This week’s US data holds some risk for traders to hold exposures over, but as we gear up for the 22 March FOMC meeting, the eyes of the world really look forward to Jay Powell’s Congressional testimony (7 March) as the next tier 1 event risk.
We could see some better volatility conditions leading into that speech.
For this week, while we get a few Fed speakers, the February FOMC minutes are largely stale but could still hold some nuggets for the market to work with. Expectations for US core PCE look a tad low, with the consensus not having been adjusted for the big PPI surprise.
We get idiosyncratic global event risks that could be volatility events, but unlike US data which resonates through multi-asset markets, they should be confined.
Global events to put on the radar
Canadian CPI could impact the CAD in a big way if we get a hot number above 6.3%.
The Reserve Bank of New Zealand (RBNZ) meeting could be also one to put on the radar. The market prices 44bp of hikes here, and NZD implied volatility is priced higher than other FX pairs. While inflation is rampant in NZ, the announcement of the state-wide emergency in response to Cyclone Gabrielle could see the RBNZ look to reduce the blow to households, such as we saw for the support to the Christchurch earthquake. I am not sure that hits home and households feel the support on a below-expectations 25bp hike, so it’s either 50bp (consensus) and be the bad guys (but they have a job to do right?) or leave rates unchanged in my mind. The latter is an outcome that could mean the NZD gets smacked off the bat. A compelling risk-reward event-driven view here when only 1 of 22 economists are calling for it. Although I’d be getting out quickly on that.
Aussie wages hold significance. The bigger reaction in the AUD comes if the market gets a sense that the Reserve Bank of Australia’s (RBA) sanguine view on a wage-price spiral is misplaced. If YOY wage growth moves above 3.5%, it could get spicy. AUD positioning, however, sees leveraged accounts (typically hedge funds) already long and the market AUDUSD is far more correlated to copper, AUS-US 5yr yield differentials and USDCNH.
AUDNZD looks the better play for trading Aussie data and the daily looks ready to kick higher. I am on notice.
Staying on the positioning vibe, I notice the JPY is by far and away the professional leveraged accounts’ biggest long exposure at present – this could get tested this week with incoming Bank of Japan (BoJ) governor Ueda speaking as part of a panel, while CPI could push further higher and see calls for an end to YCC kickback. Both clear risks for JPY and Nikkei225 exposures.
- The first full trading week of the year awaits
- A high-stakes week for traders in global markets
- Central Banks, inflation data, and key event risks
Equity market moves
On the equity side, we continue to watch the USD and bond market plays. The terminal fed funds pricing (now 5.28%) looks fair and I can’t see it moving much higher than 5.3% at this point. Equity markets could find some support from that, but the bears will want to see 4050 give way in the S&P500, and 12,200 in the Nasdaq100. That’s where the buyers are stepping in and a daily close below here could see a higher volatility priced.
The HK50 always gets a good look-in from clients and that’s seeing better-trending conditions, with traders selling into rallies into the 5- or 8-day Exponential Moving Average. Earnings from Alibaba [HKG:9988] and Baidu [HKG:9888] this week could impact the HK50, especially Alibaba given the implied move and sizeable weighting a HK$2.11t market cap hold.
A big week of ASX200 earnings
On the earnings side, in the US, while 81% of corporates may have reported, this week we get earnings and outlooks from several of the big retailers and that could impact at a macro level too. In Australia, we’ve seen 47% of the Aussie index report earnings, with 63% of those having beaten (or come in line) expectations on EPS, while 67% have beaten on sales, with an aggregate 12% sales growth seen. It’s the big week of earnings here too, with this being the week where the biggest absolute number of companies hit the wires. BHP [LON:BHP], Rio Tinto LON:RIO, Woolworths [ASX:WOW], and Quantas Airways [ASX:QAN] to name a few.
Play of the week?
CADCHF is one of the best mean reverting plays at present, with the market playing an ever-narrowing trading range – 46 days in a 200-pip range. The Bollinger Band squeeze could result in something explosive, and as we’ve seen in the past five years the cross can have some explosive moves when it does break out after a quiet period.
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