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Trading on Friday was dominated by strong risk appetite and USD weakness on solid US economic data and company earnings while concerns over impact of the Biden tax plan were dismissed.
In the week ahead, markets will be focused on Powell’s press conference (as there will be no dot-plot or change in policy), US earnings (40% of SP500 companies will be reporting), and Biden’s American Family Plan.
To note, market expectations for central banks are gradually shifting. The Bank of Canada was the first bank to taper bond purchases and strike a hawkish tone. As such, other central banks may soon follow.
Themes for the Week
- FOMC: Powell will likely reiterate the FED’s willingness to let inflation overshoot and not hike rates before 2024. However, re-opening, strength in the jobs market, booming activity and soaring inflation has market participants betting the FED will have to move sooner than expected.
- Earnings: Facebook, Apple, Google, Amazon and Tesla earnings will be released this week and will be key for equity performance – but they are also the most exposed to Biden’s proposed capital gains tax hike.
- Biden’s Tax Proposal: President Biden is expected to release thedetails of his second economic reform package focused on social spending financed by higher taxes on wealthy Americans
- COVID: so far the impact has been contained, but India, Thailand and Japan are facing a surge in coronavirus cases. Also, the Indian variant is apparently quite aggressive. Traders will keep an eye on the developments.
Data in the Week Ahead:
• German IFO (Mon) ïƒ could come in stronger after the promising PMIs.
• BOJ Outlook Report and policy decision (Tue) ïƒ No change expected
• AU CPI Q/Q (Wed) ïƒ could come in stronger on reopenings and higher inflation expectations.
• OPEC-JMMC Meeting (Wed)
• CAD Retail Sales (Wed)
• ECB’s Lagarde speech (Wed)
• FOMC Decision (Wed) ïƒ no change expected.
• US GDP Q/Q (Thur) ïƒ could come in stronger on higher retail sales and stimulus.
• CNY Manuf. PMI (Fri)
• Ger GDP Q/Q (Fri) ïƒ Could be softer as retail sales were softer in Q1 and lockdowns were still in effect.
• Cad GDP m/m (Fri)
Correlation Report:
Comment: Softer US yields have allowed a resurgence in risk assets and continued weakness in USD. As such, yields and growth prospects remain key market drivers.
On the Radar:
US equities remain rather resilient, although signs of bearish divergence at the Daily level had been appearing. As such, longs remain in play but caution is required. Instead, the Dax seems to be having a harder time and selling between 15380-15500 may be a better play this week.
Instead, Euro, Yen and Kiwi were the strongest currencies last week, whereas USD and GBP showed weakness overall.