22/05/2023 - 07:38 UTCThe U.S. dollar interrupted its recent surge on Friday against most major currencies, with the USDX marking a 0.33% daily loss, following gains seen in the previous three sessions. Against emerging market currencies, the dollar was mixed, pushing 0.60% higher against the ZAR, 0.21% up against the INR while posting moderate losses of 0.41% against the CNH. The USD/TRY temporarily broke above the 20.0 Turkish liras per dollar mark, only to retrace later in the session and end the session almost unchanged. Weakness in the Turkish lira could partly be attributed to Tayyip Erdogan's lead in presidential elections, something that took markets by surprise.
The main stock market indices in the U.S. also edged lower on Friday weighed by a breakdown in debt ceiling negotiations with less than two weeks remaining until the June 1st deadline, where a possible US debt default could take place. The three main U.S. stock indices US 500, US 30, and US tech 100 lost by approximately 0.31%, 0.41% and 0.52% respectively.
Asia equity markets appeared mixed on Friday, with the China A50 ending the session almost unchanged, while the Hong Kong 50 and the Japan 225 that tracks the performance of the Japanese Nikkei, ended the day with moderate losses of 0.58% and 0.06% respectively. President Joe Biden said during the Group of Seven summit in Japan that he expects relations between the U.S. and Beijing to improve “very shortly,” and that the G7 had also decided on a united approach to China.
In the spotlight for Monday is a flurry of manufacturing and services PMI reports expected from the eurozone, the U.K and the U.S. while later in the day U.S. will publish new home sales and the Richmond Fed Manufacturing Index.
The euro posted a moderate increase of 0.29% against the dollar on Friday, bouncing off the previous session’s seven-week low after German producer prices for April came in stronger than expected, adding to expectations of more interest rate hikes by the European Central Bank.
Germany’s PPI rose 0,3% on the month in April, compared with the expected fall of 0,5%. On the other hand, a number of Fed officials have expressed concerns this week that U.S. inflation was not cooling fast enough to allow the central bank to pause its rate hike cycle in June. On a different note, Fed Chair Powell said on Friday that rates may not have to rise as much as expected to curb inflation.
The U.S debt drama resurfaced on Friday, helping gold prices to end the session 0.91% higher at 1976.48.
A fresh breakdown in talks to raise the U.S. debt ceiling drove the dollar lower on Friday for the first time in five sessions, helping alternative safe havens, led by gold, to rally.
Going into the week ahead, manufacturing activity data for May is expected to provide more cues on the world’s largest economy while investors are awaiting for further hints on how the debt ceiling situation and Fed monetary policy will progress.
Oil traded between gains and losses on Friday ending the session 0.18% lower at 71.99. Prices are trading substantially lower for the year, amid growing concerns that a recession in major economies will stymie demand.
A swathe of weak economic readings from China showed that a post-COVID rebound was slowing down in the world’s largest oil importer, casting doubts over forecasts that China will drive oil demand to record highs this year.
While U.S. fuel demand appeared to be improving, supply remained bloated following an unexpected build in crude inventories.
The three main US Indices closed out the trading week on a soft note on Friday as early gains dissipated after U.S. debt ceiling negotiations in Washington were paused, denting optimism a deal could be reached in coming days to dodge a default. Stocks had rallied over the past two sessions on growing confidence a deal to raise the $31.4 trillion debt limit could be reached in coming days, but an initial advance on Friday reversed on reports of the pause in talks while Federal Reserve Chair Jerome Powell spoke at a monetary policy panel.
US Tech 100 ended the session on Friday 0.58% lower while US 500 and US 30 posted losses of 0.31% and 0.41% respectively.
In the week ahead market participants will be looking towards building permits, premilinary manufaturing and services PMIs, FOMC meeting minutes, GDP, PCE price index, Michingan consumer expecations and sentiment as well as a couple of important speeches.
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