Weekly Outlook: May 23 — May 27: Davos, PMIs, RBNZ Decision, and Fed Minutes Under the Spotlight

JFD Brokers
8 min readMay 23, 2022


The calendar becomes even more interesting this week, with World Economic Forum starting yesterday in Davos, Switzerland and scheduled to last until Thursday. With market participants concerned over the performance of the global economy, the preliminary PMIs for May could also be vital, while on Wednesday, during the Asian trading, the RBNZ will deliver its monetary policy decision. Later in the same day, the Fed is set to release the minutes from its latest gathering.

On Monday, the calendar is not that busy in terms of economic releases, with the only one worth mentioning being the German Ifo Survey for May. The current assessment index is expected to have slid to 95.8 from 97.2, while the expectations one to have declined to 83.5 from 86.7. This is likely to take the business climate index slightly lower, to 91.4 from 91.8. On May 10th, the ZEW survey revealed deteriorating current conditions, while the economic sentiment index, although it stayed into the negative territory, it improved. Maybe this means that the Ifo expectations index could also come in better than anticipated, and thereby allow participants to maintain their bets over an ECB rate hike in the next couple of months.

We may get more clarity on monetary policy plans, but also more insights on the global economic outlook as yesterday, the World Economic Forum began, in Davos, Switzerland. It will last until Thursday. We believe that the main item of discussion will be the war in Ukraine, but we expect other topics to be discussed as well, such as the very high inflation around the globe, fears of a global recession, as well as the covid restrictions in China. Any opinions coming out from the meeting could well affect the financial markets as they may hint how some major central banks are planning to move forwards. Investors could well adjust their bets, especially if the remarks are made by an important central bank official. If we are not mistaken, among the speakers are Fed Chair Jerome Powell, ECB President Christine Lagarde, and BoE Governor Andrew Bailey.

Just for the record, Canadian markets will be closed today, in celebration of the Victoria Day.

On Tuesday, although market participants may be keeping an eye on Davos, most of their attention is likely to be on the preliminary PMIs for May from the Eurozone, the UK, and the US, as they try to understand how big the risks for a global recession are.

In the Euro area, the manufacturing PMI is forecast to have declined to 54.9 from 55.5, while the services one is anticipated to have just inched down to 57.5 from 57.7. This is likely to take the composite index down to 55.3 from 55.8. Though pointing to a slowdown, all three indices remain within the expansionary territory, which may allow participants to maintain their bets with regards to a rate hike by the ECB soon. However, a negative surprise and a dip below the boom-or-bust zone of 50 could result in scaling back such bets, and thereby increase the selling activity in the euro.

There are no forecasts available for the UK prints, but with the BoE warning over an economic contraction next year, any notable slides could bring the pound under selling interest, as market participants will bring lower their expectations with regards to the Bank’s future rate increments. Yes, with inflation in the UK hitting 9%, the BoE will most likely continue to lift borrowing costs, but due to fears of a recession, they could follow a slower path than they have been estimating a couple of months ago.

Now, flying to the US, there, the manufacturing index is expected to have declined to 57.9 from 59.2, while the services one to tick down to 55.4 from 55.6. Declines in the world’s largest economy as well, could confirm concerns over a worldwide economic slowdown. However, if the forecasts are met, both indices will still be above the equilibrium line of 50, and with Fed Chair Jerome Powel hinting that they will proceed with their 50bps increments in the next couple of months, we don’t expect market participants to change their minds. According to the CME FedWatch tool, 50bps liftoffs are fully priced in for both June and July.

In any case, the US dollar could stay under selling interest for a while more, and this is because recent data suggest that the US economy is not immune to the factors affecting other economies. However, it seems that it is still affected the least, and with monetary policy expectations still pointing to the Fed being more aggressive than other major central banks, we will treat any setback in the US dollar as a corrective retreat before the next leg north. The only currencies against which we expect the US dollar to continue underperforming, even when it starts gaining ground against the others, are the yen and the franc. Despite both the BoJ and the SNB staying as the most dovish major central banks, due to their safe-haven status, the yen and franc are enjoying huge amounts of inflows lately.

On Wednesday, the spotlight is likely to fall on the RBNZ interest rate decision during the Asian session, and to the FOMC meeting minutes later in the day.

Getting the ball rolling with the RBNZ, this Bank is expected to hike interest rates by 50bps for the second time in a row, with the number of total hikes — regardless of the size — in the post pandemic era being 5. When they last met, officials of this Bank hiked by 50bps points, but noted that they remained comfortable with the outlook for the OCR as outlined in February, and that the larger move was intended to provide more policy flexibility. In other words, they may have decided to hike by more then, in order to be able to slow down later.

The Kiwi came under selling interest after the meeting, but more recently, due to its strong link to risk, it has been feeling the heat of the deterioration in the broader market sentiment. It slowly started correcting a bit higher after the release of the RBNZ’s latest inflation expectations, and that’s maybe why participants are betting on another double hike, despite the Bank’s language following its last decision. So, with that in mind, a 50bps hike by itself is unlikely to boost much the Kiwi. For that to happen, officials need to sound more hawkish than in April, leaving the door open to more increments of such kind. Now, in case they hike by less, or signal that again this was a flexibility move, not intended to steepen the rate-path projections, the commodity-linked currency is likely to come back under selling interest.

Now, passing the ball to the Fed, when this Bank last met, it also hiked by 50bps, but dismissed the case of a triple hike in June. However, since then, market participants came in peace with the idea of a couple of more double hikes, especially at a time when other major central banks may not proceed that aggressively, and thus, they decided to buy a few more dollars. That said, the dollar pulled back again the last few days due to economic slowdown fears. In any case, with Fed Chair Powell noting in aftermath speeches that they will not hesitate to move more aggressively if inflation does not slow down as expected, it will be interesting to dig into the minutes to find out how many of his colleagues share that same view. If, indeed, most of them are willing to do more if needed, then the greenback is likely to end its correction and drift back north. We repeat that it is better to avoid USD/JPY and USD/CHF, as both the yen and the franc could continue to benefit from safe-haven inflows.

On Thursday, markets in Switzerland will stay closed due to the Ascension Day, while later in the day, we have the second estimate of the US GDP for Q1, with the forecasts suggesting a confirmation of the preliminary numbers. Canada’s retail sales for March are also due to be released. Headline sales are expected to have accelerated to +1.4% mom from +0.1%, while the core rate is forecast to have ticked down to +2.0% mom from +2.1%. With Canada’s CPIs coming in above estimates last week, decent retail sales may allow market participants to keep the BoC into the group of the major central banks expected to continue raising interest rates at a fast pace. Now, the big question is how fast, and which currencies are likely to feel the heat of any Loonie strength. We prefer to start examining this after the data are out, as until then we will already be having in hand more data from other major economies, as well as central bank speeches, an RBNZ decision, and the minutes of the latest FOMC gathering.

Finally, on Friday, during the Asian session, we have Japan’s Tokyo CPIs for May and Australia’s retail sales for April. No forecast is available for the headline Tokyo rate, but the core one is anticipated to have ticked up to +2.0% yoy from +1.9%. As for Australia’s retail sales, they are expected to slow to +1.0% mom from +1.6%.

Later in the day, the US personal income and spending data for April are due to be released, alongside the core PCE index for the month, which is the Fed’s favorite inflation metric. However, it rarely moves the market as we already have in hand the core CPI rate for the month, which holds a strong correlation with the PCE index. Just for the record, expectations are for a slowdown to +4.9% yoy from + 5.2%.


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