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*Reminder: this week North America shifts back from Daylight Savings, so NorAm markets will open 1 hour earlier.
Trading on Friday was dominated by the impact of rising 10yr yields, which surpassed 1.6% , driving strength into USD. Growth prospects remain solid, but with expectations already baked into the markets, risk assets had a harder time rallying.
This week will likely show consolidation ahead of a potentially influential FOMC meeting on Wednesday. Other central bank meetings will likely be less influential.
Themes for the Week
- Yields: with the 10YR above 1.6%, markets are pricing in a FED rate hike by late 2022, which is much earlier than the FOMC projections. Will the FED take action to curb the rise in yields?
- FOMC: the main event this week will be Wednesday’s FOMC meeting. With new economic projections, press conference and “dot plot”, there is scope for serious volatility. Consensus is for the dot plot to show median hike expectations in 2023 vs 2024 previous; a dovish statement from Powell; no change to QE.
- BOE/BOJ: consensus is for no change for the BOE; the BOJ may widen it’s trading band for bond yields.
- BitCoin: the cryptocurrency has once again soared to record highs above 61000.
Data in the Week Ahead:
• RBA’s Lowe (Mon)
• CNY Retail Sales (Mon)
• Eurogroup Meetings (Mon)
• Empire State Manuf. (Mon) -> Stronger print expected based on economic recovery/reopening.
• BOJ’s Kuroda Speech (Tue)
• GER ZEW (Tue) -> Vaccine rollouts may have a positive impact on sentiment.
• US Retail Sales (Tue) -> Should come in stronger, and Gas prices also continued to rise.
• RBA’s Kent Speech (Wed)
• CAD CPI (Wed) -> May come in weaker on recent weakness in the prices component of IVEY PMI.
• FOMC Decision (Wed)
• NZ GDP q/q (Wed)
• AU Employment Change (Thur)
• BOE Decision (Thur)
• US Philly Fed (Thur) -> If Empire State is strong, expect a strong Philly Fed too.
• BOJ Decision (Fri)
• CAD Retail Sales (Fri)
Correlation Report:
Comment: Yields continue to be the main driver of asset prices as highlighted by the high correlation between bond movements, commodities, JPY and to a lesser extent, global equities
On the Radar:
Risk assets remain buoyant although there has been a rotation away form the tech sector. As such, Dow Jones and SP500 as well as Dax remain bullish into this week.
Instead, CAD was an outperformer last week on hawkish BOC remarks as well as a decent employment report. It really is a basket case on CAD: pick your favourite pair. JPY remains weak, while NZD is also starting to weaken.