Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Week Ahead: U.S. Jobs Hiring Spree Suggests Reflation Trade Is Back

Published 04/04/2021, 02:26 AM
Updated 03/05/2019, 07:15 AM

US

The US economy is about to run hot as a hiring spree has officially started. The dollar may have gotten its groove back as Treasury yields are rising again. It will take several months of massive job gains to alter the Fed’s stance, so investors can feel confident that an ultra-accommodative stance will remain in place throughout the summer.

Much attention will go to the Fed’s Minutes to the Mar.16-17th FOMC meeting. Any hints on inflation thresholds and views on central bank’s monthly purchases could move financial markets. Investors will also pay close attention to lots of Fed speak from Chicago Fed’s Evans, Dallas Fed’s Kaplan, St Louis Fed’s Bullard, Minneapolis Fed’s Kashkari, and Fed Chair Powell’s comments at the IMF spring meetings.

Economic data that will be closely watched includes Monday’s Factory Orders release and final durable goods orders data. Trade data will be released on Wednesday and weekly initial jobless claims on Thursday.

EU

A third wave of COVID is causing havoc in Europe, as infections rates soar. Germany, the largest economy in the eurozone, may be headed for a national lockdown, as confirmed COVID cases rose 24,300 to 2.833 million on Thursday, the biggest increase since Jan. 14. The federal and state governments have been bickering over health restrictions, hampering the country’s response to the pandemic. In France, the government announced a third national lockdown, which would include the closure of all schools.

The situation in Europe looks likely to deteriorate further before it improves, particularly as the vaccine rollout remains sluggish and Germany and other EU members continue to impose restrictions on the use of the AstraZeneca (NASDAQ:AZN) vaccine.

On the fundamental front, the Eurozone unemployment rate will be released on Tuesday and is expected to fall from 9.0% to 8.8%. German industrial data is expected to indicate growth in January. Factory Orders are projected to rise 1.0% on Thursday and Industrial Production by 1.2% on Friday. On Thursday, the ECB releases the minutes of its policy meeting earlier this month.

UK

It will be an abbreviated week in the UK, with the financial markets closed for Easter Monday. PMI reports will be in focus next week. On Wednesday, Services PMI is expected to show strong growth, with a forecast of 56.8. Construction PMI follows on Thursday, with a forecast of 51.0, which indicates slight expansion. Investors will be keeping an eye on the Gilt auction of 10-year notes on Thursday. The previous release indicated an average yield of 0.868%.

Emerging Markets

Turkey

The turmoil at the Turkish central bank continued, after Turkish President Erdogan fired a central bank deputy, Murat Cetinkaya on Tuesday. Just 10 days ago, Erdogan sacked the bank’s hawkish governor, Naci Agbal, who lasted in the position just four months. Erdogan has now fired three central bank chiefs since July 2019.

Agbal had hiked the key interest rate to 19%, in an attempt to curb inflation, which stood at 15.6% in February and is posing a threat to Turkey’s economic stability. Agbal’s dismissal only two days after raising rates shocked the market and sent the Turkish lira tumbling by 13%.

Last week’s dismissal of the deputy governor will put more pressure on the lira. The new bank governor, Sahap Kavcioglu, a critic of high interest rates, could soon find his job in jeopardy if he is unable to tame the country’s high inflation. Inflation readings for March are expected to show pricing pressures are increasing.

Poland

The Polish zloty was under pressure but rebounded last week, EUR/PLN had fallen to 4.6015 on Thursday and was down almost 1 per cent last week. The pair appears headed to recording its first losing week since mid-February.

The Polish central bank is expected to maintain its benchmark interest rate at 0.10% when it holds a policy meeting on Wednesday.

China

China's Caixin Manufacturing PMI printed below forecast last week, reflecting soft employment although exports sub-components rose. Caixin Services PMI is released Tuesday and a soft employment sub-index there might take the wind out of China’s domestic recovery sails. MoM Inflation should rise 0.70% on Thursday, on higher oil and pork prices, but with the PBOC maintaining tight policy it would take a print above 1.0% to spook markets.

China’s “national team” once again intervened in Mainland stock markets last week although the Shanghai Composite and Shanghai Shenzhen CSI 300 were finishing the week strongly. Both indexes remained in downward correction territory and sentiment remained fragile with fast-retail money running for the hills on the Mainland and Hong Kong at the first sign of trouble. The government will have to keep intervening in this scenario, but may face greater problems if US markets move abruptly South..

China’s tech crackdown continued to weigh on sentiment and is further complicated by two weak Mainland tech IPO’s in Hong Kong last week.

The yuan remained stable just above 6.5500, limiting the contagion of higher US rates and the dollar in China and Asian EM as a whole.

India

COVID-19 cases continued spiraling and were rapidly spreading geographically. India’s vaccine export ban was allegedly just an export “curb” with the Serum Institute told to halt exports. The INR weakened sharply last week because of that and looks set to continue unless India rapidly reverses the COVID-19 situation.

Protecting the INR, and persistent inflation leaves the RBI with no room to cut rates on Monday, but if they do, INR should fall rapidly. Lower oil prices have yet to feed into the data and India’s core production data weakened this week.

The RBI decision on Tuesday is the only tier-1 data, with Industrial Production for Feb on Monday Apr. 12 the far more important indicator. In the meantime, the evolution of the COVID situation will dictate Indian markets direction.

India remains one of the most vulnerable countries to rising US yields and commodity prices due to its weak current account and foreign currency denominated debt.

Australia And New Zealand

The fallout from the New Zealand Government's surprise property price measures continued with the NZD sinking again last week with economists revising down NZ GDP and also taking any rate hikes by the RBNZ of the board. As global risk barometers, both the AUDand NZD suffered last week as US yields and the US Dollar held firm. Both have broken and held under critical support at 0.7600 and 0.7000 respectively, pointing to deeper losses this week if greenback strength persists, or global risk sentiment retreats.

Australia had a COVID-19 scare last week, but Brisbane emerged from lockdown with no immediate consequences. Australian data continued to outperform supporting local equity markets on any dips.

The RBA announces its latest rate decision on Tuesday. Although rates will remain unchanged, markets will be poring over the statement word by word looking for hints of an end to ultra-loose monetary policy.

Any hint could provoke a short-term AUD short-squeeze and a reflex move lower in Australian equities.

Australia and New Zealand are on holiday Monday.

Japan

Japan releases PMI’s, Household Spending and the Current Account this week. An improved Tankan survey should see the export sector data improve, but consumer facing data will remain weak.

This week’s key data point will be the 30-year JGB auction on Tuesday, the first ultralong auction under the new wider trading bands from the BoJ. Higher bid yields or a weak bid-to-cover will provoke a sell-off in the Nikkei 225 which still looks vulnerable after the BoJ ceased buying Nikkei-linked ETF’s.

USD/JPY rose 200 points to 110.50 last week as the yield gap widened with US yields. The technical picture suggests more USD/JPY strength this week now that it has broken through 110.00.

Markets

Oil

Energy markets are convinced that despite the OPEC+ agreement to boost output, the oil supply deficit will accelerate. If Europe shows signs that the infighting over how to distribute vaccines is ending and if the region can secure more vaccines, optimism for the crude demand outlook will grow.

Oil prices are likely to finish the year much higher, but over the short-term prices could remain somewhat rangebound. The commodity super cycle is happening and crude will be one of the bigger beneficiaries.

Gold

Gold's worst start to a year in two decades could be over if the bond market selloff takes a break. Surging Treasury yields have been gold’s kryptonite, but if financial markets believe inflation will be transitory, gold prices could start to appreciate. The inflation dynamics are complicated for gold, because right now inflationary fears could lead to higher yields and lower gold prices. However, once the global economic recovery has Europe and EM join the party, inflationary pressures should eventually trigger gold buying.

Bitcoin

Cryptocurrency traders will look to see if Bitcoin's intermediate-term top is breached. The four-day weekend may prove very illiquid and excessive volatility could happen. Bitcoin’s bull run was mostly continued excitement that more Wall Street investment banks are likely to launch more cryptocurrency derivative products. Mainstream acceptance is also improving following commitments by Visa (NYSE:V) and PayPal Holdings (NASDAQ:PYPL).

Bitcoin volatility will prove very interesting should weekend price action take the price above the $60,000 level. In 2021, weekend moves sometimes have not been sustained, so the cryptoverse will look to see if any breakouts are short-lived.

Key Economic Events

Monday, April 5

  • Easter Monday is a public holiday for most of Europe.
  • UK Prime Minister Johnson to update travel rules and stance on vaccine passports
  • The 2021 Spring Meetings of the International Monetary Fund and the World Bank Group take place virtually, through April 11.

Economic Data:

  • US factory orders, durable goods
  • India Markit manufacturing PMI
  • Singapore retail sales, PMI
  • Turkey CPI Thailand CPI

Tuesday, April 6

  • IMF Managing Director Georgieva, President Malpass, and US Treasury Secretary Yellen speak at IMF meetings.
  • The IMF holds virtual press briefings on the 2021 Global Financial Stability Report and the updated World Economic Outlook.
  • European Commission President von der Leyen and European Council President Michel meet with Turkish President Erdogan in Ankara.

Economic Data/Events:

  • China Caixin services PMI
  • Australia central bank (RBa) Interest rate decision: Expected to keep Cash Rate and 3-year Yield target unchanged at 0.10%
  • India central bank (RBI) Interest rate decision: Expected to keep rates steady
  • Eurozone Unemployment
  • Japan household spending
  • Russia CPI
  • Norway PMI
  • Sweden PMI ● Denmark PMI

Wednesday, April 7

  • Fed releases Minutes of the March 16-17 Federal Open Market Committee meeting
  • Chicago Fed President Evans discusses the economic outlook with the Prairie State College Foundation.
  • Dallas Fed President Kaplan joins a panel hosted by UBS.
  • South Korea will hold elections for mayor in its two biggest cities, Seoul and Busan.

Economic Data:

  • US Trade Data
  • China forex reserves
  • Eurozone (Germany, France, Italy, Spain) Services PMI
  • UK PMI
  • Poland rate decision: Expected to keep Base Rate unchanged at 0.10%
  • Canada international merchandise trade
  • Czech retail sales

Thursday, April 8

  • Fed Chair Powell speaks on the global economy during the IMF spring meetings
  • Louis Fed President Bullard speaks.
  • Minneapolis Fed President Neel Kashkari speaks.
  • ECB Minutes for the March 10-11 monetary policy meeting.
  • Riksbank’s Deputy Governor Martin Floden speaks at a webinar on monetary policy organized by Handelsbanken.

Economic Data:

  • US initial jobless claims
  • Mexico CPI
  • Trade balance France, Philippines, Finland, Hungary
  • Germany factory orders
  • K. RICS house prices, construction PMI
  • South Africa manufacturing production
  • Norway Industrial production
  • Hungary Industrial production
  • Czech Industrial production
  • Sweden industrial orders
  • Mexico central bank meeting minutes
  • Switzerland foreign currency reserves
  • Russia gold and forex reserve
  • EIA Crude Oil Inventory Report

Friday, April 9

  • Japanese Prime Minister Suga to meet President Joe Biden at the White House.
  • ECB Vice President de Guindos speaks

Economic Data:

  • US wholesale inventories, PPI
  • Greece CPI
  • Norway CPI
  • Hungary CPI
  • Germany Industrial production
  • Mexico Industrial production
  • France Industrial production
  • Spain Industrial production
  • Canada Unemployment
  • Switzerland Unemployment
  • China PPI, CPI
  • Russia Trade Data
  • US wholesale inventories, PPI
  • Italy retail sales

Sovereign Rating Updates:

  • None

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.