Summary: The key focus for markets this week will be if inflation worries can continue to be sidelined and pricing for a Fed pause for May could come back after the still-tight nonfarm payroll report on Friday boosted the case of a 25bps rate hike again. Bank earnings kick off the Q1 earnings season and will shed further light on the health of the US banking sector. Geopolitics and China data dump, along with Australia’s employment report and Singapore’s monetary policy decision, will be a key focus in the region. Commodities market focus on whether the gains in oil prices from last week could stick?
After the nonfarm payroll data on Friday failed to allow markets to put inflation concerns completely on the backburner, focus will shift to the March CPI release on Wednesday this week for further light. Investors continue to assess whether the Fed can squeeze in one more rate hike in May before pausing to take stock of the financial sector concerns. After Friday’s NFP release, Fed Funds futures have again gone back to pricing in a higher chance of a rate hike coming through and disinflation will have to be significantly pronounced to reverse that. Bloomberg consensus expects headline inflation to ease to 5.1% in March from 6.0% in February, but the core measure is still expected to remain firm. With OPEC+ production cut announcement last week also sending fears of a rebound in inflation prints again, the disinflation will have to come noticeably from the services side too for investors to really take inflation concerns off the table. We don’t think we are there yet. With oil prices rising again and labor market cooling only gradually, risk remains tilted for core inflation to remain elevated for longer.
Meanwhile, other data due in the US will also remain key in the assessment of inflation vs. recession rhetoric. Tuesday’s NFIB small business optimism index will be in focus for the impact of banking turmoil on SME sentiment, weekly jobless claims will shed further light on the labor market after an over 200k print last week, and March retail sales will be key to assess the strength of the consumer.
With no new reports of banking sector stress in the last few weeks, focus has shifted back to Fed policy and how it addresses inflation concerns without causing more stress to the financial sector. Minutes from the Fed’s March 22 meeting will be due this week and on watch for any commentary on how the balance will be achieved. The dot plot at the meeting didn’t change significantly from the December one, but views of the committee members on terminal rate will be key as well.
More importantly, the Q1 earnings season kicks off this week with a host of banks reporting on Friday. This will not only be key to set the tone for the Q1 earnings season, but will also be keenly monitored for further information on the deposit situation at banks. Regional bank PNC financial reports along with major global banks such as JP Morgan, Citigroup and Wells Fargo. Trends like deposit flight from smaller banks to bigger banks or to money market funds will be in focus, and also the risk management framework in place after the collapse of two major US banks last month. The other aspect to keep on your radar will be the banks’ exposure to commercial real estate, which could be the next shoe to drop for the banking sector concerns to pick up again.
China held a second day of military drills around Taiwan n Monday, with multiple exercises involving aircraft and ships, after the island’s president, Tsai Ing-wen, returned from a visit to the US. These actions appear to be a repeat of those in August after Pelosi’s visit to Taiwan. Beijing also stepped up some sanctions on Taiwan’s envoy to the US as a symbolic gesture and more measures will remain on watch today. Meanwhile, China has also taken a step in the chip war with the launch of a probe on Micron Technology. Further US-China tensions remain on watch this week as these can play a spoiler in the China reopening story.
Meanwhile, a bunch of key China data will be reported this week and focus will remain on how supportive authorities remain to drive economic growth. Data for March credit financing will be in focus to assess the liquidity provisions and support to the property sector. Inflation will likely remain soft enough to continue to provide room for the People’s Bank of China to announce targeted easing measures if economic momentum fails to pick up in-line with their expectations. Bloomberg consensus expects higher aggregate financing in the month, while CPI is expected to be flat at 1% YoY even as PPI dips further into deflation with -2.5% YoY print expected in March after February’s -1.4% YoY. Trade data for March is also due in the week, and both exports and imports are expected to show a YoY decline.
Monthly UK GDP data is due for February this week on Thursday, and it may further highlight that UK can avoid a recession in the near term. Sterling strength continues to surprise, and it was the outperformer on the G10 FX board last week despite GBPUSD being rejected at 1.25. A fresh test could come if GDP data surprises to the upside and if inflation concerns in the US continue to ease materially. For the Eurozone, industrial production and retail sales figures are both up for February and will be a key input on how Q1 GDP could develop. EURUSD could test the 50DMA at 1.0736 if data is softer than expected.
US inflation and the resulting Treasury yield movements will continue to be key for the Japanese yen traders. But new governor Kazuo Ueda also takes the helm at Bank of Japan. His first policy meeting is only scheduled at the end of the month, but comments on inflation and economic and financial risks will remain key to watch as Ueda has signalling scope for policy tweaks if market pressures continue.
Bloomberg consensus expects Australia to have added 20k Jobs in March (prev. +64.6k), while the unemployment rate is seen ticking higher to 3.6% from 3.5%. This will likely confirm the softening trend in Australia’s labor market, as increased participation and faster population and immigration growth continue to address the labor supply issues. This could add further pressure on the AUD after RBA’s pause last week, and AUDUSD could test the 0.66 level that has served as a key support since mid-November. Kiwi’s unconvincing gains last week despite RBNZ’s surprise 50-bps rate hike have kept AUDNZD downside limited for now, but weakness in Australia’s employment data could bring the pair to test 1.060 levels.
Analysts expect the BoC will hold rates at 4.50% after signalling a conditional pause at the March meeting. Recent inflation data saw headline CPI falling by more than the consensus was expecting, owing to lower energy inflation, while the BoC core measures also showed improvement. Meanwhile, Canada’s labor data has stayed strong last week, as it added 34.7K jobs in March smashing expectations of 7.5K gain. As economic momentum continues to remain strong and oil prices recovery continues, commentary around the money market pricing of a rate cut this year will be key to monitor. Fresh economic projections are also to be issued at the April BOC meeting.
The Monetary Authority of Singapore (MAS) will release the monetary policy statement on Friday together with the advance 1Q 2023 GDP estimate by the Ministry of Trade & Industry. As inflation continues to be elevated, and Singapore banks remain shielded from the impact of the collapse of the US banks, there could be an opportunity for the Singapore’s central bank to announce further tightening this week. Economic concerns are likely to ramp up as recession calls in the US move forward due to the credit crunch following the banking sector scare last month, but for now, the MAS could potentially have some room to continue focusing on inflation worries.
As the MAS sets monetary policy through S$NEER (Singapore dollar Nominal Effective Exchange Rate), it is likely that we can see a higher re-centering for the band allowing the SGD to strengthen further against a basket of currencies of its trade partners.
After the surprise announcement from OPEC+ last week on crude production cuts, crude oil gained 8% in the week to reach fresh three-month highs. Whether these gains could sustain will be key to watch in the coming week, and monthly oil outlooks from OPEC and IEA may provide further input on the demand/supply dynamics.
Monday 10 April
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Friday 14 April
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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