Geopolitical risks will add to edgy market tone. The markets were fairly resilient to news of the U.S. missile strike on a Syrian airbase, on top of a soft March jobs report. But after knee-jerk risk-aversion trades, the focus shifted back to the bearish implications of the FOMC minutes where the discussion of balance sheet normalization suggested a more hawkish Fed stance versus the view of a “dovish tightening” on March 15th. Lots will be in play this week. Traders will look to gauge the global reaction and fallout from Syria, while inflation and production data highlight the economic calendar. Easter holidays will quiet trading into the weekend.

United States: U.S. markets were whipsawed Friday by the surprise news of the missile strike on Syria and the much weaker than expected jobs report, while late afternoon comments from NY Fed’s Dudley knocked bonds and stocks lower. Syria sparked flight to safety, risk aversion trade, which saw bond yields and stock prices dive. But, Dudley’s remarks that suggested a potential delay in rate hikes once balance sheet normalization began would only be a “little” pause, started a selloff and Treasury yields bounced closed at session highs. This week’s economic calendar is light, with key reports not out until Friday, where the markets will be closed for Good Friday. Hence calendar doesn’t come into focus until the end of the week when March CPI and retail sales will be reported. CPI is expected to be flat in March after edging up 0.1% in February. Retail sales for March are also expected to be unchanged following the 0.1% gain in February, due to weakness in gas and autos. The preliminary April consumer sentiment index from the University of Michigan survey is also on tap (Thursday). Confidence is projected to have bounced to 97.5, after edging up to 96.9 in March from February’s 2.2 point drop to 96.3. Other data during the week includes February JOLTS job openings, along with the NFIB small business survey (Tuesday), trade prices for March, along with the Treasury budget (Wednesday), as well as weekly initial jobless claims and March PPI (Thursday).

Fedspeak: Fed Chair Yellen will be on tap (Monday) when she will speak at the University of Michigan Ford School of Public Policy. She will also take questions, and it’s likely she’ll be asked to expound on normalization of the balance sheet, as well as the Fed’s rate path. The dovish voter Kashkari will participate in a Q&A session (Tuesday). And the centrist-hawk Kaplan will speak (Wednesday).

Canada: The BoC’s announcement and Monetary Policy Report (MPR) dominate the domestic proceedings this week. The announcement (Wednesday) is expected to reveal no change in the current 0.50% policy setting alongside a cautiously constructive take on the growth and inflation outlook. Economic data is confined to just a few releases, but they are of interest. Housing starts (Monday) is expected to show a 210.0k growth rate for March, which would be little changed from the firm 210.2k rate in February. The manufacturing survey (Thursday) should show a 1.0% drop in shipment values during February after the 0.6% gain in January. A broad-based 2.4% plunge in February export values underpins our manufacturing shipment estimate. The new home price index (Thursday) is anticipated to rise 0.2% m/m in February after the 0.1% increase in January. The Teranet/National Bank housing price index for March is due Wednesday. Markets are closed Friday for the Good Friday Holiday.

Europe: The focus this week will be mainly on the final March inflation numbers. The initial readings came in lower than anticipated, but were impacted by the later timing of Easter this year, which also means holiday related prices should pick up later. So, the expected confirmation of German HICP (Thursday) at 1.5%, the French at 1.4% and the Italian at 1.3% y/y does not change the overall view that inflation is trending higher against the background of ongoing growth and improvements in labor markets. The highlight of the week is German April ZEW Investor Confidence (Tuesday) expected to rise to 13.2 from 12.8, with geo-political risk factors, the prospect of further Fed tightening, and the ECB’s discussions on rates tapering expected to weigh on sentiment and prevent a more pronounced improvement. Other releases include Eurozone production numbers (Tuesday), while Germany sells EUR 3 bln of 10-year Bunds (Wednesday).

UK: The calendar this week is highlighted by March inflation data (Tuesday) and employment numbers covering February and March (Wednesday), along with the March BRC retail sales survey (Thursday).

Japan: The February current account surplus (Monday) is expected to widen to JPY 2,500.0 bln, from 65.5 bln in January. February machine orders (Wednesday) are penciled in at up 3.0% versus the 3.2% decline in January. March PPI meanwhile (Wednesday) is forecast to heat up to 1.3% y/y from 1.0% in February. Revised February industrial production is due Friday.

Australia: Australia’s calendar is headlined by the Reserve Bank of Australia’s Financial Stability Review (Thursday), which is published twice a year. Economic data features March employment (Thursday), expected to show a 10.0k rebound in total jobs following the 6.4k decline in February. The unemployment rate is projected at 5.9%, matching February. A 1.0% gain in housing finance (Monday) is anticipated for February after the 0.5% improvement in January.

New Zealand: New Zealand’s calendar is again sparse. Retail card spending (Tuesday) is of some interest however, as spending is seen rebounding 0.3% m/m in February after the 0.6% decline in January that was the first pull-back in five months.

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Andria Pichidi

Market Analyst


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