With the S&P 500 closing on Friday just above bear market territory, which is defined as a 20% decline from peak to trough, the final full week of May starts with risk assets being propped up. Weakening economic data from all over the world and continued hawkish central bank talk are conflicting, and the market is betting that the Fed will soon tone down rate hike expectations.

The U.S. dollar was the big loser amid the news flow last week and rapidly lost ground against major FX counterparts and commodities. It was this reversal in commodity prices that has boosted antipodean currencies like the AUD, NZD, CAD, and the NOK to rebound from oversold levels and signal the possibility of a reversal for the USD index from multi-year highs.

Chinese authorities continued to battle with the consequences from the spread of Covid in Shanghai, with Beijing being the next hot spot for new cases. Both cities could be locked down imminently, as authorities are persistent in their commitment to the zero-covid policy. With global supply chains already spread thin, the move could materially exacerbate challenges to the global economy.

Geopolitical tensions continued, but a glimmer of hope in the relationship between China and the U.S. has emerged as Biden signalled he is willing to discuss the reduction of Trump’s tariffs. The Ukrainian war effort by Russia appears to have stalled after the fall of Mariupol.

Economic data highlights

Monday 23^rd of May

·         German IFO Business Sentiment
·         US Chicago Fed National Activity Index
·         UK Bank of England Governor Bailey Speech
·         NZ Retail Sales
 

Tuesday 24^th of May

·         UK Public Sector Net Borrowing, Manufacturing & Services PMI
·         EU French, German, Eurozone Manufacturing & Services PMIs
·         US Manufacturing PMI, New Home Sales
·         US Fed Chair Powell Speech
·         EU ECB’s Lagarde Speech
 

Wednesday 25^th of May

·         NZ Interest Rate Decision
·         EU German GDP, Consumer Confidence
·         EU ECB’s Lagarde, Panetta & Lane Speeches
·         US Durable Goods, Fed’s Brainard Speech
·         US FOMC Meeting Minutes
 

Thursday 26^th of May

·         EU Italian Business and Consumer Confidence
·         US Jobless Claims, Q1 GDP Preliminary
·         CA Retail Sales
·         US Pending Home Sales
 

Friday 27^th of May

·         AU Retail Sales
·         EU ECB Lane Speech
·         US PCE Inflation, Personal Income & Spending
·         US Univ of Michigan Consumer Sentiment
 

• ECB Speakers, Eurozone Sentiment Indicators & German GDP
• New Zealand Retail Sales & Interest Rates
• Fed Meeting Minutes & Home Sales data

 
This week’s data calendar is one of the heaviest this month with key releases across the board from the Eurozone, the US, Australia and New Zealand. With ongoing COVID disruptions in China and Ukrainian war tensions taking a backseat, global markets are looking for the next catalyst for a move. The data front this week is certainly going to provide some valuable insights into the economic picture and most importantly: whether higher rates are about to trigger a recession in the coming weeks.
 

ECB: as Hawkish as It Gets

 
European business sentiment data was positive with the IFO institute’s key measure posting a higher-than-expected reading for the German economy. This was followed quickly by a speech by ECB’s governor Christine Lagarde, who signaled that the central bank could act quickly to normalize policy rates, at least when it comes to taking them out of negative territory, as soon as before the end of Q3.
 
Key data ahead on Monday includes a speech from Bank of England’s governor Bailey, Chicago Fed’s Activity Index, and Retail Sales data out of New Zealand.
 

Eurozone PMIs, US Home Sales and Interest Rates

 
Moving into the middle of the week, we’re getting key sentiment indicators from both sides of the Atlantic. Tuesday is one of the highlights for the week as the business surveys for manufacturing and services industries in the EU, UK, and the US will be released. US home sales data is critical to watch for those that are keen in knowing whether the Fed’s rate hiking path is already hitting the housing sector of the economy.
 
Fed Chair Powell will speak once more, just before the release of the latest Fed minutes on Wednesday. The key market driver early on during the day will be in New Zealand, where the central bank’s key interest rate decision will be announced. The press conference that follows could be informative as expectations are for another rate hike, but cues as to the future pace of the increases in interest rates could be communicated by Governor Orr.
 
Another bout of data from Germany follows with GDP figures expected to be barely positive. US durable goods orders are next in line, with more home sales data and GDP figures for Q1 coupled with jobless claims.
 

Geopolitical Watch

 
The Ukrainian war is taking a backseat as both sides appear to have reached a stalemate of the sorts as Russian forces are stuck in the Donbass without making much progress. In the meantime markets will be looking at further signals from Biden whether he will indeed try to renege some of the tariffs against China instituted by Donald Trump.