Investors are assessing labor market data: the number of initial jobless claims came in at 209.0 thousand, below both the forecast of 210.0 thousand and the previous reading of 212.0 thousand. The four-week average declined from 204.0 thousand to 202.5 thousand, while continuing claims rose from 1.776 million to 1.782 million, but still came in below expectations of 1.790 million. Thus, the labor market continues to show resilience despite economic shocks, as does the broader economy, which is also confirmed by May business activity data. The services index declined from 51.0 points to 50.9 points instead of the expected 51.1 points, while the manufacturing index rose from 54.5 points to 55.3 points, beating the forecast of 53.8 points. The incoming data allow the US Federal Reserve to focus more actively on fighting inflation, increasing the likelihood of an interest rate adjustment at the end of this year or early next year. Richmond Federal Reserve Bank President Thomas Barkin noted that the response of businesses and consumers to financial instability will determine whether the regulator can ignore high inflation or will need to consider raising borrowing costs. Today, White House representatives hinted at some progress in negotiations with Iran: Secretary of State Marco Rubio said that an end to the conflict is now close, although the issue of reopening the Strait of Hormuz remains unresolved.
Eurozone
The euro is weakening against the pound, the US dollar and the yen.
Investors and forex traders are assessing a large set of macroeconomic data. In the first quarter, Germany’s gross domestic product (GDP) increased from 0.2% to 0.3% quarter-on-quarter, in line with forecasts, and reached 0.4% year-on-year instead of the expected 0.3%. The improvement was supported by a 3.3% increase in exports of goods and services, while imports added 0.1%. Government spending rose by 1.1%, while household spending remained unchanged. In addition, the May business climate index from the IFO Institute rose from 84.5 points to 84.9 points, above the expected 84.2 points. The current business conditions indicator increased from 85.4 points to 86.1 points, while the business expectations index rose from 83.5 points to 83.8 points. Despite the incoming data, experts believe that the largest economy in the EU may enter a recession in the middle of the year due to the ongoing energy crisis. Meanwhile, European Commission Vice-President Valdis Dombrovskis said that the regulator needs to respond to accelerating inflation, which is a direct hint at tighter monetary policy in the near future.
United Kingdom
The pound is strengthening against the euro, weakening against the US dollar and showing mixed dynamics against the yen.
April retail sales data were weak: the indicator fell by 1.3% month-on-month, compared with the forecast decline of 0.6%, and remained at 0.0% year-on-year instead of rising by 1.3%. Overall, the downward movement developed at the fastest pace in the past 12 months, mainly due to consumers cutting fuel purchases by 10.0%. Experts note that consumer confidence has weakened significantly amid high inflation and concerns over the continuation of the energy crisis, which is putting pressure on household finances. Government borrowing in the same month increased by 25.0% year-on-year and reached 24.3 billion pounds. Under these conditions, officials may raise taxes, which would further slow the British economy.
Japan
The yen is strengthening against the euro, weakening against the US dollar and showing mixed dynamics against the pound.
Investors are assessing April inflation data: the nationwide Consumer Price Index declined from 1.5% to 1.4% year-on-year, while the core indicator fell from 1.8% to 1.4%, compared with forecasts of 1.7%, reaching its lowest level since March 2022 and falling well below the Bank of Japan’s 2.0% target. Experts believe that the negative dynamics are temporary and are caused by the impact of government subsidies for fuel purchases and education services. However, price growth is expected to resume later under the influence of the global energy crisis, so this data does not prevent the regulator from continuing its hawkish course.
Australia
The Australian dollar is weakening against the euro, pound, yen and US dollar.
Next week, second-quarter inflation data will be published, which may significantly influence the Reserve Bank of Australia’s monetary policy decisions. If the weighted average Consumer Price Index remains at 4.6% or continues to rise, the probability of further interest rate hikes will remain. However, if the indicator declines, combined with the April weakening of the labor market — where unemployment rose from 4.3% to 4.5%, total employment fell by 18.6 thousand and full-time employment decreased by 10.7 thousand — officials may switch to keeping borrowing costs unchanged.
Oil
Oil prices are correcting downward under pressure from reports about negotiations on a peace deal between the United States and Iran.
Representatives of Washington and Tehran acknowledged that the probability of a final cessation of hostilities has increased, but fundamental issues related to Iran’s nuclear program and duty-free navigation through the Strait of Hormuz remain unresolved. Experts fear that the agreement may not fully satisfy both sides and therefore may only provide a temporary reduction in geopolitical tensions in the region. Meanwhile, Anwar Gargash, adviser to the President of the United Arab Emirates, Mohammed bin Zayed Al Nahyan, said that the country’s decision to leave OPEC had been prepared for three years and was based on the belief that the world is approaching the “autumn of the hydrocarbon era.” This implies the need to increase oil production and the state’s raw material revenues while it is still possible.
