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Trading on Friday was dominated by risk-on sentiment as a disappointment on PCE inflation, alongside hopes the US will pass the infrastructure spending bill, sent risk assets higher. However, the main theme for the week was a reversal of the post-FOMC move, with bear flattening and USD weakness, while Comm-Dolls outperformed.
With no market moving news over the weekend, it should be a calm start to the week when Wellington opens for business tonight.
Focus this week will be on the US infrastructure bill, OPEC meeting and Non-Farm Payrolls, beyond the usual ISM readings.
Themes for the Week
- NFP: markets will be paying attention to the strength of the labour market this week, and perhaps in particular to wage growth as a sign of inflation. Consensus is for 600K on the headline and slight decline in wages to 0.4% MoM from 0.5% prior. Hawkish case would be a beat on both results.
- Crude Oil: SP500 energy components are still trading at extremely low levels compared to the broader market, while Crude Oil trades at the highest levels since 2018. An interesting value proposition, since markets are expecting an output increase by 500K BPD.
- Infrastructure Bill: the plan is likely going to be procylical in nature, but it will take time to deploy even after legislation is passed. The more influential debate might be on American Families Plan and how to fund it (higher taxes but just how high?) and the debt ceiling (which will need to be raised before the Fed can taper).
Data in the Week Ahead:
• CNY Manuf. PMI (Wed)
• EU Flash CPI (Wed) Could be higher based on PMI input prices and Crude Oil prices.
• ADP Employment Change (Wed)
• CAD GDP (Wed) Could come in weaker after the recent disappointment in retail sales.
• US Chicago PMI (Wed)
• JP Tankan Survey (Thur)
• Caixin Manuf. PMI (Thur)
• OPEC Meetings (Thur)
• US Jobless Claims (Thur)
• ISM Manuf. PMI (Thur) Could disappoint after Empire State and Philly Fed came in weaker recently.
• BOE’s Bailey Speech (Thur)
• Non-Farm Payrolls (Fri)
• ECB’s Lagarde Speech (Fri)
Correlation Report:
Comment: correlations are showing strong influence of USD movements above all else.
Technical Comment
The Yen and US Dollar ended the week as the worst performing currencies, as risk assets posted a strong rally. The Pound also dropped after the BoE was less hawkish than the market expected. All-time highs were posted on the SP500 and Nasdaq
Weekly Technical View:
SP500
Prices posted a bullish engulfing at the weekly level last week, with a 150 point gain and reaching fresh all-time highs. While signals remain positive for this week, caution is required as momentum readings are extended on multiple levels.
GOLD
Prices posted an inside week into Friday’s close, showing consolidation after the prior week decline. While momentum readings are extended at the daily level, there is no sign of reversal of yet and as prices remain below the prior week Marabuzo line at 1821, signals remain bearish for this week.
EURUSD
Prices posted an inside week into Friday’s close, with directional signals weakening. However, with the trend of lower weekly highs intact, and sellers returning to market on multiple occasions from close to the Marabuzo line at 1.1957, signals for this week remain bearish.
USDJPY
Prices posted the 2nd higher weekly high & low in a row into Friday’s close, with gains of 1 Big Fig. Momentum readings are extended at multiple levels with prices posting new highs for 2021 and approaching 2020 highs, which is reason for caution. However, no reversal signals have appeared and as such we remain bullish for the coming week.
GBPUSD
Prices posted an inside week into Friday’s close, with directional signals stalling. However, with the trend of lower weekly highs still intact, alongside sellers returning from close to the 62% retracement of the prior week decline, signals remain bearish for this week.
AUDUSD
After posting fresh lows for 2021, prices posted an inside week last week, with directional signals stalling. However, the trend of lower weekly highs remains intact and sellers returned from close to the Marabuzo at .7586. As such, the 5-day recovery is seen as corrective, and signals for this week remain cautiously bearish.
USDCAD
Prices posted an inside week into Friday’s close, with directional signals stalling. The 2 ½ Big Fig decline from prior week highs is still seen as corrective in this context, as buyers returned to market from close to the 13 DMA and the trend of higher weekly lows remains intact. As such, with caution, signals remain bullish for the coming week.