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Quiet start to busy week: Everything you need to know

Fawad Razaqzada Fawad Razaqzada 12/04/2021
Quiet start to busy week: Everything you need to know Quiet start to busy week: Everything you need to know
Quiet start to busy week: Everything you need to know Fawad Razaqzada
  • Dollar gives back early gains, stocks drift and crude oil rebounds
  • Will inflation concerns replace growth optimism?
  • Big Wall Street banks set to report Q1 earnings
  • US inflation data tops busier economic calendar
  • Coinbase IPO
 
The new week started on the quieter side, with global stocks and futures drifting and the dollar relinquishing its small overnight gains by midday in London. Crude oil recovered from earlier weakness to turn positive. There was very little macro news, with the exception of Eurozone retail sales which rose 3% in February, much better than expected. This comes as Europe finally seems to have got its act together on the vaccination race. France achieved its goal of vaccinating 10 million people a week ahead of schedule, while Germany doubled its pace of inoculations. In the UK, shops, gyms and hairdressers, as well as outdoor restaurants, have all re-opened as virus cases and deaths continue to fall thanks to the prolonged lockdowns and successful Covid vaccinations. Can we now see a consumer-led recovery in the UK and across Europe? A lot will depend on re-opening of borders for holidaymakers. But judging by the recent performance of airline shares, it looks like investors are betting that normal life can return soon. In the US, meanwhile, Federal Reserve Chair Jerome Powell is also turning more optimistic. In a TV interview, Powell said that the “outlook has brightened substantially” and that growth and job creation could start coming in much more quickly.
 
Much of the above optimism has already been priced in with markets in the US hitting repeated all-time highs. The market will now want to see if the optimism is justified, as we head into a busier week. As well as a busier economic calendar, the US corporate reporting season will kick into a higher gear with the release of big bank earnings. We may well see some volatility after the S&P 500 hit repeated new all-time highs on falling volumes last week. The key question going into the earnings season is this: Will company CEOs mirror investors’ optimism on economic outlook, or will they provide more subdued forecasts? Until now, investors have been quite happy to be buying any dips in equity markets amid growth optimism and despite rising inflationary pressures and valuation concerns. Covid vaccinations continue at a very good pace in the US and UK, while the eurozone is lagging behind but now they seem to have got their act together.
 
Dollar testing support
 
Keep an eye on the US dollar as we start a busy week. After ending the first quarter on the front-foot, the start of Q2 has seen the dollar weaken against most other major currencies. The underlying bullish trend could resume for the buck, especially against currencies where the central bank is comparatively more dovish than the Federal Reserve, or regions where the vaccinations have been slower than in the US. The dollar index needs to break its short-term bearish trend line and take out 92.50 resistance before the bullish trend potentially resumes. Otherwise, we may see the likes of the EUR/USD extend recent recovery.
 
dollar index
 
Taper talks could resurface
 
One source of concern that has not materialised yet but may come back to haunt investors in the near future is the potential for inflation to overshoot as a stimulus-fuelled economy recovers from the pandemic. So far, investors seem to think that the Fed will see through any short-term price pressures as there is plenty of spare capacity left in the economy. After all, stronger economic growth should boost earnings and revenues of US companies. So, “why sell?” is what some investors would be thinking.
 
At some point, sky-high valuations will come back to the forefront, especially when the Fed plans to slowly withdraw stimulus. This could happen for example if inflation turns out to be longer lasting rather than a temporary shock. But policy makers at the Fed don’t think that is going to the case any time soon. They have suggested there are no imminent changes to be expected in monetary policy, according to the FOMC’s last meeting minutes. They think it will likely be "some time" until substantial further progress is made towards the maximum-employment and price-stability goals.
 
Inflation data eyed
 
This means that for now, the stimulus programme of buying assets worth $120 billion per month will continue. However, with the March employment report surprising to the upside, combined with signs of rising inflationary pressures, and not to mention the faster pace of vaccinations and fiscal support, the Fed may want to ease off the gas sooner than expected as the economy potentially heats up faster. They wouldn’t want to overcook inflation and then apply the brakes harshly. So, watch out for a change of tone from Jay Powell and co. in the coming weeks, especially if we now start to see an acceleration in inflation data. Tuesday’s release of CPI is thus going to be important for the dollar and the markets in general, as too will the speeches scheduled from various FOMC members (see below).
 
So, I reckon that volatility will spike sooner or later as growth optimism is replaced by inflationary concerns and taper tantrums. All it takes is a few people to start selling to get the ball rolling. With all the above macro concerns and talks about corporate tax hikes to pay for the cost of stimulus, things could unravel on Wall Street soon. Keep a close eye on the major indices -- and indeed individual names with the reporting season officially underway now.
 
Key economic data and company earnings highlights
 
Big Wall Street banks are set to report earnings next week, with JPMorgan, Wells Fargo and Goldman Sachs all due on Wednesday. On a macro level, Tuesday’s inflation data from the US is undoubtedly going to be important as it could impact bond yields, the dollar and obviously gold. Oh, and there is going to be an IPO as the largest US cryptocurrency exchange, Coinbase, goes public.
 
Tuesday
  • Chinese trade figures
  • UK GDP, construction output and industrial production
  • German ZEW survey
  • US CPI
  • FOMC Member Daly speech
 
Wednesday
  • RBNZ rate decision
  • Eurozone industrial production
  • Fedspeak: Chair Powell and FOMC members Williams and Clarida
  • Earnings: JPMorgan, Goldman Sachs, Wells Fargo
  • Coinbase IPO
 
Thursday
  • Aussie employment report
  • US retail sales, unemployment claims, industrial production and a few other second tier data
  • Earnings: Bank of America, Citigroup and PepsiCo
 
Friday
  • Chinese GDP, industrial production and retail sales,
  • US building permits, housing starts, and UoM Inflation Expectations and Consumer Sentiment
  • Earnings: Morgan Stanley, Bank of New York Mellon Corp and Honeywell International
 
Coinbase IPO
 
The largest US cryptocurrency exchange is set to go public on Wednesday 14th April. Its shares will be listed on the Nasdaq Exchange and the company will trade under COIN stock ticker. The price range is still unknown. The company is planning a direct listing of its stock, meaning there won’t be a middleman (usually an investment bank such as Goldman Sachs involved). In effect, the direct listing means the current stakeholders will be able to sell their shares to new investors.
 
Now Coinbase generates its revenue, among other things, from charging fees when investors and speculators buy and sell Bitcoin and other cryptocurrencies. With demand for cryptos soaring, Coinbase revenues and profit could increase further in the future – especially during times of heightened volatility in the crypto space. The IPO will allow investors to gain indirect exposure to cryptos without actually owning any digital currencies and worrying about the day-to-day volatility of cryptos.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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