FX Majors Weekly Outlook (10-14 April) | Forexlive
UPCOMING
EVENTS:
Monday:
European Markets closed for Easter Monday.
Tuesday: NFIB
Small Business Index.
Wednesday: US
CPI, BoC Policy Decision, FOMC Minutes.
Thursday: US
PPI, US Jobless Claims.
Friday: US
Retail Sales, UMich Consumer Sentiment.
Last week,
we got a series of notable misses on top tier economic indicators. The ISM PMIs
showed big drops from prior readings and Jobless Claims missed estimates with a
big upward revision for the prior report. Now, the market should focus more on
how the mid-March banking crisis shaped the economic landscape and the
above-mentioned indicators capture that period. So, we may have had early signals
that the economy has took a hit and it may be worse going forward as the Fed is
determined to keep policy tight.
This brings
me to the market reaction to the NFP report last Friday. The data was good, no
doubt, but as I mentioned in the previous weekly outlook, the report captures
data until the 12th of March. So, it doesn’t show the effects of the
banking crisis. For this reason, I would say that this week’s Jobless Claims
report is more important, and I wouldn’t be surprised to see the last week’s reaction
to be faded completely if Jobless Claims show another notable miss.
Tuesday: The NFIB
Small Business Optimism Index is not a market mover generally, but there are
certain times when the markets start to care more about something because the
context suggests so. The current narrative in the market is that the banking
crisis of mid-March may cause some credit crunch and the first businesses to be
impacted by that would be the small ones.
Small
businesses in the US employ almost half of the US workforce, so it’s a pretty
big part of the economy. The index is already at levels that in the past
coincided with recessions, but what the market may focus on the most should be
the Hiring Plans Index. Below you can see the correlation between the Hiring
Plans Index and the Unemployment Rate.
Chart from
@francesdonald on Twitter
Wednesday: The US
headline CPI is expected at 5.2% vs. 6.0% prior for the Y/Y figure and 0.3% vs.
0.4% prior for the M/M reading. The Core Y/Y is expected at 5.6% vs. 5.5% prior
and for the M/M at 0.4% vs. 0.5% prior. This report should decide the next FOMC
rate hike. After the NFP report the market priced 70% chance for a 25 bps move.
In the current context, I expect a miss to have a greater impact than a beat.
The Bank of
Canada is expected to keep rates unchanged as they went on pause the last
meeting. Latest inflation data missed estimates, so the BoC can remain on hold
for now. I don’t expect the market to care much about it since it will be more
focused on the US CPI report.
The FOMC
Minutes shouldn’t be a market mover since it’s a three-week-old thing and we
already know everything that it may contain. The Fed is data dependent, so the
incoming data will shape their decisions.
Thursday: The US PPI
is expected at 3.1% vs. 4.6% prior for the Y/Y figure and 0.1% vs. -0.1% prior
for the M/M reading. The Core Y/Y measure is expected at 3.3% vs. 4.4% prior
and the M/M reading at 0.2% vs. 0.0% prior. I don’t expect it to be a market
mover unless we see a miss.
The US
Jobless Claims last week surprisingly missed expectations and the prior numbers
were revised a lot higher possibly pointing to early cracks in the labour
market. I think that this week’s report may be a big market mover and if they
show another notable miss, then the market may start to position for the
recession trade. Initial Claims are expected at 205K vs. 228K prior. The
recession trade is generally long treasury bonds, gold and yen, and short
equities, commodities and commodity currencies.
Friday: US Retail
Sales are very volatile, but they can be market moving, nonetheless. The market
should react more on a miss than a beat given the current context. The headline
M/M reading is expected at -0.4% vs -0.4% prior and the Core measure at -0.3%
vs. -0.1% prior. The Control Group is expected at -0.4% vs. 0.5% prior.
The
University of Michigan Consumer Sentiment Index is expected at 62.7 vs. 62.0
prior. I expect the market to focus more on a miss than a beat, with particular
focus on the inflation expectations numbers.
This article
was written by Giuseppe Dellamotta.