Last week, longer-term bond yields slightly declined, and there were no surprises from the Federal Reserve. The U.S. non-farm payroll data for April fell significantly short of expectations. U.S. major stock indexes recorded gains for the second consecutive week; Treasury yields plunged over 10 basis points, with a drop of more than 20 basis points on Tuesday and Wednesday, marking the largest three-day fall since January. The dollar index hit a new three-week low post the March CPI announcement, Bitcoin surged over $3,000 intraday, reclaiming the $62,000 level. The yen was the most actively traded, previously reaching a high of 160.20 USD/JPY, sparking multiple interventions by Japanese authorities, finally rebounding to just before 152 last weekend, especially with support from the oil market. Oil prices dropped to their lowest since mid-March, possibly due to reduced demand and a reduced geopolitical risk premium amid no further escalation in Middle East conflicts. Additionally, precious metal prices saw a decline after a significant rise throughout April.

Inflation data confirmed that price pressures in the Eurozone weakened during the spring. Core inflation slightly dropped to 2.7%, but the European Central Bank remains concerned about the growth in service prices, equating to an annual service inflation rate of over 5%. The preliminary estimate for Q1 GDP growth was slightly better than expected at 0.3%, targeting a soft landing scenario well but also increasing new inflation risks.

During the Federal Open Market Committee meeting, the Fed kept rates unchanged, and Chairman Powell did not provide new clues about the policy outlook. He explicitly stated that the Fed's current policy is in good shape, not speculating on potential rate hikes, which led to a mild dovish reaction in the markets. The Fed decided to slow the pace of quantitative tightening (QT), unsurprisingly. A significant slowdown in productivity growth in Q1 partly explains the recent general rise in price pressures.

China's manufacturing PMI was strong, overall consistent with a moderate recovery in manufacturing. Robust export orders highlighted improvements in the export market, aligning with our view of a rising global manufacturing cycle. This has also been supported by the recent surge in global metal prices. On the other hand, the service PMI was below expectations.

As for the currency markets, the dollar's drop widened due to the Fed's dovish tilt and previous impacts from U.S. Treasuries, erasing all gains from the unexpectedly accelerated growth in the March U.S. CPI, falling to a more than three-week low. The dollar's bullish positions this year are expected to be fragile. Notably, this week's USD/JPY volatility, which briefly fell below the 160 psychological barrier. However, after the Bank of Japan's intervention, the yen rebounded and for the first time intraday recaptured the 152 level, expected to record the best single-week performance in over a year. Additionally, the offshore Chinese yuan surged over 400 points before the weekend, rising intraday to 7.1651 for the first time since the end of January.

In precious metals, the gold market is in a deadlock, suppressing gold/silver prices in the short term, with support expected around $2,300 per ounce this week. Gold bulls now seem a bit weary, requiring clear messages from the Fed regarding its monetary policy. Silver also fell to a one-month low of $26.01 last week, closing down 2.44% at $26.55; gold fell 1.55%, closing at $2,302.

In the oil market, due to the stock market weighing weak U.S. employment data and the possibility of Fed rate cuts, prices recently dropped, recording the largest single-week fall in three months. WTI crude oil closed the week down 6.79% at $77.64 per barrel. Brent crude oil futures for July closed at $82.96 per barrel, down 5.95% for the week. As Israel and Hamas considered a temporary ceasefire and proposed an agreement with international protesters, the geopolitical risk premium has vanished.

Last week, the U.S. major stock indexes closed with gains; the S&P 500 increased by 0.55% to 5127.79 points; the Dow Jones rose 1.14% to 38675.68 points; the NASDAQ climbed nearly 1.43% to 16156.33 points. U.S. Treasury bonds declined on Friday, with the 10-year bond dropping 7.1 basis points to a low of 4.50%, dipping to 4.453% in the morning.

Bitcoin prices sparked a rebound wave in May. After the Fed's "hold" announcement and post-halving sell-off bottomed out, a foundation was laid for a moderate recovery phase. On Friday, it rose 8%, breaking $62,000 at one point, rebounding over $3,000 from the day's low, far from the two-month low set after Wednesday's drop below $57,000.

This week's outlook: The economic data front is relatively calm, with traders closely monitoring upcoming monetary policy meetings by the Reserve Bank of Australia and the Bank of England. In terms of data, notable releases include Canada's primary employment report for April, China's last PMI data for April, and the preliminary Canadian Consumer Confidence Index and monthly budget report. Several Fed officials are scheduled to speak, but they are unlikely to significantly disrupt the market in the current climate.

In Australia, debates are heating up over whether policymakers have done enough to control inflation, while the focus in the UK will be on how soon rates might be cut. Meanwhile, the Swedish Central Bank may announce a rate cut decision this Wednesday, becoming the next major central bank to start cutting rates.

In the Fed, the likelihood of a rate cut in July has slightly increased in the futures market, though it remains below 50%. CME Group data shows that the probability of a rate cut in September has risen to 75%, higher than about 60% last Thursday. The April non-farm payroll report has alleviated concerns about the economy accelerating again in Q1, but it's still too early to price in rate cuts; one figure doesn't represent a trend. Overall, the Fed needs new evidence.

In the foreign exchange market, investors are watching to see if the yen will continue to strengthen; recent interventions by the Japanese government have made short-selling the yen more challenging. Market speculation suggests that the Bank of Japan has intervened three times to prevent a yen crash. The BoJ may conduct multiple rounds of interventions soon, but the scale of interventions will not exceed $65 billion.

In the longer term, the yen may continue to weaken. The primary reason for the yen's recent depreciation is the significant interest rate differential between Japan and other major economies. Although the Bank of Japan recently raised its policy rate, this differential remains large, and current expectations that inflation will be stickier than anticipated are likely to keep U.S. rates higher for an extended period. If the BoJ hikes rates again, this differential will narrow, but the reduction might be minimal. BoJ officials have hinted at plans to keep monetary policy loose.

The market will receive another inflation report from China, which could make headlines as China hovers around a deflation rate. Retail and housing sales will also serve as interesting indicators to gauge the real estate crisis and domestic economic development.

On the geopolitical front, the situation in the Middle East remains complex and uncertain. Reports indicate that Hamas is about to approve a ceasefire proposal, which will release hostages in stages and receive U.S. support for a troop withdrawal commitment, but Israeli officials have twice denied that Israel has agreed to end the war in exchange for a hostage agreement.

Additionally, at the invitation of French President Emmanuel Macron, Serbian President Aleksandar Vučić, Hungarian President Katalin Novák, and Prime Minister Viktor Orbán, Chinese President Xi Jinping will conduct state visits to the three countries from May 5 to 10, attracting global attention.

This week's major events and economic data overview (Beijing time):

Major Events:

Tuesday (May 07): FOMC permanent voting member, New York Fed President John Williams to speak; Reserve Bank of Australia to publish interest rate decision and monetary policy statement; RBA Governor Philip Lowe to hold a monetary policy press conference.

Wednesday (May 08): EIA to publish Monthly Short-Term Energy Outlook report.

Thursday (May 09): Bank of Japan to publish summary of opinions from the April monetary policy meeting; Bank of England to publish interest rate decision and meeting minutes; Bank of England Governor Andrew Bailey to hold a monetary policy press conference.

Friday (May 10): European Central Bank to publish minutes from the April monetary policy meeting; Fed Governor Michelle Bowman to speak on financial stability risks.

Economic Data Overview:

Monday (May 06): China's Caixin Services PMI for April; Eurozone's Sentix Investor Confidence Index for May; Canada's Leading Indicator month-over-month rate for March.

Tuesday (May 07): Australia's ANZ Consumer Confidence Index for the week ending May 5; Australia's cash rate for May; Eurozone's retail sales month-over-month/year-over-year rate for March.

Wednesday (May 08): U.S. wholesale inventories month-over-month final value for March; U.S. weekly crude oil inventory change as of May 3; U.S. ADP employment change for April; U.S. Ipsos Main Consumer Sentiment Index PCSI for May.

Thursday (May 09): UK's Bank of England base rate for April; U.S. initial jobless claims for the week ending May 4; U.S. continuing jobless claims for the week ending May 4.

Friday (May 10): UK's GDP month-over-month rate for March; UK's adjusted trade balance for March; Canada's employment change for April; Canada's unemployment rate for April; U.S. University of Michigan Consumer Sentiment Index preliminary value for May.

XAGUSD

Last week, following a press conference by Fed Chair Powell and the Federal Reserve's decision to hold rates steady, silver prices remained near the $26.00 mark. Chairman Powell emphasized that the Fed would continue to rely on data and make decisions meeting-by-meeting, indicating that they would not cut rates until they are confident that inflation is on track towards the 2% target. Silver prices fell by about 2.44%, hitting a one-month low of $26.01 last week. After breaking the key support level at $27.00, silver faced significant selling pressure. The yield on 10-year U.S. Treasuries rose to 4.63%, in anticipation of the Fed maintaining a hawkish stance. The higher yields on interest-bearing assets increased the opportunity cost of holding non-yielding assets like silver. However, the price action on May 2nd formed a "Dragonfly Doji," a bullish candlestick pattern, and technical indicators still suggest a bullish outlook for the gray metal, potentially paving the way for a recovery.

In the daily chart, last week silver prices dipped to $26.01 (last Thursday's low) and the $26.03 level, which is the 50.0% Fibonacci retracement of the move from $22.27 to $29.79. These support levels were previously significant resistance levels for silver bulls. The uncertainty around silver's near-term outlook has deepened as it has now fallen below the 30-day moving average at $26.94 and the $26.92 level, the 38.2% Fibonacci retracement. The 14-day Relative Strength Index (RSI) has slid into the 40.00-60.00 range, indicating that bullish momentum has waned. Downward targets are now focused on the $26.01 - $26.03 range, followed by the $25.03 (50.0% Fibonacci retracement) and $25.06 level, which is the uptrend line from the low of $22.27 on February 28. Nevertheless, the longer-term outlook remains stable, and it seems to have found a bottom near the 50-day moving average at $25.77. Although momentum has shifted to bearish, upside risks remain. If bulls reclaim the $26.92 - $26.94 level, it could trigger buying pressure, paving the way for the next resistance at the 20-day moving average of $27.60. A breach here could then target the psychological level of $28.00.

Conclusion for the week: The gold/silver ratio, which indicates how many troy ounces of silver are needed to equal the value of one troy ounce of gold, rose from 86.06 at the start of the week to 86.67 just before the weekend. Investors can use this ratio to determine the relative valuation between gold and silver. A higher ratio suggests that silver is undervalued or gold is overvalued, hence, there might be opportunities to buy silver or sell gold. Conversely, a lower ratio indicates that gold is undervalued relative to silver.

Range for the week: $25.77—$27.60. Strategy for the week: Consider buying silver on dips.

USDCHN

Last week, amidst the Labor Day holiday in the onshore market, the Renminbi's performance was generally stable against the dollar. However, offshore Renminbi (CNH) against the USD declined on four of the five trading days last week, falling below the psychological barrier of 7.20 for the first time since March 13, reaching a low of 7.1650. The Renminbi's central parity rate remained around 7.08 throughout the week, with continued improvement in offshore Renminbi liquidity and a decline in interbank lending rates for several consecutive days. On the other hand, the continued strengthening of the Japanese yen also supported the Renminbi, given the high correlation between USD/JPY and USD/CNH observed over the past year. In the short term, as the yen moves from weakening to strengthening, the market continues to monitor changes in the Renminbi, offshore Renminbi liquidity, and the yen's trajectory. The temporary currency range to watch is between 7.1335 (76.4% Fibonacci retracement from 7.0874 to 7.2831) and 7.2482 (25-day moving average). In the short term, despite the widening gap between China and the U.S., the Renminbi may continue to show relative strength, but intermittent rebounds are possible, focusing on changes in the Renminbi's central parity rate, offshore Renminbi liquidity, and the USD's trajectory. Key data to watch this week include China's Caixin April Services PMI and trade data.

 The USD/CNH exchange rate has risen nearly 1,200 points (about 1.6%) from this year's high of 7.2830 to 7.1650 just before last weekend. This round of Renminbi appreciation has been modest, influenced by the rise in China's A-share market, improvements in the domestic economy, and imminent USD rate cuts. Looking ahead to the second half of the year, the biggest uncertainty for the exchange rate comes from policy demands. There is also a significant possibility of periodically breaking above the "7" level. However, if there is a strong demand for a "policy bottom," there could be a significant rise above "7" in the latter half of the year. The underlying reason is the Sino-US competition, which necessitates maintaining a USD anchor for the exchange rate while also ensuring a "policy bottom." The USD has always been a critical benchmark for the Renminbi exchange rate, which is adjusted based on import/export balance and cross-border capital flows, with relatively limited influence from policy. However, this will change in 2024 and will significantly impact the exchange rate movements in that year. For this week, upward targets for USD/CNH include 7.2369 (23.6% Fibonacci retracement from 7.0874 to 7.2831) and 7.2482 (25-day moving average). Downward, watch for support levels at 7.1621 (50.0% Fibonacci retracement), and 7.1650 (last Friday's low), with further targets at 7.1511 (320-day moving average), and 7.1335 (76.4% Fibonacci retracement).

 Conclusion for the week: Looking ahead to the second half of the year, the greatest uncertainty for the exchange rate stems from policy demands. There is a possibility of periodically breaking above "7." However, if there is a strong demand for a "policy bottom," a significant rise above "7" could occur in the latter half of the year.

Range for the week: 7.1335—7.2369.

Strategy for the week: It is advised to short USD on rallies this week.

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