United States: A downturn is still in the cards

Wells Fargo Research Team Wells Fargo

United States: A downturn is still in the cards

Data released this week support our expectations for a recession in the second half of the year. The LEI continued to flash contraction as early signs of labor market weakening are starting to emerge. Meanwhile, a batch of housing data confirmed that a full-fledged housing market recovery is still far off.
Next week: Durable Goods (Wed), GDP (Thu), Personal Income & Spending (Fri)

International: Global growth prospects continue to improve

Early this week, China reported Q1-2023 GDP data, a widely anticipated data release. Q1 data offered markets an opportunity to gauge how China's economy performed after authorities lifted Zero-COVID policies around the end of last year. The key takeaway was that China's economy performed better than expected, growing 2.2% on a quarterly basis and 4.5% on a year-over-year basis.
Next week: Central Bank of Turkey (Thu), Eurozone GDP (Fri), Bank of Japan (Fri).

Interest rate watch: Give thought to the pause

The fastest pace of policy tightening since the early 1980s is winding down. Our forecast anticipates one more quarter-point rate hike at the upcoming FOMC meeting on May 3, after which we suspect the Fed will remain on hold until the fourth quarter. Had we not encountered a banking crisis, a few more rate increases might have been in the offing. However, the recent difficulties in the financial sector diminish the need for further hikes beyond May, in our view.

Credit market insights: Fed's Beige Book brings some color to recent financial turmoil

On Wednesday, the latest edition of the Federal Reserve’s Beige Book was released, covering the month of March and through early April. The previous Beige Book was published in early March but quickly became stale following the failures of Silicon Valley Bank and Signature Bank. The latest read covers the period following recent financial turmoil and the fallout it has caused.

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AUD/USD edges higher as hot CPI inflation and hawkish RBA lift rate hike bets

The AUD/USD pair gathers strength to near 0.7035 during the Asian trading hours on Friday. The Australian Dollar edges higher against the US Dollar as hotter Australian CPI inflation data has bolstered expectations of Reserve Bank of Australia rate hikes.

USD/JPY meets support near 157.00

USD/JPY retreats for the third consecutive day on Friday, revisiting the 157.00 region before attempting some recovery as investors continue to assess the latest BoJ meeting, where the central bank left rates unchanged, as widely anticipated.

Gold sinks to fresh yearly lows despite risk-off mood as Fed rate hike bets weigh

Gold slips to fresh year-to-date lows on Friday. The metal struggles despite a risk-off mood across markets, as expectations of further Federal Reserve (Fed) interest rate hikes continue to dominate price action, leaving Gold on track to end the month in negative territory.

Ripple Price Forecast: XRP bulls defend $1.20 as sell-side pressure triggers liquidations

Ripple (XRP) trades around $1.25 on Friday, rising from a short-term support level established at $1.20. This minor upward correction follows a sharp sell-off, triggered amid reports of a hack attack on the Binance exchange that impacted approximately $6.3 billion. The attack drove the broader crypto market on edge, as Binance suspended both deposits and withdrawals to contain the situation.

BoJ recap: A pause for now... but Japan has entered a new inflation phase

The Bank of Japan left its short-term policy rate unchanged at 1.25% but delivered a distinctly hawkish message on the risk of an inflation overshoot. The decision passed by 8-1, with board member Takata dissenting in favour of an increase to 1.5%, while Governor Kazuo Ueda stressed that the Bank would continue adjusting policy as needed.

The 2% inflation target came from a throwaway remark. It now moves trillions

The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.