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Trading on Friday was dominated by the recovery in risk assets on the back of a weaker Retail Sales print, which (together with the recent NFP report) supported the FED’s patient stance. This was in stark contrast to the market’s reaction to the stronger CPI print. Indeed, inflation is the main focus now and economic data is once again being monitored more closely.
In the week ahead, markets will be focused on the relaxing of UK outdoor restrictions and the impact on Covid cases; on commentary from FOMC members and ECB members; on the FOMC minutes and on CPI and employment readings, as well as PMIs.
Themes for the Week
- Inflation: last week’s volatility shows the current battle between the FED’s relaxed stance and market expectations. We would expect inflation numbers and employment numbers to be more and more influential going forward – and this week we get some releases to watch.
- PMIs: once again we will get a look at the forward-looking reports from Europe and the UK, which are expected to show material improvement.
- Central Bank Speak: with more Fedspeakers due this week, and with ECB and BOE members also on the wires, markets will be listening in for views on inflation and any taper talk.
- UK Reopening: PM Johnson’s reopening plans will be scrutinised and used as an example if successful. This week we enter phase 3, and all eyes will be on new cases and the Indian Covid variant.
Data in the Week Ahead:
• US Empire State (Mon)
• RBA Minutes (Tue)
• UK Employment Change (Tue) PMIs would suggest strong employment growth.
• EU GDP (Tue)
• UK CPI (Wed) PMIs would suggest strong price pressures.
• ECB Financial Stability Review (Wed)
• CAD CPI (Wed) IVEY PMI posted a sharp rise in the prices component recently.
• FOMC Minutes (Wed)
• AU Employment Change (Thur) PMIs would suggest improvement in the labour markets.
• Philly Fed (Thur)
• US Jobless Claims (Thur)
• AU Retail Sales (Fri)
• UK Retail Sales( Fri) BRC retail sales suggest a strong print coming.
• EU & UK Flash PMIs (Fri) stronger ZEW & IFO suggest decent prints on the horizon.
• CAD Retail Sales (Fri)
*We also get ana array of central bank speakers from the FED, the Bank of England and the ECB during the week ahead.
Correlation Report:
Comment: Correlations are shifting, with commodities and yields being the main drivers, with equities strongly affected.
On the Radar:
Here are the best trending instruments for the week ahead.
Risk assets posted a strong recovery last week after an initial decline, and remain poised for further gains. We are extended at multiple levels, so in the short-term I would be cautious as sellers may initially try to sell into 4220/30s on SP500.
Gold also posted a higher weekly high & low last week, remaining within the uptrend and finding support at the prior week Marabuzo line.
EURJPY remains in a strong uprtrend, posting higher weekly highs & lows. However, we are extended at multiple levels so some caution is advised.
EURUSD also remains in a bullish stance for the coming week, although we may encounter selling on the first approach to prior highs/1.2178 level.
USDCAD posted the 6th lower weekly low in a row, confirming the strong bearish bias. We are now in extended territory as we negotiate prior support levels, so caution is advised.
GBPJPY remains within the long-term uptrend, and posted the 3rd higher weekly low in a row after the recent pullback. Caution is advised as we are extended at multiple levels, and there is the potential for bearish divergence in momentum.
In crypto-space, Ethereum remains the strongest trending coin. We posted a higher weekly high & low last week, and prices continue to recover after temporary pullbacks.