It could be a big week, and that’s not just because the pubs are open again in the UK. Looking at the calendar, there is a whole raft of key events that are ready to impact major financial markets. Tier one US data announcements will begin to paint a picture of the economic recovery. Federal Reserve chair Powell is set to speak again and US earnings season kicks off. This could all impact the direction of bond yields and the recent US dollar (USD) unwinding move, in addition to US equity markets trading around all-time highs.
US data is likely to come in strongly and could help support USD, whilst strong Chinese data could also help commodity currencies
Central bankers are in focus with a batch of FOMC speakers, the ECB’s Christine Lagarde, and the RBNZ policy decision.
US earnings season begins, with a focus on the big banks.
US CPI, Retail Sales, and Industrial Production to boost USD
US Consumer Price Index (CPI) inflation is on Tuesday, whilst on Thursday there is Retail Sales and Industrial Production. All looks set to come in hot.
US CPI inflation surprisingly fell in February which briefly hit USD recovery. However, consensus expects an instant bounce back with core CPI back up to +1.6%.
With strong PMI data in addition to Consumer Confidence and sentiment surveys also jumping for March, the expectation is that this should now begin to begin to feed through to the harder Retail Sales data. Although the $1400 stimulus cheques only hit US bank accounts towards the end of the month, the economic re-opening was already underway and monthly sales are expected to have jumped by around +4.7%.
Add this to Industrial Production which is expected to jump by 4% on the month.
This could all have a significant impact on markets. US Treasury yields have fallen recently, but with strong economic data, the US 10yr yield could be ready to climb again this week. The correlation between US 10yr yield and USD is still positive and a pick up in yields would help support USD.
We are also mindful that Chinese Q1 GDP, along with trade data, industrial production and retail sales are all this week. If these numbers beat expectations it could help the likes of AUD to build support. It would also likely mean JPY and CHF underperform.
Fed chair Powell
The FOMC goes into its “blackout period” on 17th April prior to the Fed meeting on 28th. However before then, there are four speakers scheduled this week in addition to chair Powell, and they could well begin to paint a more encouraging picture of the US economy. Overnight, Powell has already reflected upon his confidence. If inflation retail sales and industrial production come in hot, then bond yields and USD could begin to rise again. Powell speaks again on Wednesday.
Christine Lagarde of the ECB is likely to be far more cautious in her speech on Wednesday and coming in the midst of what is likely to be strong US data, this could mean that EUR/USD gets dragged lower.
The Reserve Bank of New Zealand (RBNZ) announces monetary policy, but we are not expecting any shift from its current stance of prolonged stimulus and support is necessary. NZD may be impacted more by external factors.
And US earnings season kicks off this week
US corporate earnings for Q1 begin this week. There are 23 companies of the S&P 500 announcing, including big banks such as JPMorgan, Bank of America and Goldman Sachs. The banks are expected to have had a stellar quarter (due to rising bond yields helping interest margins and profitability). The importance of these results means the S&P 500 is a volatile play this week.
According to FactSet data, the expectation for the whole quarter is for +23.8% earnings growth. However, US earnings tend to beat expectations by an average of 4.6% meaning this could be the best quarterly earnings growth since 2010.