May month end relief rally

May 27-31

E.U parliamentary party election results last weekend did not bring the market volatility that many had been expecting. For currency investors, the good news is that populist parties failed to secure significant inroads, while the bad news is that the political landscape remains deeply fragmented.

As we are about to close out May, global stocks are a tad higher, providing a sense of relief after several nervous sessions over fears of a slowing global economy. The bullish mood has extended to U.S bond yields, which have ticked up to +2.260% from year low yields of +2.208%.

For days, stock markets have been dropping, threatening an end to their bullish run as investors sold shares and sought safety in bonds. Trade tensions have raised concerns about the U.S and Chinese economies, leading many investors to wonder if the Fed could be forced to cut rates sooner rather than later to boost growth.

PM May’s short lifeline

Brexit issues are on pause until after the leadership election. Not sure we’ll even get the Brexit bill now although I’ve not heard anything of it being cancelled.

Central Banks

The Fed now has data that warrants rate cuts. The Fed’s favorite inflation measure, Core PCE’s second reading for Q1 showed inflation falling to +1.0% this week, well below the +2% target. The Q1 GDP reading was also revised lower from +3.1% to +3.0%. First quarter profits also declined -2.8%, much worse than the -0.4% drop seen in the prior quarter. Money Markets are now pricing in roughly two U.S rate cuts by the Fed at the start of next year, while the European Central Bank (ECB) is set to turn on its “money taps” again next month as trade worries weigh on the global economy.

On Wednesday, the European Central Bank (ECB) said in its financial stability report that while growth slowed down in the euro area in the first half of the year, “the available data suggest that the economic recovery in the euro area has been delayed but not derailed.”

Hungary Central Bank (NBH) left its Base Rate unchanged at +0.90% (as expected) for its 36th straight pause in the current easing cycle. It also left the Overnight Deposit Rate unchanged at -0.05% (as expected). Governor Matolcsy reiterated the need for cautious policy as CPI remains very volatile. We “need to look at underlying inflation: as they see dichotomy in inflationary trends. Domestic growth is seen slowing in coming quarters and that monetary policy in Euro Area may still be loose for a longer period than previously forecasted.

The Bank of Canada (BoC) kept its benchmark overnight interest rate unchanged at +1.75% while talking up the overall improvement in domestic economy. Governor Poloz said that recent data, such as record job gains in April, have “reinforced the governing council’s view that the slowdown in late 2018 and early 2019 was temporary.” Policy makers also cited expected improvements in consumer spending and exports, and pointed to improvements in business investment, the energy sector, and the housing market. As expected, BoC stressed risks associated with escalation of the Sino-U.S trade row. They also indicated a breakthrough on ratification of revised Nafta could have positive implications for Canadian exports and investment. Overall, it’s a neutral statement with a positive tilt.

In Poland’s Central Bank (NBP) May Minutes, policy makers reiterate that the Base rate is likely to stay steady in coming quarters. However, a rate cut is possible if the economy deteriorates or a rate hike is possible if inflation rises.


With market participants focused on trade war games and a potential global slowdown, developments on Iran might not be getting the attention they merit. Earlier this week, the White House threatened penalties against the financial body created by some key European nations to shield its trading with the Iran from U.S sanctions. However, expect Iran tensions to come back into focus if other risks subside.

Economic events

On the Economic Calendar it’s a Bank Holiday in New Zealand and China releases Caixin Manufacturing PMI at 09:45pm EDT (June 2).

Market concerns

• UK leadership scramble & Brexit fallout
• US-Sino – China standing firm against US
• Trans-Atlantic trade tensions to intensify
• OPEC, Saudis, Venezuela, Libya & Trump
• Iran is threatening to close the Strait of Hormuz
• Venezuela/Russia/U.S tension
• Geo-political concerns in Iran, Russia, Ukraine & France
• U.S ramps up trade talks with India and Turkey
• Italian deputy PM Salvini is threatening to end the Govt tenure

Next week: CAD GDP (May 31), NZD Bank Holiday & CNY Caixin Manufacturing PMI (Jun 2), UK inflation report hearings, USD ISM Manufacturing PMI & AUD retail sales (Jun 3), RBA monetary policy statement & AUD GDP (Jun 4), ECB monetary policy statement & press conference, CAD trade balance & CNY Bank Holiday (Jun 6), CAD & U.S employment data (Jun 7).

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell