#edgeforex #forexsignals #forextrading #forex #china #covid #testing #12districts #supplychains #rba #australia #dollar #gains #equities testing
- Beijing has announced that another three rounds of COVID-19 testing will be conducted in 12 districts.
- The tests are expected to take place between the 3rd and 5th of May, and will include Beijing’s Chaoyang district, which previously stated that two rounds of mass testing would take place on the 1st and 3rd of May.
- At this point, one has to wonder if China will ever draw a line in the sand regarding the economic costs of its current “zero COVID” policy. However, given its sense of pride and ego, it may not be until the infection spreads to a much larger global audience. Otherwise, it will appear that Xi’s strategy has failed, which he will not tolerate.
- For markets, this simply means that more disruptions to supply chains in general will occur, and the ramifications of higher raw material and shipping costs will be felt for a longer period of time.
- The RBA will need to do more to help the Australian dollar recover.
- This week is all about central banks.
- Although it may not appear so, the Australian dollar had its worst month against the US dollar since 2014. Yes, the month-to-month drop surpassed the pandemic. The currency has had a rough ride as the dollar has gone on a tear across the board, along with a significant dent in risk sentiment and China’s yuan weakening significantly in the last two weeks. It’s all down to the RBA and the Fed next week, but the Aussie needs the RBA to deliver big to keep any plausible upside momentum going.
- As things stand, a 15 basis point rate hike is nearly priced in for this week, but a move to 0.50 percent by June has already been priced in, i.e. 15 basis points tomorrow and then 25 basis points on June 7.
- Given that kind of pricing, the only significant upside for the Aussie is if the RBA raises rates by 40 basis points to 0.50 percent tomorrow. This was already mentioned last week on this blog.
- As things stand, a 15 basis point rate hike will put the ball in the Fed’s court the next day, whereas a decision not to hike the cash rate at all will undoubtedly weigh heavily on the aussie.
- There hasn’t been much happening in European morning trade so far.
- The greenback has remained mostly higher on the day, though gains have been relatively light across the board. Bond yields have remained elevated following last Friday’s increase, with 10-year Treasury yields currently sitting at 2.94 percent.
- This is consistent with the stronger dollar theme from last month. Meanwhile, European indices are down more than 1% across the board, as Wall Street’s Friday selling is weighing on sentiment in the region today. US futures are slightly higher, but this is merely a consolation following the drop at the end of last week.
- Following a 3.6 percent drop on Friday, S&P 500 futures are now up 0.3 percent.
- Returning to forex, the mostly choppy range in dollar pairs reflects the lack of poise so far in European morning trade:
- The USD/JPY is currently trading just above 130.00, while the EUR/USD is flirting with a drop towards the 1.0500 level. GBP/USD and AUD/USD are both looking for support at 1.2500 and 0.7000, respectively.
- European equities begin the day lower.
- Eurostoxx -0.8%, Germany: a retaliation for Wall Street’s loss on Friday last week
- Germany DAX -0.7%, France CAC 40 -1.0% & Spain IBEX -0.9%
- To provide some context, US stocks had a rather bleak end to April trading last week. The gloomy mood has been partially offset by a slight rise in US futures so far today.
- The S&P 500 futures are up 0.6 percent, the Nasdaq futures are up 0.8 percent, and the Dow futures are up 0.6 percent.
- However, it follows an extremely poor month for stocks in general. Looking at US indices, the S&P 500 and Dow had their worst months since March 2020, while the Nasdaq had its worst month since 2008.