Weekly Market Preview – 7 April 2014
The week ahead is looking a little quieter following a very busy first week of the month. There will be particular focus on Asia this week with a lot of economic data being released, particularly in Australia and China, while the Bank of Japan meeting could create a few waves in the markets, should they announce an increase in its quantitative easing program, which wouldn’t be a total surprise.
The US, UK and eurozone is going to be fairly quiet with the biggest events here being the release of the FOMC minutes and the Bank of England meeting, but as discussed below, for different reasons, both of these are likely to be something of a non-event. This is not necessarily a bad thing though, the markets have had a lot to take in this week and sometimes it needs a week to absorb it properly so expect to still see plenty of volatility in the markets.
US
The week is looking much quieter for the US, with the key event coming Wednesday, with the release of the FOMC minutes from the meeting in March. Even this could turn out to be a bit of a non-event with the Fed making clear its intentions to continue the pace of tapering and the economic data neither justifying increasing or decreasing. The only controversy following the last meeting came in the press conference after, Janet Yellen’s first since becoming Chair.
In it, Yellen claimed that the Fed would look to raise interest rates for the first time about six months after the end of its quantitative easing program, which based on the current pace of reductions would suggest the end of the second quarter of 2015. This was slightly earlier than many had anticipated prompting the usual response from a more hawkish stance, dollar gains, rising yields on US debt and selling in equities.
Yellen was highly criticised for her first performance but quickly moved to ease market concerns when speaking last week at a conference on community investment. Yellen highlighted the importance of the easy monetary stance of the Fed and claimed the economy was far from being in a position to copy without it. She pointed to the amount of spare capacity in the economy, with large numbers of people in part time employment that wanted full time work. This was a clear attempt from the new Chair to make up for her blunder during the press conference and it worked a treat.
With Yellen having cleared this up pretty sharpish, there’s almost nothing to be gained from the minutes themselves. The one thing people may be looking at is which additional member saw the first rate hike coming in the middle of 2015 and who the additional three were that saw them rising to 1% by the end of the same year. That said, this information is barely useful and is unlikely to have much impact on the markets. This is one of the few meetings from the last few years where most of what we want to know from the meeting we already know. That said, you should never rest on your laurels when it comes to the Fed. That’s been a big lesson from recent years.
On the subject of the Fed, we’ll also hear from two officials on Monday, Narayana Kocherlakota and Charles Plosser. Both of these are voting members of the FOMC so their views are always worth listening to and can have an impact on the markets, usually more so than the non-voting members but maybe not as much as Yellen.
In terms of economic data, the week is looking very quiet, especially when we talk about the kind of releases that can significantly impact the markets. In fact, we’ll have to wait until Thursday for the first, the weekly jobless claims. Even this has less of a market mover in the last 12 months as it has been fairly consistently hovering around the 310,000 – 340,000 area. That said, it always has the potential to shock and should therefore be tracked. This week it’s expected at the lower end of that range, around 314,000.
Of the few pieces of data scheduled for this week, the most important in my opinion will be the UoM consumer sentiment reading for April. This is a preliminary reading and therefore tends to have a bigger impact on the markets. It’s debatable how good an indicator of future economic activity these readings are, not to mention how much they’ll impact the markets. Recent experience would suggest traders are tracking them closely and reacting accordingly, which makes sense when we’re talking about an economic recovery in a country that’s so dependent on the consumer. This month the number is seen rising to 81.2, in line with February’s number and wiping out the drop in March.
UK
It’s looking like an equally quiet week for the UK, with only a few pieces of economic data scheduled for release and the Bank of England decision on interest rates and asset purchases. I said earlier that the release of the FOMC minutes could be a bit of a non-event, well compared to this, that’s an absolute game changer. The UK hasn’t changed its policy stance, nor is it expected to, for a long time. The asset purchase facility and interest rates have remained at £375 billion and 0.5%, respectively, since July 2012. The only thing to change in that time has been the introduction of forward guidance and that did not last long. The central bank doesn’t even release a statement alongside the decision so a market impact is extremely unlikely.
Of the economic data being released this week, the only notable pieces are the manufacturing production, trade balance and NIESR GDP estimate. Manufacturing activity has picked up quite a bit in the last six months, with only one of these being a negative month. While this is not something to write home about, it is a sign of progress. This progress is expected to continue in February, with production rising by 0.3%.
The NIESR GDP estimate can provide fairly useful insight into the quarterly performance of the economy, especially at the end of each quarter with it being released shortly before the official first estimate. As long as this number falls roughly in line with the growth figures of the previous quarters of 0.7-0.8% I think people will be relatively happy with this.
Eurozone
As tends to be the case the week after the first of the month, it’s also looking quiet for the eurozone. In fact, there are only two pieces of data being released for the eurozone this week, the German trade balance and French industrial production. Both of these are only medium impact economic releases so are worth keeping tabs on but in all likeliness the impact on the market will be small.
They could provide useful insight into each economy though, with recent suggestions that Germany’s trade with Russia could be hurt as a result of the ongoing tensions over Crimea. Expectations are for a surplus of €18.8 billion in February, the highest since September. Of course this is a little early to show the negative impact on German trade but it will be interesting to see how much it falls off from here in the coming months.
Asia & Oceania
Without a doubt, the Asian session is going to be the most heavily impacted by economic data next week, with the calendar looked pretty packed with high and medium impact data. The most notable of the events next week is undoubtedly the Bank of Japan meeting, but this is more due to the kind of impact it could have as opposed to what is expected to happen.
Everyone appears to have accepted that the BoJ will expand its qualitative and quantitative easing program again this year to both support growth and inflation, which many don’t expect to hit the 2% target, based on its current course. The only thing people disagree on is when this will happen. There are some that think it could be as early as this week, with the BoJ preempting the downturn in the economy caused by the rise in the sales tax from 5% to 8%. You could understand if the BoJ did this given that last time the sales tax, the economy fell into recession. This would be disastrous for Abenomics as it would likely make the task of hitting the 2% inflation target even harder. Should we get an increase in the central banks asset purchases this week, it would certainly get a massive reaction in the markets.
The start of the week is going to be very quiet from a Chinese perspective, with the Monday being a bank holiday and the first piece of data not being released until Wednesday. That said, the few economic releases we have are very important, especially given the recent slowdown in the economy. The government has announced some small target fiscal stimulus measures which could provide a bit of a boost but these are very minor in comparison to past efforts so until we see the positive impact of these, the markets are likely to continue to focus on the data. The notable releases here will be the new loans and trade balance figures, both of which are expected to improve from a month earlier although the trade balance reading is expected to show a small deficit, which is a concern.
There’s plenty of data being released from Australia this week from unemployment figures, to new home sales and consumer sentiment. It is likely to be a volatile week for the Australian dollar as a result, which has performed very well recently and is showing no signs of changing. A large amount of this can be attributed to the hawkish stance of the central bank since the pickup in inflation but it could be continued this week if we get a batch of good figures.
Read the full report at Alpari News Room
