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The main points of emphasis across global markets this coming week are going to be US-centric. President Biden’s first 100 days in office will be focused upon rolling out an effective plan to counter the pandemic. The rally in risk assets stuttered last week: should Biden’s package get delayed or shrunk, the highly prices risk assets will correct lower.
The Federal Reserve’s mid-week policy decision won’t be affected at this juncture and is likely to be uneventful, but monetary policy may be sensitive to fiscal policy developments along the path toward tapering.
US earnings will continue this week with Apple, Tesla, Microsoft and Facebook reporting. So far about 86% of S&P500 firms have beaten analysts’ earnings expectations and about 75% have beaten revenue growth expectations.
The moves in US yields remain the key focus for market participants.
Themes for the Week
- 100 Days: markets will be following the progress on fiscal stimulus and virus control (and will be sensitive to such themes).
- US Earnings: with equities at all-time highs, earnings for FAANGS will be closely watched.
- Inflation: with central banks starting to sound slightly more upbeat recently, CPI prints will likely come back into focus.
- FOMC: it will likely be a placeholder meeting this week, with no change in rates, no dot plot or else. The focus will be on any comments on inflation and/or tapering plans.
Data in the Week Ahead:
- ECB’s Lagarde Speech (Mon)
- IFO (Mon)
- UK Employment Change (Tue)
- AU CPI (Wed)
- FOMC Decision & Press Conference (Wed)
- GER CPI (Thur)
- US GDP (Thur)
- Cad GDP (Fri)
- US PCE (Fri)
Correlation Report:
Comment: Movements in the USD remain the key driver, with risk sentiment the runner-up.
On the Radar:
Volatility has been declining for the past 2 weeks, signalling shifting market dynamics. While the next move always remains elusive, it is clear that the current trends are losing steam and the markets are in a state of transition ahead of the next move.
As of Friday’s close, directional signals are weak. The only useful perspective might be a weekly view. Here are the few interesting signals at the weekly level.