The Week Ahead
It's a relatively quiet week ahead on the data front following the Easter weekend, and for numerous countries the Easter Monday holiday means yet another shortened week for markets anyway. Nevertheless, the focus will be on the IMF and World Bank Spring meetings that will feature several prominent speakers, including Fed Chair Jerome Powell.
Of course, the Covid-19 pandemic will remain in the spotlight over the coming week, as case numbers have risen noticeably at the global level over the last month, with Europe at the epicentre of risk.
After month/quarter-end flows dominated price performances, plus a shortened week with no immediate catalysts post-US stimulus details, the current themes broadly hold. Still, as we move into April, active management is more likely to drive portfolio performance as we head into earnings pre-announcement season. Given the extreme moves occurring, it seems likely that price reactions to earnings will be keenly watched.
Still, whatever suggestion there was about "everything being in the price" might not necessarily be the case. And by the looks of last weeks price action, there’s still potentially a long catalyst runway courtesy of the reopening and vaccine narrative – not to mention the arrival of those stimulus checks feeding directly into corporate profits, which is not necessarily reflected in earnings yet.
Indeed, markets remain incredibly resilient despite all the yield fears.
With the recovery well underway, there’s a crazy amount of uncertainty surrounding how it will unfold. The jobs recovery, fiscal and monetary policy uncertainty, and US GDP growth in 2021 are examples of these dynamics. The amount of uncertainty around the employment report is rather extreme, and there’s little agreement among economists on where the March employment figures will land. Growth is making a comeback but, again, there’s no agreement about timing, scale or Fed policy implications. I guess at this point the only thing certain about the outcome is uncertainty itself.
Whilst the headlines have been dominated by whales (big ships, big margin calls, big stock debut moves), market dynamics haven't changed much; the value rotation continued to take hold; banks being better than tech and value entering momentum strategies; a powerful passive tailwind. Still, vaccine rollouts are ultimately driving the bus.
So, with the grand reopening but a function of time plus fiscal stimulus and consumer spending to drive growth, the overall picture appears to be on track, following through on US President Joe Biden's plan for an "economic rejuvenation", which continues to resonate through the cross-asset backdrop. With Spring in the air, volatility is collapsing everywhere.
We can ponder the ISM print, a rebound in auto sales, above-consensus payrolls, and a significant sequential jump in retail sales and industrial production, but service spending is picking up as those stimulus checks are hitting the real world (dining, lodging and air travel). The stimulus effect coinciding with increased vaccinations and the arrival of warmer weather could be a game-changing panacea for risk.
RBA (Apr 6) needs to decide whether to extend the yield-curve-control target from Apr 24 to Nov 24, given the 3y yield has risen back above the 0.1% target in spite of the bank raising repo costs on YCC bonds.
From mid-April, RBA will also be extending and expanding the current QE program by $100bn, as announced in the February decision, which will give additional pressures for RBA to extend YCC target. FOMC (Apr 7), ECB (Apr 8) and Banxico (Apr 8) will release meeting minutes.
In the March FOMC meeting, there were three new members forecasting hikes in 2022, resulting in a more hawkish tone in the minutes than Powell's tone during the press conference (see above). There’s also a lineup of Fed speakers – Bostic (Apr 2), Evans (Apr 7), Kaplan (Apr 7), Bullard (Apr 8), Powell (Apr 8) – where the risk is tilted towards a more optimistic tone or more talk around an eventual QE taper.
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With markets relatively quiet ahead of the FOMC meeting, eyes turn towards exotics; Global equity markets continue consolidating; Oil prices extend gains