OVERVIEW

Fed Chairman Speech today

U.K. unemployment is improved

French Unemployment Fell

FOREX

U.S. Dollar Index

The Dollar Index traded 0.2% lower at 103.953 during the European session. The index fell back from its highest since December 2002 at 105, as gains in global equity markets helped risk appetite rebound to the detriment of this safe haven.  Additionally, investors now await speeches from Fed Chairman Jerome Powell and other Fed policymakers later in the day.

The dollar has edged lower from a two-decade high as U.S. bond yields have pulled back slightly as traders discount an aggressive near-term interest rate hikes from the Federal Reserve (Fed) will drag on long-term U.S. growth.

Some evidence pointing to a U.S. economic slowdown emerged Monday with the New York Fed’s Empire State manufacturing index showing an abrupt fall during May.

Euro

The second estimate of Eurozone gross domestic product for the first quarter is expected to show modest 0.2% growth on the quarter, up 5.0% on the year. However, the tone turned more optimistic Tuesday, helped by the French unemployment rate falling to the lowest rate in 14 years in the first quarter, dropping to 7.3%.

EU foreign ministers failed in their attempts on Monday to get Hungary to lift its veto of the bloc’s proposed oil embargo on Russia in response to the invasion of Ukraine. The proposal will now require more negotiations, bringing its actual implementation into doubt.

Euro rose 0.3% to 1.0460, bouncing back from the 1.0354 level it hit last week, its lowest since early 2017.

Sterling Pound

The Sterling pound rose 0.6% to 1.2391, recovering from last week’s 1.2156 low, helped by data showing the U.K. jobless rate falling to its lowest level since the early 1970s.

The U.K. labor market tightened even further in April as the workforce shortage troubled the economy. However, the number of people claiming unemployment benefits fell by 56,900, the fifth month in a row that it has fallen by more than 50,000 and a bigger drop than the 42,500 expected.

Markets reacted to the data by pricing in further interest rate hikes from the Bank, despite the fact that, at its last meeting, it had forecasted the economy will start to shrink later this year under the pressure of high food and energy cost inflation.

Indices

U.S. Indices

U.S. stocks closed mixed on Monday as downbeat Chinese and New York state data kindled recession fears, but the 10-year Treasury note’s yield staying firmly under 3% spurred hopes the Federal Reserve will prudently hike interest rate hikes. Chinese retail and factory activity fell sharply in April as COVID-19 lockdowns severely disrupted supply chains while New York’s factory output slumped in May for the third time this year amid a collapse in new orders and shipments.

Emerging market stocks rose 0.30% and on Wall Street, the Dow Jones Industrial Average rose 0.08%, but the S&P 500 lost 0.39% and the Nasdaq Composite dropped 1.2%.

European Indices

European stock markets traded higher Tuesday, pushed by solid regional employment data but worries over a fragile global economic recovery remain high. The DAX in Germany traded 1.1% higher, the CAC 40 in France rose 1%, and the U.K.’s FTSE 100 climbed 0.4%.

European equities have weakened over the last month, with the DAX down 1.2%, the CAC 40 down 3.7%, and the FTSE 100 down 2%, on concerns that higher interest rates to combat inflation, COVID lockdowns in China, and the war on Ukraine will stunt the global economic recovery.

However, the tone turned more optimistic Tuesday, helped by the French unemployment rate falling to the lowest rate in 14 years in the first quarter, dropping to 7.3%.  At the same time, Britain’s unemployment rate fell to its lowest since 1974 at 3.7% in the first three months of this year, with the U.K. claimant count falling just less than 57,000 in April.

Later in the session, the second estimate of Eurozone gross domestic product for the first quarter is expected to show modest 0.2% growth on the quarter, up 5.0% on the year.

Asian Indices

Shanghai achieved the long-awaited milestone of three straight days with no new COVID-19 cases outside quarantine zones, which could lead to the beginning of the lifting of restrictions. Mainland China’s CSI300 Index gained 0.95% while Hong Kong’s Hang Seng Index was 2.35% higher, as tech firms listed in the city jumped more than 4% on hopes of Beijing’s crackdown on the sector being relaxed.

Meanwhile, in Tokyo, the Nikkei rose 0.33% in afternoon trade, while in Australia the S&P/ASX200 index gained 0.25%.