Monetary policy tightening has taken center stage last week as markets sold off and the US dollar rallied in the aftermath of hawkish comments from Federal Reserve officials. In the meantime, a lockdown in the second largest city in China, Shanghai, is worrying markets about a resurgence of Covid-19. Any prospect for another full lockdown in the second largest economy in the world could roil financial markets over the coming days.
The French election which was a significant risk for the euro has proven to be a non-event with Macron handily winning the first round and getting two endorsements from candidates which didn’t qualify for the second round. Macron’s competition, far-right Marine Le Pen, got through to the second round, but her prospects are dim, as third-placed Jean-Luc Melanchon singled her out as a non-starter for the presidency and encouraged his voters not to vote for her.
The euro staged a relief rally in the early Asian session and teetered around 1.09 for the most of the European session. European stocks also liked the news that Macron is holding his ground, but selling of US equities prevented a substantive rally. In the meantime Russia-Ukraine war-related headlines have been insignificant as tensions in the Donbass region rose over the weekend, while Boris Johnson visited Kiev.
Economic data highlights
Monday 4th April
· UK GDP
Tuesday 5th of April
· UK Unemployment
· EU CPI and German ZEW Sentiment
· US CPI
Wednesday 6th of April
· New Zealand Interest Rate
· UK CPI & PPI
· US PPI
Thursday 7th of April
· Australia Employment Report
· ECB Interest Rate Decision
· US Retail Sales
Friday 8th of April
· Good Friday in AU, EU, UK
· France & Italy CPI
· US Industrial Production
Monday morning saw the markets open higher after the French election risk went out of the way. That said, the theme could get revisited in two weeks time as the second round is to be held on the 24th of April. In the meantime, the Chinese lockdown in Shanghai is starting to affect a multitude of markets, namely commodities and stocks.
Oil hits multi-week low
After the coordinated action on part of the US and the International Energy Agency last week, oil prices continued to drift lower helped by a slowdown in demand from China, and presumed auctions of Russian oil, which is trading at a heavy discount when compared to spot markets. After hitting the lowest level since the 25th of February oil prices have rebounded to consolidate around 95 as of writing.
The ongoing Covid-19 scare in China could be the key factor behind oil price moves in the coming weeks, as the war between Russia and Ukraine slows down, before an expected attack by Russia in the Donbass region in the coming weeks.
Inflation Figures to Dominate Macro
Inflation numbers from Europe, the UK, and the US are likely to be the main figures to affect financial markets over the coming days. Higher prices across the board are expected, further cementing the stage for accelerated rate hikes in the coming quarters. The difference between major economies in unlikely to be significant, but could be the key factor that guides the currency market in the coming week.
The US dollar has been bid across the board over recent sessions as expectations about multiple 50 basis point hikes crept into the markets. In tandem with the relatively fast pace of asset sales, the US dollar got supported strongly after Fed comments and minutes last week.
The future US dollar outlook will hinge on more inflation data, sentiment, and the comparative stance from other major central banks. This week the ECB and the Reserve Bank of New Zealand will be the latest to unveil their policy course.
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