FX Majors Weekly Outlook (10-14 April)

UPCOMING EVENTS:

Monday: European Markets closed for Easter Monday.

Tuesday: NFIB Small Business Index.

Wednesday: US CPI, BoC Policy Decision, FOMC Minutes.

Thursday: US PPI, US Jobless Claims Jobless Claims Jobless claims are a weekly statistic reported in the United States that represents a key barometer for domestic employment. As one of the most closely watched US indicators, jobless claims carry a lot of weight in financial markets, namely forex and the stock market.Jobless claims are reported on a weekly basis by the Department of Labor. While painting a picture of the overall health of the economy, jobless claims can be broken down into two types.This includes initial jobless claims or person Jobless claims are a weekly statistic reported in the United States that represents a key barometer for domestic employment. As one of the most closely watched US indicators, jobless claims carry a lot of weight in financial markets, namely forex and the stock market.Jobless claims are reported on a weekly basis by the Department of Labor. While painting a picture of the overall health of the economy, jobless claims can be broken down into two types.This includes initial jobless claims or person Read this Term.

Friday: US Retail Sales, UMich Consumer Sentiment.

Last week, we got a series of notable misses on top tier economic indicators. The ISM PMIs showed big drops from prior readings and Jobless Claims missed estimates with a big upward revision for the prior report. Now, the market should focus more on how the mid-March banking crisis shaped the economic landscape and the above-mentioned indicators capture that period. So, we may have had early signals that the economy has took a hit and it may be worse going forward as the Fed is determined to keep policy tight.

This brings me to the market reaction to the NFP report last Friday. The data was good, no doubt, but as I mentioned in the previous weekly outlook, the report captures data until the 12^{th of} March. So, it doesn’t show the effects of the banking crisis. For this reason, I would say that this week’s Jobless Claims report is more important, and I wouldn’t be surprised to see the last week’s reaction to be faded completely if Jobless Claims show another notable miss.

Tuesday: The NFIB Small Business Optimism Index is not a market mover generally, but there are certain times when the markets start to care more about something because the context suggests so. The current narrative in the market is that the banking crisis of mid-March may cause some credit crunch and the first businesses to be impacted by that would be the small ones.

Small businesses in the US employ almost half of the US workforce, so it’s a pretty big part of the economy. The index is already at levels that in the past coincided with recessions, but what the market may focus on the most should be the Hiring Plans Index. Below you can see the correlation between the Hiring Plans Index and the Unemployment Rate.

Chart from @francesdonald on Twitter

Wednesday: The US headline CPI is expected at 5.2% vs. 6.0% prior for the Y/Y figure and 0.3% vs. 0.4% prior for the M/M reading. The Core Y/Y is expected at 5.6% vs. 5.5% prior and for the M/M at 0.4% vs. 0.5% prior. This report should decide the next FOMC rate hike. After the NFP report the market priced 70% chance for a 25 bps move. In the current context, I expect a miss to have a greater impact than a beat.

The Bank of Canada is expected to keep rates unchanged as they went on pause the last meeting. Latest inflation data missed estimates, so the BoC can remain on hold for now. I don’t expect the market to care much about it since it will be more focused on the US CPI report.

The FOMC Minutes shouldn’t be a market mover since it’s a three-week-old thing and we already know everything that it may contain. The Fed is data dependent, so the incoming data will shape their decisions.

Thursday: The US PPI is expected at 3.1% vs. 4.6% prior for the Y/Y figure and 0.1% vs. -0.1% prior for the M/M reading. The Core Y/Y measure is expected at 3.3% vs. 4.4% prior and the M/M reading at 0.2% vs. 0.0% prior. I don’t expect it to be a market mover unless we see a miss.

The US Jobless Claims last week surprisingly missed expectations and the prior numbers were revised a lot higher possibly pointing to early cracks in the labour market. I think that this week’s report may be a big market mover and if they show another notable miss, then the market may start to position for the recession trade. Initial Claims are expected at 205K vs. 228K prior. The recession trade is generally long treasury bonds, gold and yen, and short equities, commodities and commodity currencies.

Friday: US Retail Sales are very volatile, but they can be market moving, nonetheless. The market should react more on a miss than a beat given the current context. The headline M/M reading is expected at -0.4% vs -0.4% prior and the Core measure at -0.3% vs. -0.1% prior. The Control Group is expected at -0.4% vs. 0.5% prior.

The University of Michigan Consumer Sentiment Index is expected at 62.7 vs. 62.0 prior. I expect the market to focus more on a miss than a beat, with particular focus on the inflation expectations numbers.

This article was written by Giuseppe Dellamotta.