Summary Consumer income is growing, but not as fast as inflation. Consumers had to dip into savings to pull it off, but not only did real personal expenditures rise in March, revisions listed real February spending into positive territory as well. Rainy day savings won't last forever, but for now, at least the desire to resume service-sector activity is more powerful than inflation. Experiences over stuff drives spending gains in March In the wake of yesterday's negative GDP print, the additional detail from today's March personal income and spending report point to consumer spending growth that is outpacing the fastest inflation in decades. Revisions to prior months' sales figures now confirm that despite initial reports that inflation outpaced spending in February, the opposite is true: real personal spending was positive in each of the first three months in the first quarter. Admittedly a downward revision to January keeps the level only slightly higher. Still, real PCE rose 0.2% in March, on top of upward revision to February that brought the monthly change to a +0.1% (-0.4% previously). For months, we have described our expectations for consumer spending to continue to be driven by service outlays and that some of the strength there might come at the cost of slower growth or outright declines in goods spending. That was certainly the case for March. Real durables outlays slipped 0.9% and non-durables outlays fell 0.3%. The much larger services category grew 0.6% after adjusting for inflation; that carried the day and allowed overall real PCE to finish the month up 0.2%. Gains were widespread across services categories and led by “other” services (notably international travel) and discretionary services categories (transportation, recreation & food services), where real spending rose 1.1% after a 2.5% gain in February (chart). Download The Full Economic Insights

European stocks have outpaced the US today, moving higher as markets look towards more support for the Chinese economy. European markets rally on hopes of China stimulus “A gulf has opened between Europe and the US, as the former rally while the latter drops back. US stocks enjoyed such a strong day yesterday that some caution was inevitable, while the mixed picture following US tech earnings and the contraction in US GDP isn’t helping sentiment on Wall Street. But higher commodity prices have helped stabilise industrial European stocks, and crucially the magic promise of Chinese stimulus has appeared, pushing up commodity prices and giving stocks across the continent a lift.” Oil prices extend gains “A third day of gains for oil prices comes as talk of a European ban on Russian oil and gas imports steps up a gear. In addition, US consumption has taken a leg higher, assuaging some concerns about a slump in demand in response to higher prices. But next week’s FOMC meeting might prompt some nerves to creep back in again, either as the Fed signals its concerns about growth, or if the dollar bounces again on a more hawkish meeting.”

A notable recovery in 2021  Real estate market activity in Spain recovered spectacularly in 2021, after collapsing in 2020 due to the lockdown measures introduced to tackle the Covid-19 epidemic. Nearly 670,000 real estate transactions took place last year, a level not seen since 20071 (see chart 1). According to INE, housing prices rose by 3.7% in 2021, continuing the strong pace of the last six years (average yearly increase of 4.9% between 2015 and 2020). Although housing prices are still 10% below their peak in summer 2007, price growth is accelerating. Figures from Tinsa show that this trend continued in the first quarter of 2022, with a 6.8% year-on-year increase in March. This indicator is well correlated with the INE quarterly index. However, these figures hide significant differences between regions. In the Madrid area and tourist and/or densely populated regions (Balearic Islands, Melilla, Ceuta), real estate prices have recorded rapid growth since 2015; indeed prices in some regions are now higher than they were in 2007/2008. Conversely, in rural and more sparsely populated regions (Extremadura, Castile and León, Navarre, Aragon), prices are fluctuating at least 20% below their levels of fifteen years ago. This said, the number of real estate transactions in most of these areas has also started to rise, suggesting that price increases could be more rapid this year. Download The Full EcoFlash

Summary In yet another sign the labor market continues to tighten rapidly, the Employment CostIndex rose a record 1.4% in Q1, vastly exceeding expectations. The pickup comes despite increasing availability of labor supply, signaling that cost pressures from the tight labor market will not be easily stomped out. The FOMC is likely to stay on an increasingly hawkish path as a result, given labor costs represent a more persistent threat to the inflation outlook. Wake up call for the Fed The battle for talent escalated in the first quarter, with the Employment Cost Index jumping 1.4%–themost in the series' 21-year history and above expectations for a 1.1% gain. The pickup comes despite the increasing availability of labor, signaling that inflationary pressures from the tight labor market will not be easily stomped out. As a reminder, the ECI is the preferred measure of labor costs among Fed policymakers. Unlike the more timely average hourly earnings in the monthly nonfarm payroll report, the ECI controls for compositional shifts in the workforce, which have been unusually large over the past two years. It also includes benefits, which account for 31% of compensation, therefore giving a more complete picture of the costs employers are facing in today's competitive hiring environment. The surprisingly strong ECI print for Q3, released in October 2021, was the catalyst for the FOMC speeding up its tapering plans according to Chair Powell at the December FOMC meeting. The first quarter ECI print is likely to stir more unease among Fed officials and keep the FOMC on an increasingly hawkish path despite GDP growth contracting in the same quarter. Download The Full Economic Insights

The British pound bounced back as data showed that home prices continued rising. According to Nationwide, the average house price in the UK jumped to £267,600 in April as demand continued rising. Prices rose by £2,000 on a month-on-month basis or 12.1% on a year-on-year basis. However, the increase was slower than most analysts were expecting. Housing demand has risen while inventories has been subdued. Therefore, there are concerns about whether this demand will continue as the Bank of England hikes interest rates. In a note, an analyst at Capital Economics said that home prices will drop by about 3% in 2021 and 1.8% in 2024. The euro rose against the US dollar even after data showed that many European economies were slowing. In France, data revealed that the economy stagnated in the first quarter while inflation jumped by 5.4% in April. In Italy and Spain, their economics contracted while in Germany, the economy expanded by just 0.2%. The statistics agencies attributed this performance to the soaring prices, which helped to slow consumer and business demand. Meanwhile, according to Eurostat, preliminary data revealed that inflation rose from 7.4% to 7.5% while core CPI rose from 2.9% to 3.5%. European stocks were deeply in the green as the earnings season continued. The Stoxx 50, DAX, and CAC 40 indices rose by more than 1% while the FTSE 100 index rose by more than 0.40%. In the UK, AstraZeneca said that its sales jumped by 60% in Q1 as demand for its Covid-19 vaccine and rare disease medicines rose. Its sales rose to $11.4 billion as revenue from its oncology business rose to $3.6 billion. Reckit Benckiser, the consumer products company, said that its revenue rose to £3.4 billion as it hiked prices by over 5%. NatWest, formerly known as Royal Bank of Scotland, said thar its revenue rose by 17% to £3 billion because of mortgage growth and higher interest rates. GBP/USD The GBPUSD pair rose as investors rushed to buy the dip. It rose to a high of 1.2560, which was the highest point since Wednesday. It moved above the middle line of the Bollinger Bands. At the same time, the Relative Strength Index (RSI) moved above the oversold level of 30. The Stochastic Oscillator moved to the overbought level. The pair will likely keep rising as bulls target the upper side of the Bollinger Bands. EUR/USD The EURUSD pair also rose as the strength of the US dollar faded. It moved to a high of 1.0575, which was higher than this week’s low of 1.0465. It moved above the middle line of the Bollinger Bands while the Relative Strength Index moved above the oversold level. The pair is also nearing the overbought level while the Average Directional Index (ADX) has started dropping. Therefore, it will likely keep falling since this is the last trading day of the month. XAU/USD The XAUUSD pair rose sharply after China announced a new stimulus. The pair rose to a high of 1,916, which was the highest level since April 26th. It also moved above the important resistance level at 1,911 and is along the upper side of the Bollinger Bands. The Stochastic Oscillator moved above the overbought level while the Relative Strength Index (RSI) moved above 50. The pair will likely keep rising.

In today’s Traders Edge Market Briefing, Tomasz found these amazing setups that we thought you’d find interesting.

WTI crude oil traded higher yesterday, breaking above the downside resistance line drawn from the high of March 6th. Today, the price emerged above the high of April 21st, at 105.90, a move suggesting that the outlook may be changing back to positive. However, we will adopt a neutral stance for now, and we prefer to wait for a clear break above the high of April 18th, at 109.55, before we start examining the case of a bullish reversal. Such a break will confirm a forthcoming higher high on the daily chart and may pave the way towards the peak of March 25th, at 115.85, the break of which could target a hurdle slightly higher, at 118.20, marked by the high of March 24th. If the latter barrier is not able to stop the bulls either, then its break could carry larger bullish implications, perhaps paving the way towards the high of March 9th, at 127.35. Shifting attention to our short-term oscillators, we see that the RSI lies slightly below 70 and points up, while the MACD runs above both its zero and trigger lines. Both indicators detect strong upside speed and support the notion for further advances in the black liquid. Nonetheless, we repeat that we prefer to wait for a break above 109.55. On the downside, we would like to see a clear dip below 94.75 before we start examining the bearish case. The price will not only be well back below the aforementioned downside line, but the dip below 94.75 will confirm a forthcoming lower low on the daily chart. The 94.75 zone has been acting as a temporary floor since February 27th. The bears could initially dive towards the 88.65 or 86.45 zones, marked by the lows of February 9th and January 31st respectively, and if they don’t want to stop there, we may see them pushing towards the low of January 24th, at 82.50.

The Euro turned positive for the first time after six straight days in red, as traders collected profits, but recovery attempts were so far limited and facing strong headwinds. Oversold daily studies suggest the pair may enter correction, but fresh bulls so far struggle to sustain recovery from new five-year low, posted on Thursday. Daily techs in bearish setup and overall very negative sentiment continue to weigh on Euro, while comments from ECB’s chief economist that the first rate hike in not an issue but the question is the pace in which the ECB continue to tighten its monetary policy, made a minor impact to the EURUSD’s performance. The pair is on course for the biggest weekly drop since the last week of March 2020 and large bearish weekly candle is expected to weigh, but formation of daily inverted hammer candle would generate initial positive signal and possibly reduce strong bearish pressure. However, recovery needs to extend above pivotal Fibo resistance at 1.0648 (38.2% of 1.0936/1.0471 bear-leg) to sideline bears. Res: 1.0564; 1.0580; 1.0648; 1.0700 Sup: 1.0490; 1.0471; 1.0400; 1.0340

The Federal Reserve and Bank of England are both expected to raise interest rates in the upcoming week, though the former will likely do so by a larger increment. However, it’s much more of a puzzle what the Reserve Bank of Australia will do as pressure is mounting on the central bank to get the rate hike ball rolling in May rather than in June. It will also be a busy week for jobs data as apart from the all-important US nonfarm payrolls report, Canada and New Zealand will also publish their employment numbers. OPEC holds its monthly meeting too next week but is not anticipated to pump more oil even as European leaders ponder whether to block the import of Russian oil.

Fed rate decision – 04/05 – this week’s Federal Reserve rate decision should be of no surprise to most people with a 50bps rate rise expected, which should take the upper bound of the Fed Funds rate to 1%. This is the least of market expectations when it comes to what the Fed may well announce this week. The biggest question will be around the pace of its balance sheet reduction program along with the pace of subsequent rate hikes. Powell’s comments at the IMF that the Fed could well go much harder, and a lot quicker on rate hikes has prompted concern that the Fed may well overplay its hand on rate hikes at a time when the global economy looks set for a sustained slowdown as China continues to lose its battle with Covid. While markets will be looking for clues as to how many more 50bps rate rises could well be coming, we’ll also another eye on the topic of balance sheet reduction, with the potential to also start this week, with a general agreement that we could see $95bn a month, $60bn of that being in treasuries, and $35bn in mortgage-backed securities. From the previous minutes it was also clear that some wanted to go further with no limits on how fast the runoff is done. This suggests that not only will we get a 50bps rate rise this week, we could also see the start of balance sheet runoff, which would be quite an about turn on the part of the central bank given it only stopped adding to its balance sheet in March.   US non-farm payrolls (Apr) – 06/05 – the March jobs report was a strong one across the board, with 431k jobs added in March, slightly below expectations of 490k. This was more than offset by an upward revision to the February number of 678k to 750k, while the unemployment rate fell to 3.6% from 3.8%. Adding fuel to the fire was a rise in the participation rate to 62.4% while the rise in average hourly earnings pushed up from 5.2% to 5.6% and the highest level since May 2020. Since then, there has been little sign that the US economy has shown any signs of slowing with the latest surveys still showing fairly strong demand, although pricing pressures have started to turn higher again which could start to weigh on consumer sentiment. Vacancies in the US are still at elevated levels and this week’s April jobs report is expected to continue to show strong hiring trends given weekly jobless claims are at levels last seen in the late 1960’s. Expectations are for 400k jobs to be added with the unemployment rate expected to remain steady at 3.6%, while wages are expected to remain steady at 5.6%. As an interesting aside, it’s also worth keeping an eye on the March consumer credit numbers, later in the day, after February’s blow out number of $41.8bn.   Bank of England rate decision – 05/05 – with UK inflation already at 7% in March and set to go even higher the Bank of England has got a thankless task, especially given the plunge seen in retail sales during the same month. We already know that the some on the MPC are concerned about the negative impact a further rise in interest rates might have on demand, the UK economy and consumer confidence, a factor cited by Jon Cunliffe at the last meeting when he voted to keep rates on hold, but it’s also hard to ignore the impact rising prices also has on those factors. Rising prices are becoming embedded in the price of clothing, furniture, food, drink and restaurants, while a sinking pound adds to that pressure. With input prices at 19.2% further upward pressure in headline inflation is coming, and the Bank of England is likely to be faced with little choice but to raise rates if only to keep pace with the Federal Reserve if only to maintain rate differentials. Some may argue that the Bank of England could get away with raising rates by 25bps incrementally, however such a tentative and weak approach, if not allied with strong forward guidance would only send a signal that the central bank is weak in undertaking to meet its inflation target. The bigger risk for this week is if the central bank does nothing, with a minimum expectation of a 25bps rise to 1%.      RBA rate decision – 03/05 – with an election looming later this month it would be a surprise if the RBA were to raise rates this week, but one is coming with the most probable outcome being for a rate hike next month. In April, the central bank removed the word “highly” when referring to supportive monetary...

Fed rate decision – 04/05 – this week’s Federal Reserve rate decision should be of no surprise to most people with a 50bps rate rise expected, which should take the upper bound of the Fed Funds rate to 1%. This is the least of market expectations when it comes to what the Fed may well announce this week. The biggest question will be around the pace of its balance sheet reduction program along with the pace of subsequent rate hikes. Powell’s comments at the IMF that the Fed could well go much harder, and a lot quicker on rate hikes has prompted concern that the Fed may well overplay its hand on rate hikes at a time when the global economy looks set for a sustained slowdown as China continues to lose its battle with Covid. While markets will be looking for clues as to how many more 50bps rate rises could well be coming, we’ll also another eye on the topic of balance sheet reduction, with the potential to also start this week, with a general agreement that we could see $95bn a month, $60bn of that being in treasuries, and $35bn in mortgage-backed securities. From the previous minutes it was also clear that some wanted to go further with no limits on how fast the runoff is done. This suggests that not only will we get a 50bps rate rise this week, we could also see the start of balance sheet runoff, which would be quite an about turn on the part of the central bank given it only stopped adding to its balance sheet in March.   US non-farm payrolls (Apr) – 06/05 – the March jobs report was a strong one across the board, with 431k jobs added in March, slightly below expectations of 490k. This was more than offset by an upward revision to the February number of 678k to 750k, while the unemployment rate fell to 3.6% from 3.8%. Adding fuel to the fire was a rise in the participation rate to 62.4% while the rise in average hourly earnings pushed up from 5.2% to 5.6% and the highest level since May 2020. Since then, there has been little sign that the US economy has shown any signs of slowing with the latest surveys still showing fairly strong demand, although pricing pressures have started to turn higher again which could start to weigh on consumer sentiment. Vacancies in the US are still at elevated levels and this week’s April jobs report is expected to continue to show strong hiring trends given weekly jobless claims are at levels last seen in the late 1960’s. Expectations are for 400k jobs to be added with the unemployment rate expected to remain steady at 3.6%, while wages are expected to remain steady at 5.6%. As an interesting aside, it’s also worth keeping an eye on the March consumer credit numbers, later in the day, after February’s blow out number of $41.8bn.   Bank of England rate decision – 05/05 – with UK inflation already at 7% in March and set to go even higher the Bank of England has got a thankless task, especially given the plunge seen in retail sales during the same month. We already know that the some on the MPC are concerned about the negative impact a further rise in interest rates might have on demand, the UK economy and consumer confidence, a factor cited by Jon Cunliffe at the last meeting when he voted to keep rates on hold, but it’s also hard to ignore the impact rising prices also has on those factors. Rising prices are becoming embedded in the price of clothing, furniture, food, drink and restaurants, while a sinking pound adds to that pressure. With input prices at 19.2% further upward pressure in headline inflation is coming, and the Bank of England is likely to be faced with little choice but to raise rates if only to keep pace with the Federal Reserve if only to maintain rate differentials. Some may argue that the Bank of England could get away with raising rates by 25bps incrementally, however such a tentative and weak approach, if not allied with strong forward guidance would only send a signal that the central bank is weak in undertaking to meet its inflation target. The bigger risk for this week is if the central bank does nothing, with a minimum expectation of a 25bps rise to 1%.      RBA rate decision – 03/05 – with an election looming later this month it would be a surprise if the RBA were to raise rates this week, but one is coming with the most probable outcome being for a rate hike next month. In April, the central bank removed the word “highly” when referring to supportive monetary...

Summary United States: GDP Head Fake Obscures Otherwise Intact Fundamentals In a jampacked week of economic data, Thursday's negative GDP growth print took center stage. The U.S. economy contracted at a 1.4% annualized rate in Q1-2022. The weak headline figure raises concern at first glance, but the details of the report suggest underlying demand remained intact. Next week: ISM Surveys (Mon & Wed), Trade Balance (Wed), Nonfarm Payrolls (Fri) International: Bank of Japan Doubles Down on Easy Monetary Policy The Bank of Japan held its monetary policy stance steady at this week's announcement but, in a significant development, reinforced its pledge to cap any rise in Japanese bond yields. The central bank said it was prepared to buy government bonds in unlimited quantities to prevent a rise in yields. In other central bank activity, Sweden's central bank raised its policy rate by 25 bps and signaled multiple further rate hikes in the quarters ahead. Next week: China PMIs (Sat.), Brazil Selic Rate (Wed.), Bank of England Policy Rate (Thu.) Interest Rate Watch: How Much Will the Fed Tighten Next Week? Despite the 1.4% annualized rate of contraction in Q1 real GDP, we look for the Federal Open Market Committee to raise its target range for the federal funds rate by 50 bps at next week's meeting. A 50 bps rate hike is completely priced into markets. We also look for the Committee to announce the commencement of balance sheet reduction, which would also act as a form of monetary tightening. Topic of the Week: The Rise of Single-Family Rental Homes Housing affordability has been an increasing concern for potential homebuyers as scorching home price appreciation and rapidly rising mortgage rates have already pushed many buyers onto the sidelines. While homes are becoming increasingly difficult to afford for traditional homebuyers, a growing share of investor buyers have encroached on the market by purchasing and renting out single-family homes. Download the full report