Saxo Spotlight: What’s on the radar for investors and traders this week?
Macro

Saxo Spotlight: What’s on the radar for investors and traders this week?

APAC Strategy Team

Summary:  More volatility is to come to the equity markets as the Fed begins to shrink its balance sheet this week, and May jobs/earnings growth will be key as a September pause starts to build into expectations. Eurozone inflation is also on the cards and will drive ECB tightening expectations. Over in Asia, China May PMIs will likely stay weak, and focus is squarely on easing of restrictions in Shanghai and Beijing. Meanwhile, agricultural stocks will be in the spotlight amid food protectionism stepping up.

Liquidity risks from Fed’s start of QT. After lower-for-longer interest rates and a massive expansion of the Fed’s balance sheet to $9tr, the game is now turning. The Fed plans to shrink its bond portfolio much faster this time compared to the previous QT in 2017-19, targeting to shed $95bn per month from June to September, compared to the last QT’s $50bn maximum runoff.  This brings an additional layer of uncertainty to the markets, and Fed minutes of the May meeting also saw several policymakers noting “unanticipated effects” on markets.

US jobs report and ISM manufacturing. US non-farm payrolls (NFP) data is due on Friday, and with a couple of 50bps rate hikes priced in by the markets, the bar for a hawkish surprise is limited. April data showed sustained tightness in the labor market, in contrast to the Fed’s desire to slow job gains and increase labor force participation in order to ensure a healthier labor market. The risks lie on the dovish side now, with some expectations of a Fed pause in September building in. Consensus estimates are pencilling in a moderation in annual earnings growth to 5.2% in May from April’s 5.5%. We also have the US ISM manufacturing index out this week, and the rotation of demand from goods to services is expected to weigh on manufacturing activities. Bloomberg survey is calling for a 1-point decline in the May ISM manufacturing index to 54.5, the third consecutive decline. 

Eurozone inflation. The energy price shock has been bigger for Europe, and May prints are due for Spain, Germany, France, Italy and the Euro-area in the week ahead. Food price pressures are also building up amid the supply shortages, and further gains in May will add more weight to the ECB’s resolve to exit negative rates from Q3 with more aggressive tightening. EUR has gained 1.5% against the USD last week, and is now trading above 1.07, and resistance is seen near 1.0780 and the 1.0800 big figure.

China and Asia PMIs. The focus will be on how much the May data has improved from April, given the number of cities under some sorts of lockdown has fallen to 26 (accounting for 20% of national GDP) from 44 cities (accounting for 38% of national GDP) a month ago.  Bloomberg survey expects the official manufacturing PMI to rebound by 1.6 percentage points to 49. Official non-manufacturing PMI is expected to increase to 45.0 from 41.9. Caixin manufacturing PMI which surveys more SMEs, is expected to rebound to 49.5 from 46.0 previously.  Most components of PMIs in May are expected to remain in contractionary zone.  The relaxation of mobility restriction Shanghai is happening at a measured pace and Beijing is asking over half of its population to stay at home. The improved China PMIs may feed into the regional PMIs as well, and the broader reopening theme remains at play as well. Increased supply pressures will likely remain a key theme but it remains to be seen how well demand has coped up to these pressures.

AUD and Aussie stocks on watch with Australian economic growth and balance of trade data due. Firstly, Australian GPD data due Wednesday is expected to show economic growth fell from 4.2% YoY to 3% YoY in Q1. Quarterly GPD is expected to grow just 0.7%, following the 3.4% rise in Q4. If data is stronger than what consensus expects, the RBA has more ammunition to rise rates more than forecast, so the AUDUSD might rally. If GPD is weaker, then, the AUD will likely fall. For equities, Australian financials could rally if data is stronger than expected, so watch CommBank (CBA), and Macquarie (MQG) for example. Secondly, Australian Export and Import data is released Thursday. The market expects Australia’s surplus income (Export income minus imports payments) rose from $9.4b to $9.5b in April. But as the iron ore price fell 13% in April, the trade data could miss expectations.

Meituan (03690) is scheduled to report Q1 results on June 2.  Bloomberg’s survey of analyst estimates expect the company’s Q1 revenue to come at RMB45.3 billion, a 22% year-on-year increase and to have an adjusted net loss of RMB4.8 billion in the quarter.  Last week, Alibaba (09988), Pinduoduo (PDD) and Baidu (09888) reported better-than-feared results and their shares surged 12% to 15% on the day post result announcement.  The large movement in share prices may attribute to the low expectations and positioning in these Chinese Internet stocks into the results.

Sectors and Stocks to watch. Agricultural prices hit fresh highs today and - Firstly in agriculture, wheat, palm oil, meat, sugar and other ag prices appear to be heading back to record high levels. The wheat price is up 50% this year after Asian nations freshly restricted exports to protect their own supply, which adds to ailing global supply amid bad weather and Russia/Ukraine supply being cut off. This has driven up the share price and earnings growth for many agri stocks including Australian grain trader GrainCorp (GNC). Although GNC shares are pulling back from their record high as investor take profits, GrainCorp’s earnings are expected to continue to grow. Separately, the ETF MSCI Global Agricultural Producers ETF (VEGI) has also been thrust into the spotlight, after gaining 45% this year with its biggest holdings like lithium and fertilizer company SQM (SQM) hitting a new record on Friday after trading momentum mounted after SQM delivered stronger than expected 2022 forecasts.


Key economic releases this week

Monday 30 May

  • US Market Holiday
  • Eurozone Business Climate and Consumer Confidence (May)
  • Germany HICP Prelim (May)

Tuesday 31 May

  • Japan Unemployment Rate (Apr)
  • Japan Industrial Output, Retail Sales (Apr)
  • China Manufacturing PMI (May)
  • Eurozone HICP (May, flash)
  • India GDP (Q4)
  • Canada GDP (Q1)
  • United States Consumer Confidence (May)

Wednesday 1 Jun

  • Worldwide Manufacturing PMIs, incl. global PMI (May)
  • Australia GDP (Q1)
  • Germany Retail Sales (Apr)
  • Eurozone Unemployment Rate (Apr)
  • United States ADP National Employment (May)
  • United States ISM Manufacturing PMI (May)
  • United States JOLTS Job Openings (Apr)
  • Canada BoC Meeting (1 Jun)
  • United States Fed Beige Book

Thursday 2 Jun

  • UK Market Holiday
  • Australia Trade Balance (Apr)
  • Eurozone Producer Prices (Apr)
  • United States Initial Jobless Claims
  • United States Factory Orders (Apr)

Friday 3 Jun

  • UK, China, Taiwan Market Holiday
  • Worldwide Services & Composite PMI* for US, Japan, India, Russia, Eurozone, Brazil, Singapore, UAE, S Africa (May)
  • Eurozone Retail Sales (Apr)
  • United States Non-Farm Payrolls, Unemployment, Average Earnings (May)
  • United States ISM Non-manufacturing PMI (May)

 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Support Centre
For existing clients, please click here to request support via the Support Centre.

Have a question about our products, platforms or services? Visit the Support Centre to find answers for our most frequently asked questions. If you are still unable to locate an answer to your question, you will also find contact details for your local Saxo office to speak with a representative.

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.