This week the market will usher in a series of heavyweight economic data, including the U.S. April non-farm payrolls report, Powell and a number of Fed members will speak again, the United Kingdom this week ushered in the central bank interest rate resolution and local elections, will also become the focus of the market.
① Powell with many senior Fed officials to speak intensively
At 2:20 a.m. Tuesday, Federal Reserve Chairman Jerome Powell speaks on community development. Other Fed officials speaking this week include.
Tuesday (May 4), FOMC permanent vote member and New York Fed President Williams speaks at an online annual symposium.
On Wednesday (May 5), FOMC member for 2021 and San Francisco Fed President Daley spoke; FOMC member for 2021 and Chicago Fed President Evans spoke on the current economic situation and monetary policy in a conference on the U.S. and global economy; and Boston Fed President Rosengren spoke at an online event.
Thursday (May 6), Cleveland Fed President Mester speaks at an online event at the Boston Economic Club; Evans speaks; Williams delivers opening and closing remarks at an online event hosted by the New York Fed; Dallas Fed President Kaplan speaks.
On Friday (May 7), Meister participated in an online event; Kaplan hosted an online event on U.S. and global economic issues hosted by the bank.
The market expects most Fed officials to continue their dovish tone in the coming month until substantial further progress is made on employment and inflation. However, it is worth mentioning that Dallas Fed President Kaplan, who has FOMC voting rights in 2023, said on April 30 that it is appropriate to start discussing adjustments to the pace of QE purchases now, and that he believes the unconventional policy of fighting the epidemic should be withdrawn sooner, rather than later, adding that there are excesses and imbalances in financial markets.
His speech made the day’s medium- and long-term U.S. bond yields short-lived lower, the dollar index refreshed its daily high back above 91, and U.S. stocks collectively fell by an extended margin. Kaplan has expressed similar views several times since April 9, and he will make two more appearances this week.
St. Louis Fed President Bullard had also said on April 12 that QE tapering could be discussed when the vaccination rate reached 75% or even 80%. But Powell still insisted at last Thursday’s press conference that it was too early to discuss QE tapering.
These are hints that there are differences of opinion among Fed officials. If an official releases a position different from Powell’s again this week, it is likely to trigger market turmoil again.
②Australian Fed rate resolution may bring downside risk to the Australian dollar
On Tuesday (May 4) at 12:30, the Australian Federal Reserve will announce its interest rate decision as well as the target for the 3-year Treasury bond yield. Of the 25 economists surveyed by Reuters, all but one predicted that the May 4 Australian Fed meeting will not change the policy rate; most economists expect the policy rate to remain at 0.1% until mid-2023.
While the previously released minutes of the Australian Fed meeting acknowledged the improving economy and rising house prices, the Australian Fed also insisted that rates will likely remain at 0.10% until at least 2024.
Mitsubishi UFJ, on the other hand, believes that the recent disappointing performance of Australia’s economic data suggests that the economic recovery is beginning to lose its upside momentum, with potential inflation falling to a record low, and the market is expected to increase expectations that the Australian Fed will further extend quantitative easing beyond September, with the Australian dollar facing some degree of downside risk.
However, strong commodity prices and a weaker U.S. dollar brought support to the ANZ currency. Iron ore prices have risen more than 30% in the past month and copper prices are at a 10-year high. A team of analysts at Westpac said the sharp rise in iron ore prices in the face of record Chinese demand and continued tight supply remains a superb positive for the Australian dollar, and expects AUD/USD to fluctuate within a wider range of 0.76-0.80.
③The UK ushered in “Super Thursday”
This week’s Bank of England interest rate resolution and the British regional elections will jointly affect the movement of the pound.
On Thursday (May 6), the Bank of England will publish the interest rate resolution, minutes of the meeting and the monetary policy report, the Bank of England Governor Bailey will hold a press conference. Analysts expect the BoE is likely to signal plans to scale back asset purchases, though it will not be a precursor to a rate hike. The Bank of America expects that the BoE may scale back its bond purchases in May.
Meanwhile, the U.K. will hold regional and local elections on May 6, including a vote in Scotland that is expected to produce a pro-independence majority government. If the Scottish National Party retains its majority, it is expected to continue to push for a second independence referendum. This poses a major risk to the U.K. and threatens to hit the pound hard.
Prime Minister Johnson currently holds a majority of seats in Parliament, the opposition is unlikely to make much noise, but recent allegations of misconduct against Johnson will undoubtedly add pressure on the British government. Johnson is under pressure from a series of accusations concerning his response to the new crown outbreak, who funded his redecoration of the prime minister’s residence and an investigation into private information leaks from his office.
The current easing of the UK’s new crown restrictions is boosting the pound higher against the dollar, with GBP/USD rising towards 1.40, but Westpac believes that the UK’s domestic issues are threatening to limit the pound’s upside, with GBP/USD expected to remain in the 1.38-1.42 range until May 6.
④ U.S. April non-farm payrolls or “explosive”, the U.S. index is expected to rebound, gold to hold 1765 is the key
This Friday, the United States will release the non-farm payrolls report, after adding 916,000 jobs in March, economists predict that the number of new jobs may reach 1 million in April.
According to Dow Jones, economists surveyed generally expect the unemployment rate to fall from 6% to 5.8%, and new jobs may reach 978,000.
Jefferies economists’ forecasts range from about 700,000 to 2.1 million, with the unemployment rate expected to fall from 6 percent to 5.8 percent.
Standard Chartered Bank expects this non-farm payrolls to add employment may be as high as 1.5 million or more.
If this non-farm payrolls report is very hot, the market’s expected timing of the Fed’s tapering of bond purchases may be brought forward.
In addition to focus on the U.S. employment number change, investors will also focus on payroll data, because this may affect the U.S. inflation performance, and thus provide guidance on the gold price trend.
Speaking to Kitco News, Bart Melek, head of global strategy at TD Securities, said.
“Payrolls data is very important. Generally speaking, any unexpected rise will push up inflation expectations. That could depress real interest rates, which would be a good catalyst for gold.”
Economies.com writes that if gold can break above the $1,776.50/oz level, the market is still expected to hit the $1,800/oz mark afterwards. According to the article, gold prices tested $1765 per ounce again during Friday’s session, but then rallied back above this level, which makes the bullish trend scenario still valid. But if gold prices fall back below $1765/oz and stay below that level, this will suspend the bullish scenario and turn the short-term outlook for gold prices bearish. economies.com expects that 1760 and 1800 will constitute short-term support and resistance for gold prices, respectively.
In addition, the dollar index is expected to see a brief rally as non-farm payrolls arrive.
In a report to clients, analysts at Westpac wrote that the dollar index may try to rally in the coming days as expectations shift to the U.S. April nonfarm payrolls report, which is expected to be strong this week, but the rally will be very short-lived as Fed officials will emphasize Powell’s absolutely dovish stance. The report said the dollar index could fall below the 90 mark in the short term, but the depreciation trend is more likely to be gradual rather than a sharp dive.
Petr Krpata, chief exchange rate and interest rate strategist at ING, also said that U.S. short-term real interest rates are already sharply negative, and with the U.S. consumer price index (CPI) rising sharply this quarter, real interest rates are set to fall further, which could be negative for the dollar, especially given that the rest of the world (that is, Europe) will see a rebound in its economy in the coming months.
In fact, since Powell last week to those betting that the Fed is ready to “turn hawk” expectations threw cold water, the euro bulls have been out in force. Foreign exchange analysts say the euro’s April rally will continue. According to CFTC data for the week ending April 27, leveraged funds reduced the net short position in the euro to the lowest level since early March.
Strategists at Commerzbank expect EUR/USD to rebound to 1.23 by the end of the year from its current level of about 1.20. Bloomberg Intelligence is even more bullish, predicting that EUR/USD will reach 1.25 in the summer due to the ramp-up of vaccinations in Europe and optimism about the economy. Citigroup also raised its forecast for the euro, expecting EUR/USD to reach between 1.25 and 1.275 by the end of the third quarter.
(5) India’s epidemic could change the picture again
The Indian epidemic is of particular concern and will remain a risk factor for markets this week.
India has consistently exceeded 300,000 new cases in a single day for the last three weeks. Biden on Friday issued a restraining order restricting travel from India to the United States, which will take effect on Tuesday. Biden said India accounts for more than one-third of the new cases worldwide. Prior to the U.S. action, several countries and regions, including Britain, France, Germany and Canada, have imposed entry restrictions on India.
In addition, the severity of the Indian outbreak could exacerbate global vaccine shortages and influence the direction of the global epidemic, and the emergence of virus mutations in India could affect changes in vaccine efficacy. These are likely to change many of the assumptions about a seamless global economic recovery ahead, as well as the expectation that central banks will gradually slow down their money printing later this year.
Crude oil markets will also be particularly concerned about the outbreak in India, the world’s third largest oil consumer. Japan, another major crude oil importer, saw a sharp 25% year-on-year drop in imports in March. This could disrupt the recovery in oil demand, and the resulting worries have put downward pressure on oil prices. On Friday, international oil prices retreated from a six-week high.
In a report, Energy Aspects analysts said the recovery in demand after the outbreak remains uneven, and the surge in new crown cases in India is a timely reminder that it is too early for oil prices to rise to $70 per barrel. Analysts said this level may not be reached until the third quarter of this year, when demand will show substantial improvement and de-stocking will be over.
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