With help from “old reliable” US personal spending data, market sentiment continues to improve -reminding investors that it is usually a bad idea to go short the US consumer’s propensity to spend

On Friday, I wrote in my note that it’s the return of the “bad news is good news” trade. That statement might not have been accurate, but it is along the right lines. It is also worth drawing attention to equities on Friday’s New York afternoon session, which seemed to be getting more sure-footed with each passing data point. The solid market reaction to in-line US inflation numbers appears as if it is more about the absence of good news. Anything that keeps the Fed from a more aggressive rate-hiking path is greeted with open arms by equities.

Still, it is wise to stay receptive to economic data and central bank headlines when volatility is rife.



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After months of USD strength and long positioning nearing the extreme, the past week has seen a retracement across G10 and EM. Risk sentiment has regained some of its zeal despite an uncertain Russia-Ukraine outlook, bleak Chinese economic data and even an international outbreak of monkeypox, with the street en masse deciding to take profit/cut long USD positions as policy guesswork between various central banks continues. Heading into the weekend, a feeling of unknown started to confuse traders. They were left weighing whether to continue this reduction in long positioning or return to buying the greenback in this gloomy economic climate.

Hawkish comments from the ECB’s Lagarde and a more comprehensive theme of USD selling led EURUSD to track above the 1.07 handle for the first time since late April.

As US economic data appears to be slowing, and the ECB officials debate even faster initial rate hikes, front-end rate differentials have started to move in the Euro’s favour. But whether we move up to 1.0900 or back down to 1.05 with 100 bp points of ECB rate hikes already priced in for 2022 could very much depend on the FED deviating from the current rate hike path. Still, EURUSD parity seems to be staved off for now, barring any sudden policy shake-up between the Fed and ECB.

USDJPY has come under pressure over the past week on broad-based USD weakness and perceived domestic stress on the BoJ to move away from an ultra-accommodative setting that diverges from its central bank peers globally. The Long JPY reversion trade ran into a small obstacle on the back of improving risk sentiment and the Tokyo CPI print, which came out slightly below expectations for the headline. The City data, which is released ahead of the national data in two weeks, does not support a change in approach from the BoJ just yet.


Brent finally breached the $115/bbl ahead of the long US weekend and this week’s EU summit, at which a Russian Oil ban is expected to be top of the agenda. I don’t think it would be a stretch to assume that speculators are positioning for a post-EU summit oil market bounce.

Also, no supply help should be expected from OPEC+, as the group is likely to stick to the monthly increase of 432kb/d for July at its meeting on 2 June,which should not come as a surprise.


Originally published by Stephen Innes, Managing Partner, SPI  ASSET MANAGEMENT