Week of May 30

In another volatile week where SNAP stock tanked 30%, equities finished off their lows and the dollar rolled over in a more risk-on mood. This week 

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The week in review

• After a plethora of world leaders meeting in Davos for the first in-person gathering since the pandemic, the results were underwhelming at best. The big news came from the ECB, in a blog post ahead of the WEF, in which Lagarde effectively confirmed that a hike of as much as 50bps was on the table for next week. EUR/USD struggles to get past $1.075 but there are more chances it gets through than not. $1.0642 is major weekly support.

• The S&P 500 printed a 14-month low into bear market, but managed to recover nearly all of last week’s losses. 4100 makes resistance, whereas 3900 must hold for bias to remain intact. 

• The dollar weakened despite the expected flight to safety as the second reading of US Q1 GDP was revised downward. The DXY heads closer to the 100 handle as we see another red week from 103 down to 101.

• Earnings continued to disappoint, with Snap's poor performance not only dragging the stock down 30%, but spooking investors on other advertising-heavy tech firms as analysts talk of a "advertising recession". Rumors came out that Apple wasn't expecting to increase sales of iPhones this year.

• The war in Ukraine continues to grind on, with both sides accusing the other of obstructing the export of grains, while there is silence on peace talks. 

Top events in the week ahead

Global PMIs & Jobs data

Global PMI releases on Tuesday and Wednesday followed by US Non-Farm Payrolls expected to dominate the agenda next week. Flash PMIs showed slowly dwindling optimism in manufacturing, which is expected to be replicated in the final data. But, as long as they remain above 50, it is unlikely to dissuade central banks from their current tightening cycle. 

On Friday, focus is likely to be on the wage component, as the latest BLS report suggests wage growth might be about to stumble.

Interest rate decisions

It looks like the hawks have won, and the ECB will hike rates on Thursday. But there is still considerable uncertainty about whether it will be by 25 or 50 basis points. Then there is the issue of whether it will reverse quantitative easing. It's quite possible that the Euro will appreciate right up to the meeting, and then when the deed is done, fade back. 

There is considerably more assurance in the markets that the BOC will deliver on a 50bps hike at its Wednesday meeting. USD/CAD’s chances to $1.27 and $1.2658 rise, but $1.12815 must reject bulls.

Fuel focus

The European Council will hold an emergency meeting on Monday and Tuesday with Ukraine, defense and energy on the agenda, so there is some anticipation that the much-awaited sanctions on Russian oil might materialize. 

In a similar vein, OPEC+ meets and is expected to raise production to 432K as already agreed, with an eye on demand from China. Oil faces strong resistance at $115, but it is getting squeezed within a $5 range, spelling a breakout.

Other data and events

Several countries publish Q1 GDP figures including Switzerland, Australia and Canada. The Eurozone publishes unemployment figures on Wednesday. US markets are closed on Monday. Thursday and Friday the UK is off on extended holiday, with China closed for a holiday on Friday as well. Notable earnings include GameStop and Salesforce.