The markets have begun the new week with stock indices retreating a little on Monday morning, while the Dollar Index continued to struggle and Ethereum hit a new record high. With the macro calendar being quiet on Monday, the slight weakness for the stocks markets were mainly due to profit-taking. Investors were looking forward to the release of more macro data and corporate earnings later in the week. Among the highlights will be US CPI and retail sales, as well as UK GDP. There will also be plenty of speeches by FOMC members, as investors wonder what the impact of surging commodity prices such as lumber and copper will be on inflation at a time when monetary policy is extraordinary loose across the world and with the Fed and other central bank policymakers appear keen to keep the taps wide open as they expect price rises to be “transitory.” Will we see a subtle change in the tone of FOMC members, or will they point to Friday’s weak jobs growth as a reason to keep the printing machine going brrr
GBP/USD upsurge continues despite
The pound continued its upsurge on Monday as it climbed further above the 1.40 handle (see chart below). Sterling has been boosted by optimism over the UK economy amid the big drop in Covid cases and deaths thanks to the lockdowns and vaccination success, with investors also ignoring the prospects for a second Scottish independence referendum. There were only 2 ccovid-19 related deaths reported on Sunday and UK PM Johnson was expected to make a statement later, on further reopening plans. Meanwhile, Scottish National Party failed to win an outright majority in the country's devolved parliament over the weekend. However, backing from the pro-independence Green party will enable it to push for a second referendum – something which the UK government has repeatedly said it won’t allow. Investors don’t seem too concerned either as the pound climbed to a high of $1.4090 when this report was being written. Still, it is worth watching the situation closely as it could become the next big talking point in the parliament in the months ahead. Insofar as this week is concerned, pound traders will need to keep a close eye on UK GDP and other key data due on Wednesday, while the BoE’s Governor Andrew Bailey will be speaking on Tuesday.
Looking ahead to the rest of the new week, expect to hear further dovish rhetoric from the Fed following the disappointing jobs report on Friday, which underpinned US stocks and gold and undermined the dollar as it reduced the prospects of tightening of monetary policy. We also have a handful of key economic data releases and the earnings focus will be on European companies.
In recent weeks, investors have been piling into risk-sensitive assets, including commodities and value stocks and anything that relies on economic growth as more signs of an improving economy emerged. But Friday’s poor showing from the jobs market means the Fed will re-iterate that there is spare capacity in the economy and inflation is going to be transitory, alleviating concerns over monetary tightening and an overheating economy. There will be plenty of Fed speaker on tap in the days ahead – see the calendar highlights below. But will their minds change if CPI starts to accelerate? We will get the latest consumer inflation data on Wednesday, which will reveal how much of the raised input costs have already found their way into prices.
If the Fed’s policymakers convince the markets that rates will not be going up any time soon, then the tech-heavy Nasdaq will probably play catch up with other US indices, while the pressure on the dollar should remain high – provided inflation does not show a big rise on Wednesday. Otherwise, we may well see more gains for foreign currencies, while buck-denominated gold and silver could find further support. Overall, it will be a quieter week from a macro point of view, but there will still be a handful of potentially market-moving data to look forward to.
Key economic and earnings highlights
- Eurozone Sentix Investor Confidence
- FOMC member Evans speaks
- Chinese CPI and German ZEW Economic Sentiment
- Central bank speech: BOE’s Gov Bailey, and FOMC members Williams, Brainard, Daly and Bostic
- Earnings: Morrison Supermarkets
- UK Prelim Q1 and monthly GDP estimates; construction output, industrial production and manufacturing output
- Central bank speech: BoE Gov Baily and Fed’s Clarida
- Eurozone industrial production
- US CPI and core CPI
- Earnings: EDF and Vroom among others
- German, French and Swiss banks will be closed in observance of Ascension Day
- US unemployment claims and PPI measure of inflation
- Central bank speech: BoE Gov Baily and BOC Gov Macklem
- Earnings: Telefonica, BT Group, Burberry, Hargreaves Lansdown, and Airbnb and Walt Disney from the US
Chart to watch: GBP/USD
- US retail sales, industrial production and Prelim UoM’s Consumer Sentiment and Inflation Expectations indices
GBP/USD is our featured chart as it finally cleared the 1.40 handle and ahead of data and central bank speeches from both sides of the pound. Will we get a new high for this year this week?
Source: ThinkMarkets and TradingView.com