Why is Bad News Good and when will it be Bad?

Thoughts of the Day

Currently, bad economic data that shows that the jobs market is slowing, and growth is starting to falter is taken by investors as good news because these news increases the likelihood of the US Federal Reserve cutting interest rates. However, weak economic data will become bad news if inflation starts to creep higher.
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Week Ahead

Monday:

Tuesday: US Producer Price Index (headline and core: +0.2% Month-on-Month expected and prev)

Federal Reserve Chair Powell is due to speak at the Netherlands’ Foreign Bankers’ Association, in Amsterdam.

Wednesday: US Consumer Price Index (headline: +3.4% YoY expected and +3.5% prev, +0.3% MoM expected and +0.4% prev; core: +3.6% YoY expected and +3.8% prev, +0.3% MoM expected and +0.4% prev)

US Retail Sales (+0.4% MoM expected vs +0.7% prev)

Thursday: Australian Labour (Employment Change: +25.3k expected vs -6.6k prev, Unemployment Rate: 3.9% expected vs 3.8% prev)

Friday: Chinese Economic Data (Industrial Production: +4.6% YoY expected vs +4.5% prev, Retail Sales: +3.8% YoY expected vs +3.1% prev, Unemployment Rate: +5.2% expected and prev, )

Euro Area Inflation (headline: +2.4% YoY expected and prev, +0.6% MoM expected and +0.8% prev; core: +2.7% YoY expected vs +2.9% prev)

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What Happened Yesterday

Market Movements as of New York Close 10 May 24 (12 Mar for Crypto)

Fedspeak:
Barkin (current voter, slight hawk):
“The current economy calls for a deliberate and patient approach. With appropriate policy and time, inflation will hit 2%.”
Kashkari (2026 voter, known hawk): “I am in wait-and-see mode about the future of monetary policy. The bar is high for another rate hike, but I can’t rule it out.”
Goolsbee (2025 voter, known dove): “At this time not much evidence that inflation is stalling out at 3%. We hit an inflation bump this year, and now we wait.”
Bowman (current voter, known hawk): “I don’t see rate cuts as warranted this year. If we saw unexpected shocks, that would be a case for a rate cut. It’s probably a number of meetings before I’m ready to cut.”
Bostic (current voter, slight hawk): “The Fed is probably still planning to reduce interest rates this year, despite uncertainty regarding when and by how much policy easing will occur, as well as the gradual pace of inflation declines.”
Logan (2026 voter, slight hawk): “There are uncertainties if policy is sufficiently restrictive. Too early to think about cutting rates. We need to remain flexible on policy.”
(Barkin seems to maintain his stance that current rates are restrictive enough. Kashkari and Goolsbee remain in the wait-and-see camp. Bowman remains on the hawkish side but stopped mentioning that she is ready to hike rates if needed, which she did previously. Bostic is still optimistic that the Fed will cut by year end. Logan continues to reiterate that it is too early to cut rates.)

ECB Monetary Policy Meeting Accounts for the April meeting mentioned that the Governing Council would be in a position to start easing monetary policy restriction at the June meeting. Some members suggested cutting rates earlier at the meeting as the current level of rates will continue to restrict the economy even after cutting. Most members suggested that the cut will not be one off and that the ECB will be flexible. EURUSD reaction to the accounts was muted.

Canadian Labour Data for Apr (Employment Change: +90.4k actual vs +17.5k expected and -2.2k previous, Unemployment Rate: 6.1% actual 6.2% expected and 6.1% previous, Participation rate: 65.4% actual and 65.3% prev, Average Hourly Wages: +4.8% actual vs +5% prev) The USDCAD sold off -0.22% from 1.3679 to 1.3649  as the CAD strengthened on the better than expected jobs number in immediate reaction.

US University of Michigan Consumer Survey for May (Consumer sentiment: 67.4 actual vs 77 expected and 77.2 previous,  Inflation Expectations: +3.5% actual vs +3.2% expected and prev,  5 Year Inflation Expectations: +3.1% actual and +3% prev). Consumer sentiment was much weaker than expected and could be yet another sign that the economy is starting to falter.

The US stock market opened higher from Thursday. It then traded higher due to the stronger than expected Canadian Labour data. However, the market then quickly reversed following the release of the UoM Consumer Sentiment data and traded sideways for the rest of the New York session. The S&P 500 finished +0.16% higher on the day (high: +0.49%, low: -0.08%), the Dow Jones rose +0.32% (high: +0.49%, low: +0.05%) while the Nasdaq increased +0.26% (high: +0.74%, low: -0.08%).

The crypto market experienced a selloff on Friday night following the weaker-than-expected UoM Consumer Sentiment data with Bitcoin falling to a low of 60,202 (-4.6%) and Ether falling to a low of 2,885 (-5.0%).
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Headlines & Market Impact

South Korea prepares support package worth over $7 billion for the chip industry

Notable Snippet: South Korea is readying plans for a support package for chip investments and research worth more than 10 trillion won ($7.30 billion), the finance minister said on Sunday, after setting its sights on winning a “war” in the semiconductor industry.

Finance Minister Choi Sang-mok said the government would soon announce details of the package, which targets chip materials, equipment makers, and fabless companies throughout the semiconductor supply chain.

The program could include offers of policy loans and the setting-up of a new fund financed by state and private financial institutions, Choi told executives of domestic chip equipment makers at a meeting, the finance ministry said in a statement.

South Korea is also building a mega chip cluster in Yongin, south of its capital, Seoul, which it touts as the world’s largest such high-tech complex.

President Yoon Suk Yeol has vowed to pour all possible resources into winning the “war” in chips, promising tax benefits for investments.

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China’s consumer prices rise for third month, signalling demand recovery

Notable Snippet: China’s consumer prices rose for a third straight month in April, while producer prices extended declines, signalling an improvement in domestic demand, as Beijing navigates challenges in its bid to shore up a shaky economy.

Consumer prices edged up 0.3% in April from a year earlier, data from the National Bureau of Statistics showed on Saturday, versus a rise of 0.1% in March and a Reuters poll forecast for an increase of 0.2%.

“Strip out food and energy prices, and the consumer inflation data suggests a comeback in demand, especially in services,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.

Core inflation, excluding volatile food and fuel prices, grew 0.7% in April, up from 0.6% in March.

Overall the consumer price index (CPI) rose 0.1% from the previous month, beating a forecast fall of 0.1% in the poll and reversing a drop of 1% in March.

Most China watchers say Beijing still has its work cut out, though, and the momentum might prove unsustainable, as official surveys show cooling factory and services activity, while a lengthy housing crisis shows no sign of easing, boosting the case for more policy support.

The producer price index dropped 2.5% in April from a year earlier, easing from a slide of 2.8% the previous month but extending a 1-1/2-year-long stretch of declines.

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Chinese companies win licensing bids to explore Iraq oil and gas fields

Notable Snippet: Chinese companies won bids to explore five Iraqi oil and gas fields on Saturday in a licensing round for hydrocarbon exploration that was primarily aimed at ramping up gas production for domestic use.

An Iraqi Kurdish company also took two of the 29 projects up for grabs in the three-day licensing round across central, southern and western Iraq, which for the first time includes an offshore exploration block in the country’s Arab Gulf waters.

Iraq aims to lure billions of dollars of investments to develop its oil and gas sector as it looks to ramp up local petrochemicals production and end imports of gas from neighbouring Iran that are currently key to producing power.

More than 20 companies pre-qualified for the licensing round, including European, Chinese, Arab and Iraqi groups.

There were notably no U.S. oil majors involved, even after Iraqi Prime Minister Mohammed Shia met with representatives of U.S. oil firms during an official visit to the United States last month.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord