The final week of the month is usually fairly quiet on the data front and this can often mean subdued markets. Whilst there are pockets of volatility unless there is a complete blowout in the crypto space, this is shaping up to be a fairly orderly end to the month. We look for Fed speakers to toe the line and US data to do little to change the narrative. This is likely to continue the dollar trend negative and see ranges played on equities. 

  • Fed speakers are unlikely to push for tapering asset purchases quite yet

  • US data in focus with Consumer Confidence and a GDP revision may impact on near term volatility but do little to change the path of steady progress

  • For markets, a USD negative trend is likely to continue, along with ranges on indices too.

Fed speakers to keep to a similar line

The minutes from the April FOMC meeting suggested there were “some” participants beginning to think about the timing for tapering. However, the bulk of the committee is still looking for “substantial” progress before tightening can begin. 

Most significantly, this seems to driven by the need for much more improvement from the labor market which is still around 8 million jobs down from the pre-pandemic levels. Progress is being seen, but it is slow. Tom Barkin, who is a 2021 voter and is towards the more hawkish end of the scale, suggested over the weekend that there was a lot more room to run in the labor market, even if progress has been made.

There are several FOMC speakers due this week, each is considered more dovish than Barkin. So we are not anticipating any hawkish surprises that would shake up markets this week:

  • Lael Brainard (2021 voter, dovish) speaks Monday

  • Raphael Bostic (2021 voter, shades hawkish) speaks Monday

  • Charles Evans (2021 voter, centrist) speaks Tuesday

  • Randall Quarles (2021 voter, centrist) speaks Tuesday and Wednesday

US data to show economic recovery continues, but with few surprises

US Consumer Confidence is expected to slip slightly on Tuesday. After prelim Michigan Sentiment fell sharply, this is likely to be reflected in the Conference Board’s confidence data too. It would have to be a wild upside surprise to create much of a stir for bond yields to significantly and USD to find support.

It is a similar story to Thursday’s Prelim Q1 GDP. Consensus is looking for a mild upward revision to +6.5% (from the Advance read of +6.4%) but there could be a mild upside surprise here with consumer spending seemingly higher than previously thought. However, it would need to be a dramatic upside surprise. 

Perhaps the US weekly jobless claims will be an interesting indicator to watch. Claims have been gradually falling throughout the past few months and consensus is looking for this to continue back towards 427,000 this week. It would probably need to come in drastically below 400,000 to shake up bond markets again (yields higher, USD higher).      

Jobless Claim

Market Impact: more of the same for USD and equities

So in the absence of any significant surprises, it is likely to be more of the same for major markets. Little of anything to change the narrative from Fed members. Progress, but not enough yet. Too soon to think about tapering.

Subsequently, the USD negative trend seems to have re-asserted once more (despite a choppy week last week). Further downside pressure is likely to test 89.20/89.65 on Dollar Index.

Dollar Index

The choppy ranges on indices with their bullish bias also continue. Until a taper tantrum sets in we expect this will be the theme.

S&P 500 Futures