Wall Street could see more volatility during a very busy trading week that is filled with a wrath of central bank decisions, surging international COVID-19 cases, solid economic data, effects of stimulus working its way through the economy, and pent-up consumer demand.Â Financial markets are edge, especially considering how quickly stocks sold off following news of the White House plans for capital gains tax.Â A lot of the good news has been priced in for the US and some investors are focusing on Europeâs recovery potential.
The Fed will likely stay the course at the April policy meeting.Â The Fed will have to become even more optimistic given the better-than-expected vaccination rollout and improvement in the labor market.Â The Fed will stick to the script that the recovery is incomplete and that more support is warranted.Â Greater clarity that they will tolerate most inflation for the rest of the year could provide what the bond market needs to keep the rise in Treasury yields slow.
The upcoming earnings week will see big-tech results from Tesla, Apple, Facebook, and Amazon.Â Netflix was the first FAANG stock to report and was punished after a disappointing report. The streaming giant saw a sharp slowdown with subscribers as reopening momentum damaged demand for staying at home.Â This quarter could be the unwind of many of the favorite pandemic trades and investors will pay close attention to this round of results.Â Buybacks and dividend announcements are important, but an optimistic outlook going forward will be key.
After some debate, OPEC+ will go forward with another key ministerial meeting.Â A disappointing short-term demand outlook could complicate their plans to gradual ramp up oil production.
Fed to stick to the dovish script.
BOJ to keep policy on hold.
OPEC+ may tweak its plans to increase output.
This should be a very easy FOMC meeting now that financial markets have started to drink the Fedâs Kool-Aid that it is too early to talk about the exit and that a few hot inflation readings wonât phase them.Â US economic data is strongly improving as the country continues to make progress towards herd immunity.Â Since the March 17th policy decision, calm has entered the bond market as rising bond yields have hit a wall, with the 10-year Treasury yield now drifting back to the 1.545% region.Â The Fed should be on cruise control as no changes with both rates and asset purchases are warranted.
Traders will also have a baseline of how this economy is going to get with the advance reading of first quarter GDP.Â The first of three readings is expected to show 6.5% quarterly growth, which is a significant improvement over the previous 4.3% reading.Â First quarter personal consumption forecasts are calling for a 10.3% surge while Core PCE is expected to rise from 1.3% to 1.6%.
This is a big earnings week as big-tech will see results from Tesla, Apple, Facebook, and Foxconn.Â HSBC and UBS will also release first quarter results.
After a painfully poor start, the EU Covid vaccine rollout appears to be on track, finally. The rollout has been hampered by setbacks, including delays in shipments of the AstraZeneca vaccine and concerns over a possible link between blood clots and the AstraZeneca shots. This resulted in some EU members restricting the use of AstraZeneca and led to a deep public mistrust of the rollout program.
However, the rollout appears to have turned a corner and an increase in supplies has seen Germany, France and other countries in Western Europe significantly ramp up the pace of vaccinations. This should curb Covid rates and allow for the reopening of these economies in the coming months.
Turning to economic data, the focus will be on German data next week. Ifo Business Climate will be released on Monday. The business sector remains optimistic about economic conditions in the Eurozoneâs largest economy. Business Climate has risen in the past two months, pointing to an increase in business confidence.
Germanyâs employment picture has been improving, with mostly declines in monthly unemployment figures over the past 10 months. In March, there were 8 thousand fewer unemployed persons and the consensus for April, which will be released on Thursday, is for an additional drop of 10 thousand.
On Friday, Germany releases Preliminary GDP for the first quarter. The latest restrictive measures in the first quarter likely sent Germanyâs economy back into contraction territory.Â Germanyâs first quarter Q/Q GDP is expected to decline by 1.5%, down from the 0.3% gain in the fourth quarter. Â
We are looking at a very light data calendar in the UK.Â Much attention will fall on UK PM Johnsonâs meeting with his Indian counterpart, Narendra Modi.Â The two are expected to discuss trade and security.
The UK vaccine rollout has been a success story, and business confidence has climbed as a result. In March, the Lloyds Business Barometer climbed 13 percentage points to 15 per cent. This marked the highest level since March 2020.
The housing market is red-hot, as a frenzy of activity has led to sharply higher property prices. This should make the Nationwide House Price Index for April, which will be released sometime this week all the more interesting.
The Riksbank is expected to keep policy unchanged as the Swedish economic recovery unfolds.Â A new wave of infections removes any risks of taper tantrum until the second half of the year.
The Turkish lira continues to weaken, as the threat of a chill in US-Turkey relations is weighing on the currency. US President Joe Biden may formally recognize the Armenian genocide in a speech on Saturday. Millions of Armenians died during the First World War in areas controlled by the Ottoman Empire, and Turkey has been extremely sensitive at any moves to label the mass killings as genocide. On Thursday, the lira was down as much as 2.8% against the US dollar.
On Friday, Turkey releases the Trade Balance for March. Expectations are for the trade deficit to widen by -4.7 billion lira.
Hungaryâs central bank (MNB) is projected to maintain interest rates at a record low of 0.60%, where it has been pegged since July 2020. The MNB will hold its policy meeting on Tuesday.
China equity markets have held steady this week with data showing record short positions on both the Shanghai Composite and Shenzhen exchanges. Each sell-off has been met with the Chinese ânational teamâ of government linked investment funds on the bid and we expect that pattern to continue in the week ahead. There is a possibility that authorities may try to engineer a short squeeze of the above.
The Yuan remains firm with the PBOC commenting that the Yuan is fairly valued. USD/CNY has slipped back below 6.5000 as Asiajn currencies have firmed. Much will depend on the direction of US long-dated Treasuries in the week ahead and the wording of the FOMC statement.
Data highlights are Factory profits on Tuesday which should still have climbed 45% on a YoY basis. Friday sees official Manufacturing and Services PMIâs released. A print near 50 and 55 respectively could be a short-term headwind for Mainland equities.
Indiaâs outlook continues to deteriorate as Covid-19 cases continue a chaotic surge.Â New virus cases jumped over 300,000 with the health system under severe strain. The Rupee is Asiaâs worst performing currency and that could remain the case until the current COVID wave eases.Â USD/INR has retreated from near 76.00 but is showing no signs of being able to recapture 75.00. USD/INR risks remain heavily weighted to the topside.
The focus for India will primarily be on the COVID situation but. Indian sovereign bond yields jumped higher after the RBIâs first QE debt purchases.
No economic releases of note this coming week.
Australia & New Zealand
The Australian and New Zealand Dollars have bounced around with intraday risk sentiment over the past week, ignoring domestic data, which continues to outperform. Both have made technical breaks higher from falling wedge patterns, suggesting further gains in the week ahead, if not in a linear fashion.
Australian yields have risen after an Australian bank upgraded the countryâs economic outlook and brought forward the RBA tapering date to late 2022. Higher than expected Australian trimmed CPI and also PPI prints next week could increase that normalization noise, pressuring bonds, lifting the AUD, but acting as a headwind to Australian equities except banking stocks.
USD/JPY has fallen 300 points to 108.00 in the past two weeks as the US/Japan long-dated yield gap has shrunk as US yields fell. USD/JPYâs direction will continue to be dictated by this correlation with the Yen ignoring the Covid-19 states of emergency and data releases.
Next week should be much of the same despite a BoJ rate decision, and a heavy data release calendar. The Covid-19 states of emergency in selected cities, starting this weekend, are more likely to be a headwind for equities and not the currency.
The BoJ releases its latest rate decision on Tuesday, but any change to it or its QE programme are remote in the extreme, given that the BoJ tinkered with its programme in March. Despite the heavy data calendar, all roads for Japanese asset classes seemingly lead to Wall Street or the US 10-year yield at the moment.
Crude prices have been consolidating over the past couple of months as the bullish trend has paused given short-term demand concerns from Asia.Â This will be a busy week for energy markets as OPEC + goes forward with another monthly meeting.Â On Monday, the OPEC+ joint technical committee will convene and will most likely be posturing from the members who want to increase output and the Saudis who will have a more cautious approach.
The debate over increasing output by around 2 million barrels per day from May to July will likely lead to some tweaks given the short-term hit to demand, primarily with COVID out of control in India.
On Tuesday, BP will report earnings and after the US close, the API weekly oil inventories will be released.
Wednesday is the big day with OPEC+ JMMC meeting and the release of both Genscape weekly crude inventories in Europeâs ARA region and the EIA crude oil inventory report.
On Friday, the weekly Baker Hughes rig count will be released.
Gold is starting to gain some momentum after its third weekly gain.Â The macro backdrop is mostly bullish for gold now that bond yields remain in a downtrend.Â Improving physical demand from India and China alongside strong central bank demand has provided some underlying support for gold.
The $1,800 level is proving to be a key resistance gold, followed by $1,850 region.Â Strong support should remain at the $1,747.90 level.
The latest Bitcoin mania run higher has completely run out of steam.Â Bearish calls are starting to grow and the news cycle seems a bit exhausted with positive headlines.Â Bitcoinâs market cap has fallen below $1 trillion dollars and many cryptocurrency traders are growing nervous that the popping of the Dogecoin bubble is triggering a mass unwind of positions.Â The potential Biden tax on crypto was the primary catalyst for Fridayâs 10% drop.
Turkeyâs ban on use of cryptocurrency for payments and restrictions to transfer funds is also raising some concerns in the cryptoverse that other countries might follow suit.Â Despite overdue correction, many retail investors are likely to be buying this dip. Institutional cryptocurrency traders might wait for a deeper drop.
Key Economic Events
Monday, April 26
-UK Prime Minister Johnson and his Indian counterpart, Modi, discuss trade and security.
-ECB Executive Board member Panetta speaks
-ECB Chief Economist Lane speaks at the European Statistical Forum.
-Iran nuclear deal joint commission reconvenes
- US durable goods
- Germany Apr IFO business climate: 97.5 estimate v 96.6 prior; Expectations: 101.2 estimate v 100.4 prior
- Singapore industrial production
- Turkey capacity utilization
- Poland unemployment
- Spain PPI
- Belgium business confidence
- OPEC+ joint technical committee meets
Tuesday, April 27
-U.K. Chancellor of the Exchequer Sunak takes questions in the House of Commons.
- US FHFA house price index, Conference Board consumer confidence
- Bank of Japan (BOJ) Rate decision and press conference: No changes expected
- Hungary Central Bank Rate Decision: No changes expected with interest rates
- Sweden central bank (Riksbank) Rate Decision: to maintain asset purchase program and to keep rates and the rate path at zero through Q 12024.
- Italy consumer/manufacturing confidence, economic sentiment
- Denmark retail sales
- Sweden trade balance, PPI
- Earnings results from Alphabet, UBS, BP, and HSBC
Wednesday, April 28
â Fed Chair Powell holds a press conference following the FOMC policy decision
â President Biden delivers first address to a joint session of Congress.
â ECB President Lagarde speaks
â Riksbank Deputy Governor Breman speaks on current monetary policy
â OPEC and its allies hold a full ministerial meeting
â Turkey central bank Governor Kavcioglu holds his first press conference on the inflation outlook.
â South Africa President Ramaphosa testifies at an inquiry into state corruption.
- FOMC Policy Decision and press conference: No change in policy expected; Powell likely to remain upbeat but avoid giving any clues on the taper asset purchases
- US wholesale inventories
- Australia CPI
- Russia CPI
- Japan Retail sales
- France Consumer confidence
- Singapore Unemployment
- Hungary Unemployment
- Earnings results from Facebook, Apple, Boeing, and Deutsche Bank
- EIA Crude Oil Inventory Report
Thursday, April 29
â ECB Vice President de Guindos speaks.
-Swiss National Bank reports Q1 results and currency allocation.
- US Q1 Advance GDP Q/Q: 6.5% estimate v 4.3% prior, initial jobless claims, pending home sales
- Eurozone economic/consumer confidence
- Germany CPI, unemployment
- New Zealand trade balance, ANZ business confidence
- Spain CPI, unemployment
- Sweden economic tendency survey, consumer confidence
- Denmark unemployment
- South Africa PPI
- Italy PPI
- Hungary trade balance
- Russia gold and forex reserves
- Earnings results from Royal Dutch Shell, Amazon, Caterpillar, and Samsung
Friday, April 30
â Turkeyâs central bank bans regulatory ban on cryptocurrencies begins
â SNB President Jordan speaks at the central bankâs annual general meeting.
â South Africaâs ruling African National Congress could use corruption charges to suspend its secretary-general, Magashule, a key opponent of President Cyril Ramaphosaâs economic reforms
- US personal income/spending, University of Michigan consumer sentiment, MNI Chicago PMI,
- Baker Hughes rig count
- Eurozone Unemployment
- Italy Unemployment
- China Apr Manufacturing PMI: 51.6 estimate v 51.9 prior; Non-Mfg: 56.0 estimate v 56.3 prior
- Germany Q1 Q/Q GDP: -1.5% estimate v 0.3% prior
- Eurozone Q1 Q/Q GDP: -0.8% estimate v -0.7% prior
- France Q1 GDP
- Italy Q1 GDP
- Mexico Q1 GDP
- Spain Q1 GDP
- Portugal Q1 GDP
- Eurozone CPI
- Poland CPI
- Japan Tokyo CPI, jobless rate, industrial production, Manufacturing PMI, housing starts
- Australia private sector credit, PPI
- South Africa trade balance, money supply, budget balance
- Switzerland Retail sales
- Turkey Trade balance
- Earnings Results from Barclays, Exxon Mobil and Chevron
Sovereign Rating Updates:
â Germany (Fitch)
â Czech Republic (S&P)
â Poland (Moodyâs)
â Italy (DBRS)
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