialty metals and other goods. Those who trade the Australian dollar see it more clearly than anyone else. We always joke that the AUD is the canary in the coal mine for growth. When the AUD is falling as dramatically as we are seeing, we need to look to China. Remember that old phrase “China sneezes and the rest of the world catches cold?” We are there. Another long-standing quip is that if anyone can snatch defeat from the jaws of victory, it’s Britain. Sure enough, the entire Brexit saga has been mismanaged from the beginning and no government, even the pro-Brexit Boris, has shown the slightest whiff of managerial competence. Everyone likes Sunak because he comes across as competent, but it’s hard to see how he can surmount the latest data batch, which is awful right across the board. Then there’s Europe. We think EBC chief Lagarde is joining the hawks, but realistically, she is still on the fence. That’s because the universal forecast is for recession later this year and in 2023, and she understandable doesn’t want to have to reverse a “premature” hike. In an interview with the FT, CIO Mortier of Europe’s largest asset manager Amundi, predicts the euro will fall to parity with the US dollar this year. It’s not just the threat of recession, but also prioritizing keeping the cap on government borrowing costs that itself helps preserve the integrity of the eurozoine. “Such a decision would leave the eurozone central bank even further behind the US Federal Reserve in fighting inflation and knock the euro to $1 for the first time since 2002…” Exactly as we have been saying for a couple of weeks, Mortier points out that if the ECB raises rates twice in 25 bp tranches from the record low of =0.50, it’s just ack to zero. The market sees three hikes this year and a rise to 1.5% by mid-2024–but that’s too late in contrast to the Fed’s aggressiveness. “We think they’ll get to zero on the [ECB] deposit rate and that’s it,” Mortier said. “In the meantime the Fed will have done much more. If the ECB were focused only on inflation, then 1.5 per cent would be very likely. But it’s not.” Here’s the kicker: “Losing sight of the euro-dollar exchange rate is a big mistake when your inflation is mainly coming from imported goods,” Mortier said. The safe-haven flow to the dollar will ebb and flow, with a retreat inevitable sometime soon as some folks regain their balance. It’s a little funny that the peculiar conduct of the dollar/yen will reverse, too. Absolutely nobosdy can explain why the dollar/yen is on the backfoot and the yen rising so strongly. A safe-haven flow, maybe. Acknowledgement that the economy is actually doing better than expected. Well, nobody knows–but we imagine it can’t last, not when...

EUR/USD extended its sideways consolidative price moves in a two-week-old trading range. Concerns about the economic fallout from the Ukraine crisis acted as a headwind for the euro. Aggressive Fed rate hike bets continued underpinning the USD and contributed to cap gains. The technical set-up favours bearish traders as the focus remains glued to the US CPI report. The EUR/USD pair continued with its struggle to gain meaningful traction and has been oscillating in a range over the past two weeks. Spot prices remained well within striking distance of a more than five-year low touched at the end of the previous month amid lingering recession fears. Investors remain concerned that the European economy will suffer the most from the Ukraine crisis, which, in turn, acted as a headwind for the shared currency. Apart from this, the underlying strong bullish sentiment surrounding the US dollar exerted some downward pressure on the major during the latter part of trading action on Tuesday. The USD stood tall near a two-decade high and remained supported by expectations that the Fed would take more drastic action to bring inflation under control. In fact, the markets are still pricing in a further 200 bps rate hike for the rest of 2022 amid tight global supply chains resulting from China's zero-covid policy and the war in Ukraine. Hence, the focus will remain on the release of the US CPI report, due later during the early North American session this Wednesday. The data could indicate how aggressively the Fed would tighten its monetary policy, which, in turn, would influence the USD and provide a fresh directional impetus to the major. In the meantime, signs of stability in the financial markets and the recent sharp pullback in the US Treasury bond yields held back the USD bulls from placing fresh bets. This helped the EUR/USD pair to hold steady above the 1.0500 psychological mark through the Asian session on Wednesday. Market participants now look forward to the final German CPI figures for some impetus. Apart from this, traders will take cues from European Central Bank President Christine Lagarde's remarks at a conference in Ljubljana. This could produce some short-term trading opportunities ahead of the key data risk. Technical outlook From a technical perspective, the recent range-bound price action constitutes the formation of a rectangle on short-term charts. Against the backdrop of a sharp fall witnessed over the past three months or so, this could still be categorized as a bearish consolidation phase. Moreover, technical indicators on the daily chart are holding deep in the bearish territory and have also moved away from the oversold zone. The technical set-up seems tilted firmly in favour of bearish traders. That said, it will be prudent to wait for sustained weakness below the 1.0500 psychological mark, or the lower end of the trading range, before positioning for any further slide. Spot prices could accelerate the fall towards intermediate support near the 1.0450 area en route to the 1.0400 mark and 2017 low, around the 1.0340 region. On the flip side, immediate resistance is pegged just ahead of the 1.0600 round figure, or the weekly top. This is followed by the last week's swing high, around the 1.0630-1.0640 region, which if cleared decisively would suggest that the pair has formed a near-term bottom and trigger an aggressive short-covering move. Spot prices might then aim to reclaim the 1.0700 round-figure mark. The recovery momentum could further get extended, though it runs the risk of fizzling out near the previous YTD low, around the 1.0760-1.0755 area.

Annual CPI in the US is forecast to decline to 8.1% in April.  Underlying factors driving inflation higher remain in place.  A soft CPI print could cause the dollar to face temporary selling pressure. Annual inflation in the US, as measured by the Consumer Price Index (CPI), climbed to its highest level in four decades at 8.5% in March. On a yearly basis, CPI is forecast to decline to 8.1% in April. Core CPI, which excludes volatile food and energy prices, is expected to fall to 6% from 6.5% in the same period. US Consumer Price Index (YoY) Has inflation peaked in the US? The Prices Paid component of the ISM Manufacturing PMI declined to 84.6 in April from 87.1, showing that input prices in the manufacturing sector continued to rise at a softer pace than they did in March. On the other hand, the ISM Services PMI report revealed that the Prices Paid sub-index climbed to a new all-time high of 84. from 83.8. Moreover, crude oil prices rose more than 3% in April. Just by looking at these figures, it’s difficult to conclude that the 8.5% CPI inflation recorded in March was the peak. Additionally, coronavirus-related restriction measures and lockdowns in China remained in place throughout the month, suggesting that supply-chain challenges are likely to continue to drive prices higher. In the meantime, consumer demand remains healthy in the US. The US Bureau of Economic Analysis’ latest publication revealed a 1.1% increase in consumer spending in March, compared to the market expectation of 0.7%. The strong consumer demand combined with higher input and energy prices in the private sector indicates that inflationary pressures are likely to remain high in the next couple of months. Assessing the S&P Global’s April PMI survey for the US, “many businesses continue to report a tailwind of pent up demand from the pandemic but companies are also facing mounting challenges from rising inflation and the cost of living squeeze, as well as persistent supply chain delays and labor constraints,” said Chris Williamson, Chief Business Economist at S&P Global. Market implications Even if CPI prints were to point to a slowdown in inflation in April, it will not be enough to convince investors that we are at the beginning of a downtrend. The protracted Russia-Ukraine conflict and its impact on crude oil prices, China’s zero-Covid policy and robust consumer activity all point to high inflation lasting for longer.  Nevertheless, the initial reaction to a soft CPI reading should cause the benchmark 10-year US Treasury bond yield to edge lower and force the greenback to weaken against its rivals with market participants reassessing how aggressively the Fed will continue to tighten its policy moving forward. Atlanta Fed President Raphael Bostic said on Monday that he is going to stay open to the possibility that inflation will be approaching policy target at a faster pace than projected. “If so, we would not need to do as much,” Bostic added. Similarly, Minneapolis Fed President Neel Kashkari told CNBC that he was on “team transitory” and noted that he was confident that the Fed could get inflation back down to the 2% target. As mentioned above, however, factors that have been driving inflation higher remain in place and the Fed is unlikely to overreact to a single data point. Hence, a dollar sell-off on a weaker-than-expected CPI print should remain short-lived and provide an opportunity for investors to long the greenback at a lower cost. On the flip side, a surprise increase in annual CPI should trigger another leg higher in the US Dollar Index and revive speculations about a 75 basis points rate hike in June. According to the CME Group FedWatch Tool, markets are pricing a 13.5% probability of such a move at the next policy meeting.

EUR/USD - 1.0562 Although euro's retreat from last Thursday's 8-day high of 1.0641 suggests recovery from April's fresh 5-year bottom at 1.0472 has possibly ended, Friday's rebound from 1.0483 to 1.0600 in New York and yesterday's fall to 1.0496 at European open suggest further volatile swings above said support would continue before prospect of another fall, below 1.0483 would head towards 1.0472, then 1.0405/10. On the upside, only a daily close above 1.0600 would risk re-test of 1.0641, break, 1.0698/00 later. Data to be released on Tuesday New Zealand retail sales, NAB business conditions, NAB business confidence. U.K. BRC retail sales, Japan all household spending, Australia retail sales, Italy industrial output, Germany ZEW economic sentiment, ZEW economic expectation. Canada leading index and U.S. redbook.

EUR/USD - 1.0562 Although euro's retreat from last Thursday's 8-day high of 1.0641 suggests recovery from April's fresh 5-year bottom at 1.0472 has possibly ended, Friday's rebound from 1.0483 to 1.0600 in New York and yesterday's fall to 1.0496 at European open suggest further volatile swings above said support would continue before prospect of another fall, below 1.0483 would head towards 1.0472, then 1.0405/10. On the upside, only a daily close above 1.0600 would risk re-test of 1.0641, break, 1.0698/00 later. Data to be released on Tuesday New Zealand retail sales, NAB business conditions, NAB business confidence. U.K. BRC retail sales, Japan all household spending, Australia retail sales, Italy industrial output, Germany ZEW economic sentiment, ZEW economic expectation. Canada leading index and U.S. redbook.

Outlook: Payrolls were 428,000 and the unemployment rate, 3.6%. This nearly matches the original March print of 431,000 and beats most forecasts. Some folks are still struggling to disambiguate the Fed’s comments, or rather Mr. Powell’s. Fed-watcher Ip at the WSJ has a spot-on summary: “Employment is the best contemporaneous indicator of the business cycle and it shows no sign of a slowdown. Indeed, job growth remains well above its long-run sustainable pace, suggesting the labor market is not just tight, but too tight. “Moreover, recent gains in labor supply evaporated as the labor-force participation rate ticked down to 62.2% from 62.4%, although for people aged 25 to 54, it only edged down to 82.4% from 82.5%, not far from its pre-pandemic level.” The Journal is kind enough to note in the chart footnote that 2022 data is not really comparable with earlier data. But in the end, the main point we should take away is that the economy is nowhere close to stagnation or recession, if we consider the jobs data has predictive value. We suspect jobs and employment data to be inaccurate, to be polite, and while heed it we must, we like capital investment better. Broadly, capital investment can encompass consumer durables and things like housing and autos, while business capital spending is proxy for futures GDP. Last week the Atlanta Fed GDPNow forecast for Q2 was raised from 1.6% to 2.2% on the rise in auto sales that contributed to real personal consumption expenditures growth from 3.6% to 4.4%. We get another forecast today. As for business capital spending, Capex itself is down a little, although annual rates after a pandemic shutdown are not the best data. The charts are from the Yardeni package and, as always, intriguing. Nondefense capital goods ex-aircraft and business owner expansion plans are definitely encouraging and suggest Q2 GDP will NOT be another negative and thus, technically a recession. As for the equity markets, it’s not clear that the bubble has burst. It may be leaking, but we can’t say it has burst. The doom-and-gloom crowd are out in force, which contributes to additional losses, but the cycle gang thinks there is a chance the bottom is near. One reason equities can come back is that after a global fall of about 15%, traders will realize that cash and bonds are still delivering a low rate of return and it’s negative in real terms, while equities have the potential to deliver meaningful real return. It’s the highly speculative high0tech sector that is suffering the most and leading the pack down, but some companies are getting excellent growth (like the oil companies Buffett bought last week). The wall of worry today includes China’s zero-Covid policy and lockdowns, crippled supply chains, high inflation, the Russian invasion of Ukraine and appalling conduct there, and the risk of slowing growth everywhere with recession in some places (like Europe). From a purely risk sentiment perspective, the dollar still wins hands down. Strangely, the risk this week is that US inflation starts to abate. We get wholesale sales and inventories today, with accompanying price data, and CPI on Wednesday. According to Trading Economics, the consensus forecast for CPI is 8.1% from 8.5% in March, with its own forecast at 8.2%. Is the top in or almost in? A drop in US inflation and/or inflation expectations is not necessarily anti-dollar, but it might cause some reconfiguration. Tidbit: In a section titled “Left Behind,” The Economist decries the loss of exports by small businesses. See the chart. We already knew Brexit would harm the UK economy and we are getting some serious data to measure it. This double chart show the UK is also getting more inflation, in part because of tariffs. Tidbit: You don’t have to be a screaming pinko to have some concern for income inequality, which can have lasting effects on trends in consumer spending, housing, indebtedness, and more. Here is a chart from the respected Pew Research Center. Notice the crossover around the same time as the 2007-08 financial crisis. The article points out that who did the best over the past 50 years are Asians and white men, and anyone with a college degree. Studies like this make you wish you knew more that demographics. As we see in Japan, with a near total ban on immigration and a contracting and ageing population, demographics can have a huge effect on the economy and financial markets.  Tidbit: On Friday, Euronews had a spendid video of Sweden building up its island of Gotland, which is halfway to Russia in the Baltic Sea. It has been repeatedly invaded by everybody since the early Middle Ages–Denmark, Russia–but has been disarmed since WW II. Now the Swedes are arming it again as they also contemplate joining Nato. Neighbor Norway...