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First thing first, it should be noted that disappointing labor market data means that the Fed will not make changes to the quantitative easing (QE) policy any time soon, which cannot but inspire the markets. No surprise markets jumped on Friday. Yet the risks of inflation continue to float in the air.
In theory, a rise in the CPI could spark a debate about a change in the Fed’s monetary policy. Most analysts are betting that annual inflation will jump to 3.6% in April. On the other hand, Jerome Powell has repeatedly stated that the rise in inflation is a temporary phenomenon due to the rise in commodity prices. However, unless price pressures begin to ease in a few months, the reaction from both policymakers and investors will not be as muted.
In China, investors worry about credit growth. The Politburo recently announced the need to dampen speculation in the housing market and the government’s role in managing financial risk – perhaps indicating where reforms or tightening could arise.
This comes after months of volatility in debt markets, defaults by state-owned companies in November, and trouble with bad credit giant Huarong. If the central bank starts to act, perhaps we will see a correction in the Chinese markets.
Another major development will be the gradual opening of Europe from coronavirus restrictions, which will help boost the economy. In particular, Germany has begun to loosen restrictions on those fully vaccinated or recovered from Covid-19. France will begin to ease the night curfew from May 19. Gradually, the campaign to vaccinate the population is gaining momentum and it is expected that by the end of the summer the EU will reach its goal of delivering the first doses of vaccine to 70 percent of the adult population. Brussels’ recommendations to loosen restrictions for some countries is also spurring airline stocks.
In the end, I would like to note that geopolitical risks are growing again, but at the moment the markets are not paying attention to this.
Monday
Apart from the publication of data on new loans and foreign direct investment in China, no special events are expected on Monday. However, on Monday the pound sterling may be subject to volatility due to the victory of the independence supporters in Scotland. In addition, France is threatening to de-energize Jersey due to disputes over fishing quotas in the English Channel.
Tuesday
On Tuesday, data on consumer price inflation in China, the US NFIB Small Business Optimism Index, JOLTS job openings in March, and data on weekly US crude oil stocks are due out.
Thus, oil futures and the American stock market will be under scrutiny. On the one hand, the deterioration in the labor market means that the Fed will continue the monetary policy, on the other hand, it will indicate some weakening in the economic recovery.
Wednesday
In the middle of the week, there will be data on consumer price inflation in India for April, industrial production in India for March, consumer price inflation in Germany for April, UK GDP, UK trade balance for March, data on industrial production in the Eurozone for March, consumer price inflation in the US for April and US monthly budget for April.
We remind you that the Fed expects a temporary rise in inflation. If the data indicate the need to start thinking about raising rates soon, the US dollar may strengthen.
Thursday
Thursday is the day of data on bank lending in Japan, the wholesale price index in Germany, initial claims for unemployment benefits in the US, and producer prices in the US.
The extension of the state of emergency in Japan due to the coronavirus pandemic will result in economic losses of 1 trillion yen ($ 9.2 billion), reducing the prospects for a sustainable economic recovery by the end of the year. Thus, the Japanese yen will remain under pressure.
Friday
At the end of the week, there are data on retail sales in the US, industrial production in the US, inventories in the US for March, and consumer sentiment in the US.
Macro data from the US has a direct impact not only on the yield of Treasury bonds but also on the dollar, which in turn puts pressure on commodities.
Following companies will publish first-quarter earnings results: Marriott, BioNTech, Tyson Foods, Electronic Arts, Toyota, Wendy’s, Fossil, Bumble, Allianz, SoftBank, Walt Disney, Airbnb, Burberry, Door Dash, Petrobras, Aurora Cannabis и Alibaba.
