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Reminder: Japan and China are on holiday until May 5th while the UK is on holiday Monday.
Trading on Friday was dominated by month-end flows, and also comments from Fed’s Kaplan suggesting the FOMC should start to consider tapering, which added more weight on risk assets and boosted the USD.
In the week ahead, markets will be focused on US data. There is mounting evidence that the FOMC is behind the curve, as data justifies a more hawkish stance.
Beyond that, BOE and RBA meetings could stir up some volatility, while the Scottish elections are also a risk for the Pound if the SNP scores a resounding victory.
Finally, the COVID-19 situation in India/Thailand/Japan remains worrying, but so far market impact has been very limited.
Themes for the Week
- NFP: consensus is for 925K. Strong readings could give yields and the USD another lift and test the Fed’s resolve after it said it was too early to consider rolling back emergency support.
- Scottish Election: consensus is for a win from Scottish National Party, which wants to call another referendum on leaving the UK, which plan Johnson vows to block. Any fallout could shake GBP, especially with PM Johnson already under pressure.
- Central Banks: markets are expecting tbe Bank of England to taper purchases this week, while RBA may strike an even more cautious note after the CPI reading last week.
Data in the Week Ahead:
• ISM Manuf. PMI (Mon) �?� Should be strong with regional surveys printing strong numbers.
• FED’s Powell Speech (Mon)
• RBA Decision (Tue) �?� no change expected, RBA to follow cautious path.
• RBNZ Financial Stability Report (Tue)
• NZ Employment Change Q/Q (Wed) �?� PMIs suggest a strong print.
• RBNZ’s Orr Speech (Wed) �?� traders will be looking for any hawkish tilt given improvement in data.
• EU Economic Forecasts (Wed)
• ISM Services PMI (Wed)
• BOC’s Macklem Speech (Thur)
• BOE Decision (Thur) �?� tapering Is a possibility, given improvement in data.
• Scottish elections
• RBA Minutes (Fri)
• NZ Inflation Expectations (Fri)
• ECB’s Lagarde Speech (Fri)
• MPC’s Broadbent Speech (Fri)
• CAD Employment Change (FRI) �?� the number may feel the impact of renewed restrictions, but traders might dismiss as temporary.
• US NFP (Fri) �?� strong employment data expected.
Correlation Report:
Comment: Markets seem to be trading on yields once again. As such, yields and growth prospects remain key market drivers.
On the Radar:
Yields have started to weigh on risk assets, as has the recent rally in the USD. As such, signals on indices are rather neutral this week. Stronger signals prevail in FX space, with the Loonie and Swiss Franc leading the way alongside some recent USD strength. Yen and Euro were the laggards last week.
EURCAD, GBPCAD and CADJPY all showed the strongest momentum last week, but are encountering previous support/resistance areas currently. Some caution is advised.
Instead, NZDUSD and EURUSD look like decent candidates to play USD strength.
In Crypto-space, Ethereum continues to dominate the scene for now.