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Volatility is definitely back with a blast as stocks and Crude Oil had their best week since November as the “reflation trade” came back into focus, fuelled by stimulus hopes and upside earnings surprises.
In FX there is a divergence play emerging, dependant on vaccine rollout speeds, that sees USD and GBP strength vs EUR weakness.
Friday’s Non-Farm Payrolls were disappointing, and saw the USD give up some gains, which allowed equities and commodities to rise further.
Stimulus progress, earnings and vaccine deployment will remain the focal points this week.
Themes for the Week
- FED Speak: Powell will be illustrating economic projections at the Economic Club of New York on Wednesday. Participants will be watching: whether upside risks have materialised and the timing for tapering.
- Earnings Divergence: so far, 83% of US companies have posted earnings surprises, whereas European companies
- Super Mario: Mario Draghi has been appointed head of a technical government in Italy. Will he succeed in leading Italy out of the current crisis?
- Vaccines & Stimulus: as usual, progress on the vaccine front will be watched, as well as the progress towards Biden’s massive stimulus plan.
Data in the Week Ahead:
- NZ Inflation Expectations (Tue)
- US CPI (Wed) à Should be strong as Crude Oil and Petrol prices increased recently.
- BOE’s Bailey Speech (Wed)
- FED’s Powell Speech (Wed)
- EU Economic Forecasts (Thur)
- UK GDP Q/Q (Fri) à Lockdowns in Q4 should have led to weaker growth.
Correlation Report:
Comment: Movements in risk assets are dominating the scene currently, with USD dynamics runner-up.
On the Radar:
Based on Friday’s close, risk appetite remains strong with equities and crude oil remaining with a bullish slant. Chf, Jpy and Eur weakness prevail in FX vs. AUD and GBP strength.