Stock futures in New York fell sharply following Snap Inc.'s earnings report, with a worrying adjustment to its forward-looking expectations, which not only dampened appetite for tech stocks but also fueled concerns about risks to economic growth. Europe's two largest economies continued to grow in May, benefiting from a sustained rebound in services that offset the fallout from Russia's invasion of Ukraine.
Stocks have been volatile as investors assess the outlook for monetary policy, inflation, and the impact of China's strict Covid policies on the global economy, a soft landing, a recession, inflation or stagflation, China, Ukraine, the US summer driving season, supply chains, and a host of other events. Utilities fell the most in Europe.
Minutes from the Federal Reserve's latest meeting are due tomorrow, Wednesday, a report that will give markets an idea of the US central bank's tightening path. With the era of cheap money coming to an end, attention will turn to a speech by Federal Reserve Chairman Jerome Powell later this month, with investors eager for any new information on how far and how quickly the US central bank will raise rates and offload its massive bond holdings. Tuesday: US new home sales, S&P global PMI. Wednesday: Reserve Bank of New Zealand rate decision. * Fed minutes. ECB releases its Financial Stability Review.
The DXY index has added to Monday's pullback and is now above the 102.00 support level for the first time since late April, following continued investor appetite for the risk complex. Indeed, the prevailing risk-on mood accelerated after the opening bell in European markets on Tuesday and following further comments from the ECB's Lagarde, who all but confirmed that interest rates will be in positive territory in the third quarter, while ruling out a recession in the euro zone for the time being. Meanwhile, the dollar's downward correction comes amid a rebound in US yields, while German 10-year bund yields appear to be lacking any upside traction so far. Against this backdrop, we expect a narrow daily trading range between 102.517 and 101.419.
The Colombian peso (COP) advanced, appreciating 2.04% on Friday, closing at $3,972 per dollar. This session saw dollar supply from the derivatives market and the hydrocarbon sector, while demand came from the real estate sector. The pair's performance could be influenced on Monday by the decline in global risk sentiment, where the DXY index has suffered sharp losses. Additionally, the local currency could benefit from the recovery in oil prices. Therefore, the COP could continue to appreciate throughout the day. In this context, we expect a narrow daily trading range between $3,920 and $3,970.
The Mexican peso (MXN) opened the day with a 0.17% downward movement, trading at 19.8267. The pair opened after touching 19.80 per dollar the previous day, having started the week appreciating as risk appetite increased. However, it later gave up gains, and the exchange rate closed higher at 19.88 pesos per dollar. The fears that gripped the market last week dissipated today after US President Joe Biden opened up the possibility of lifting tariffs on imports from China. In this context, we expect a narrow daily trading range between 19.948 and 19.722.
The Chilean peso (CLP) opened the day appreciating 0.21%, trading at 831.60 Chilean pesos per dollar. This comes amid the first student protests at the local level during the Boric administration, while the idea of raising the minimum wage to 400,000 pesos per month has been on the agenda, the highest figure in 29 years, to address rising basic food costs. In this context, we expect a daily trading range of 837.168–822.672 pesos.
The Chinese Yuan (CNH) opened the session depreciating, trading at 6.6757 yuan per dollar, with the USD/CNH gaining 0.23%, following the dollar's decline following the European Central Bank's president's statement that she does not rule out a 50 basis point interest rate hike. Meanwhile, at the local level, the revaluation of China's fiscal stimulus announcement has shifted the market toward a risk-averse tone, as there is still no way out of the effects of the government's zero-COVID strategy. In this context, we expect a narrow daily trading range between 6.648 and 6.691.
The euro (EUR) opens the day with a 0.24% appreciation at a trading price of US$1.0712. The European currency starts the day on the rise, amid weaker-than-expected data from the Eurozone's preliminary PMI survey for May. The currency has benefited after Lagarde stated that the European Central Bank would likely raise interest rates at the end of the third quarter. Focus is now on Powell's future comments, while a decline in the dollar is expected. In this context, we expect a narrow daily trading range between 1.078 and 1.067.
The British pound (GBP) opened the day with a 0.65% appreciation, reaching $1,2502. The pair reversed course in Tuesday's European session, erasing most of the gains recorded on Monday. UK data reminded investors of the risks of a recession in the UK and weighed heavily on the pound. The services PMI for May plummeted to 51.8 in the preliminary estimate for May from 58.9 in April. This print missed the market's expectation of 57.3 by a wide margin. Similarly, the manufacturing PMI fell to 54.6 from 55.8 in the same period. While these figures suggest that business activity continued to expand at a moderate pace in May, the loss of growth momentum is an important warning sign. Against this backdrop, we expect a narrow daily trading range between 1.259 and 1.242.
The Japanese yen (JPY) opened the session appreciating, with USD/JPY retreating 0.39%, trading around 127.38 yen. The pair is hovering around 127,60 with a higher-than-expected Jibun Bank PMI. Japan's manufacturing PMI came in at 53.2, above estimates of 52, while the services PMI came in at 51.7 versus the previously reported 50.6. This supported the Japanese yen against the dollar. Meanwhile, the Bank of Japan (BOJ), the head of the central bank's division that oversees monetary policymaking, stated that investors should prepare for continued quantitative easing by the BOJ to aid the economy. Against this backdrop, we expect a tight daily trading range between 128.104 and 126.684.
The Swiss franc (CHF) is opening the day with a 0.11% gain at 0.9647 francs per dollar. This comes as the dollar hits a new monthly low, thanks to stock markets' failure to boost the safe-haven asset. All eyes are on the upcoming statements from the European Central Bank, which is likely to raise interest rates by the end of the third quarter. In this context, we expect a narrow daily trading range of 0.969–0.96.
The Canadian dollar (CAD) is opening the day with an upward exchange rate at C$1.2790, down 0.39%. The Canadian dollar is appreciating against the U.S. dollar as global markets are increasingly seeking riskier assets amid a decline in global risk aversion. Currently, price action is approaching oversold levels, and U.S. dollar buyers are likely to defend their support area for the time being. In this context, and in line with its market profile, a tight trading range between 1.272 and 1.284 is expected.
The Australian dollar (AUD) opened the day with a 0.51% appreciation, reaching 0.7070. The pair witnessed some selling on Tuesday and was pressured by a combination of factors. Investors remain concerned that more aggressive action by major central banks to curb inflation could pose challenges for the global economy. In addition, the war between Russia and Ukraine and the latest COVID-19 outbreak in China have been fueling recession fears. This, in turn, triggered a fresh wave of global risk-off trading, which helped the safe-haven US dollar stage a modest recovery from its monthly low and weighed on the risk-sensitive Australian dollar. Against this backdrop, we expect a narrow daily trading range between 0.713 and 0.703.
The New Zealand dollar (NZD) opens the day with a 0.48% appreciation, trading at 0.6434. The pair is recovering from its intraday losses due to broader weakness in the DXY. To address rising inflation, the RBNZ Governor is expected to raise the official cash rate by 50 basis points (bps). The Kiwi area is facing headwinds from rising energy bills and commodity prices, which are impacting household wages. In the first quarter of fiscal year 2022, the interest rate was raised to 6.9%, which is much in need of correction through the implementation of several quantitative measures. However, the RBNZ's continued hawkish tone is raising recession fears. Against this backdrop, we expect a narrow daily trading range of 0.648–0.64.
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Héctor Wilson Tovar García Macroeconomic Analysis
Research Manager wtovar@accivalores.com
Laura Daniela Triana Pulido Equity Analyst daniela.triana@accivalores.com
Daniel Herrera Hernandez Fixed Income Analyst daniel.herrera@accivalores.com
Juan Pablo Bejarano Holding Sector Analyst juan.bejarano@accivalores.com
Andres Felipe Campos, Retail Sector Analyst andres.campos@accivalores.com
Daniel Felipe Pardo Energy Sector Analyst daniel.pardo@accivalores.com
Juan Felipe Herrera, Financial Sector Analyst juan.herrera@accivalores.com
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