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Economy

Take Five: Recession talk justified? Follow the data

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© Reuters. FILE PHOTO: An eagle tops the Federal Reserve building’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst

A deluge of data from across major economies comes at a pivotal moment in the debate over whether central banks are jacking up interest rates into a potentially sharp global growth slowdown.

And with jittery investors dumping risk assets en masse, what comes next after a crypto-currency rout is also in focus.

Here’s your week ahead in markets from Ira Iosebashvili in New York, Tom Westbrook in Singapore, Elizabeth Howcroft, Sujata Rao and Karin Strohecker in London.

1/ HARD OR SOFT LANDING?

The Federal Reserve is all but certain to hike interest rates by 50 basis points at upcoming meetings. Upcoming data should show whether hefty tightening will bring a hard or soft landing for the economy.

Forecasts for Tuesday’s U.S. retail sales data predict a 0.7% rise in April after a 0.5% monthly increase in March. Signs of how much inflation, which shows only the slightest hints of moderating, is pinching consumers may also be evident in Tuesday’s earnings reports from Walmart (NYSE:WMT), Home Depot (NYSE:HD) and Macy’s.

Friday’s existing home sales data could show just how quickly rising mortgage rates are cooling the housing market.

The Fed’s determination to contain inflation has fuelled hard landing worries. The S&P 500 is set for its worst year since 2008 — any signs the economy is weathering higher rates would be welcome relief.

U.S. retail sales https://tmsnrt.rs/3sv3ej0

2/CRYPTO CRASH

Cryptocurrency aficionados and observers alike will be watching for the fallout of a spectacular price collapse.

Bitcoin was on track on Friday for a double-digit weekly drop, and headed for a record losing streak. Other cryptocurrencies have also slid with investors shunning risk assets as central banks get aggressive on inflation.

Whether so-called stablecoins can maintain their dollar pegs as investor confidence plummets is key. The algorithmic stablecoin TerraUSD broke its peg and has plunged to as low as 30 cents, as its complex balancing mechanism involving another free-floating token stopped working.

Others such as Tether, USD Coin and Binance USD are confident they will be spared TerraUSD’s fate because their cryptocurrencies are backed by reserves of dollar-based assets. Those reserves may come under increasing scrutiny as investors assess whether those coins can handle a wave of redemptions.

Bitcoin wipes out 2021 gains https://tmsnrt.rs/3L616oA

3/ TAKING ASIA’S PULSE A data pulse across Asia could re-calibrate the outlook for regional assets. Japan reports growth, trade and inflation data. If they beat expectations, even the world’s most dovish central bank may start considering a more neutral stance — good news for a frail yen.

China reports industrial output, retail sales and house prices, probably all glum. China also fixes benchmark rates, though traders see steady as the most likely outcome. And in Australia, wages and jobs figures are out. Its central bank didn’t wait for the data before hiking rates on May 3 and markets suspect further increases are coming. Rates are expected to be near 3% by year-end, any signs to the contrary could prompt an unwind of expectations.

Data surprises pave markets’ path to hawkish Aussie rate bets https://tmsnrt.rs/3Fpv3yv

4/ WHAT SPENDING POWER?

The consumer is in trouble. Soaring food and fuel prices are eroding disposable incomes and lockdown-era savings that could have been spent on travel and shopping, are dwindling fast.

Economists predict COVID curbs will have driven a 6% slump in China’s April retail sales, almost double March falls. U.S. April retail sales are tipped to rise, but as in March, gasoline and food may account for most of the increase.

British consumer confidence slumped in March to near the lowest in nearly half a century, research firm GfK said. A cost-of-living squeeze likely deepened shoppers’ gloom in April.

No surprise global consumer discretionary shares have tumbled almost a third this year, exceeding a broader equity index fall. Investors have taken note; several say they are no longer banking on the consumer.

Savings https://tmsnrt.rs/3P0KK3L

5/ PIPELINES & PAYMENTS

Pressures on Europe’s gas markets show no sign of abating.

Moscow’s sanctions against Gazprom (MCX:GAZP) Germania, in which its gas producer Gazprom ceded ownership, and EuRoPol GAZ SA, owner of the Polish part of the Yamal-Europe gas pipeline, have sent prices higher. A Kremlin decree from May 3 bans Russian entities to make deals with those on the sanctions list.

This has hit flows to Europe already diminished after Ukraine declared force majeure and said it will not reopen a key gas transit route from Russia to Europe until Kyiv obtains full control over its pipeline system.

And there’s still confusion among EU gas companies over a payment scheme decreed by Moscow in March that the European Commission has said would breach EU sanctions as deadlines approach.

Brent crude and gas prices https://tmsnrt.rs/3N82iJm

Economy

Dollar slips from 2-decade highs; yuan falls on weak China data

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© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic

By Sinéad Carew

NEW YORK (Reuters) – The U.S. dollar index was lower on Monday after hitting a 20-year peak last week, with the global economy in focus after weak economic data from China highlighted worries about the prospects for a global slowdown.

Creating a risk-off mood on Monday, China’s retail and factory activity fell sharply in April as extensive COVID-19 lockdowns confined workers and consumers to their homes. But Shanghai did set out plans for the return to more normal life from June 1.

Following the release of China’s data, Bipan Rai, North America head of FX Strategy at CIBC Capital Markets, said trading was focused on macro economic data on Monday.

“It’s important to highlight that the risks are towards a stronger dollar and primarily, that’s because if you look at the macro economic climate, the fundamentals don’t look good. From a risk-off perspective that should still support the dollar against most currencies,” Rai said.

But he said the greenback was consolidating after its recent strength and that more range-bound trading sessions were possible: “It makes sense for some period of consolidation before the next leg higher.”

Trading in the dollar may be muted partly because a lot of bad news has already been priced in but also because investors are waiting for events such as the U.S. retail sales data release and a public appearance by Fed Chair Jerome Powell both scheduled for Tuesday, according to Mazen Issa, senior FX strategist at TD Securities. [nL2N2X52F6]

Still Issa said he doesn’t “think we’re in a market where we’re going to see the dollar weaken … It’s going to take a lot to get investors out of the dollar.”

The euro was pulled from its earlier lows after European Central Bank policymaker Francois Villeroy de Galhau said the common currency’s weakness could threaten the ECB’s efforts to steer inflation towards its target.

The Australian dollar, which is highly exposed to the Chinese economy, reversed course as the day wore on and was last up against the dollar after falling as much as 0.9%.

The dollar index was last down 0.37% at 104.16, after briefly crossing the 105 level on Friday – its highest level since December 2002, after six successive weeks of gains. Weekly positioning data showed that investors had built their long dollar bets.

The euro was up 0.26% at $1.0438 but not far from last week’s low of $1.0354, its lowest level since early 2017. Analysts see $1.0340 as a crucial level of euro support.

HSBC strategists expect the euro to fall to parity against the dollar in the coming year. “Much weaker growth and much higher inflation leave the ECB facing one of the toughest policy challenges in G10 (central banks),” they said.

Crypto markets, which trade around the clock, had a quiet weekend after turmoil last week driven by TerraUSD, a so-called stablecoin, which broke its dollar peg. An affiliate of the company behind TerraUSD said it had spent the bulk of its reserves trying to defend its dollar peg and would use the remainder to try to compensate some users who had lost out.

Bitcoin was last trading at around $29,881, down more than 4%, after having dropped to $25,400 on Thursday, its lowest mark since December 2020.

Currency bid prices at 3:03PM (1903 GMT)

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Economy

Taliban dissolve Afghanistan’s Human Rights Commission, other key bodies

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© Reuters. FILE PHOTO: An Afghan woman walks on a street in Kabul, Afghanistan, May 9, 2022. REUTERS/Ali Khara/File Photo

By Mohammad Yunus Yawar

KABUL (Reuters) – Taliban authorities in Afghanistan dissolved five key departments of the former U.S.-backed government, including the country’s Human Rights Commission, deeming them unnecessary in the face of a financial crunch, an official said on Monday.

Afghanistan faces a budget deficit of 44 billion Afghanis ($501 million) this financial year, Taliban authorities said on Saturday as they announced their first annual national budget since taking over the war-torn country last August.

“Because these departments were not deemed necessary and were not included in the budget, they have been dissolved,” Innamullah Samangani, the Taliban government’s deputy spokesman, told Reuters.

Also dissolved was the High Council for National Reconciliation (HCNR), the once high-powered National Security Council, and the commission for overseeing the implementation of the Afghan constitution.

The HCNR was last headed by former Afghan President Abdullah Abdullah, and was working to negotiate a peace between the U.S.-backed government of former President Ashraf Ghani and the then-insurgent Taliban.

In August 2021, 20 years after invading Afghanistan, foreign forces withdrew from the country leading to the collapse of the government and a Taliban takeover.

Samangani said the national budget was “based on objective facts” and intended only for departments that had been active and productive.

He added that the bodies could be reactivated in the future “if needed”.

The Taliban ruled Afghanistan from 1996 to 2001 with an iron fist and implemented a harsh version of Islamic rule, including banning women from education and work. After taking over last year, the Taliban assured the world they would be more moderate.

However, they are yet to allow older girls to restart education, and have also introduced rules that mandate that women and girls wear veils and requiring them to have male relatives accompany them in public places.

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Economy

U.S. SEC chair says much to be done to protect crypto investors

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2/2

© Reuters. FILE PHOTO: Representations of virtual cryptocurrencies are placed on U.S. dollar banknotes in this illustration taken November 28, 2021. REUTERS/Dado Ruvic

2/2

By John McCrank

(Reuters) – Cryptocurrency assets are highly speculative and investors in them need more protections or they could lose trust in the markets, Gary Gensler, chair of the U.S. Securities and Exchange Commission, said on Monday.

Generally, people who buy cryptocurrencies do not get the disclosures they get when they make other asset purchases around things like whether the trading platform they are using is actually trading against them, or whether they actually own the assets they store in digital wallets, Gensler said.

“We have this basic bargain: You the investing public can make your choices about the risk you take, but there is supposed to be full and fair disclosure, and people are not supposed to lie to you,” he said at the Financial Industry Regulatory Authority’s annual conference in Washington.

His comments came after last week’s spectacular collapse of TerraUSD, a so-called stablecoin that lost its 1-to-1 dollar peg.

The token’s crash sent cryptocurrencies tumbling, a slide that resumed on Monday, as bitcoin erased the gains it had eked out over the weekend to trade under $30,000, far below its Nov. 10 record of $69,000.

While crypto markets are thought of as decentralized, the reality is that most activity occurs on a handful of trading platforms, which, along with token issuers, need to work with the SEC to improve industry rules and disclosures, Gensler said.

He pointed to basic market principles like, “anti-fraud, anti-manipulation, making sure there’s not front-running, making sure an order book is actually real and not made up.”

The SEC will continue to be “a cop on the beat,” while working with the Commodity Futures Trading Commission to ensure all cryptocurrencies are covered, Gensler said.

“There’s a lot to be done here, and in the meantime the investing public is not that well protected,” he said.

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