For me, the first week of the month is always the most exciting and interesting in terms of economic announcements and potential trading opportunities. As we move into the second quarter of 2019, there are all manner of themes that depending on your opinion, can move markets in any which way. Two that strike me are the US Federal Reserve’s abrupt capitulation on an interest rate hiking strategy and the fiasco that is playing out in the UK over BREXIT.
Last week, three crucial data announcements for US markets; US Consumer Confidence, the final reading of 4th quarter GDP, and Core PCE (The Fed’s preferred measure of inflation) all failed to meet analysts’ expectations. Consumer Confidence was way off the mark, coming in at 124.1 versus expectations of 132.5. 4th quarter GDP came in at 2.2% versus expectations of 2.3%, and Core PCE underwhelmed at 1.8% versus expectations of 1.9%, confirming a declining CPI print (1.5%) of 2 weeks ago. In the UK, Prime Minister Mrs. May, doggedly tried to push through her BREXIT agreement with the European Union, which failed once again, as she continues to be unable to persuade the UK Parliament. The UK has two weeks to hash out a plan, otherwise they will leave the EU with “No-deal.” The British pound closed the week down at 1.3036 and GBP option implied volatility is climbing.
We hit the ground running on Monday, with Eurozone CPI (expected at 1.5% Y/Y for March), US Retail Sales (exp 0.3% M/M for February), ISM manufacturing (exp 54.3 for March), Canadian Purchasing Managers Index (expected 52.8 vs lasts month’s 52.6) and a speech from Bank of Canada Governor Stephen Poloz later in the evening. US Retail sales and ISM Manufacturing are timely indicators, with perhaps Retail Sales being the one to watch. (A slow down in consumer spending, confidence and inflation may cause the US President to come out on the offensive against an already jittery Fed!)
On Tuesday, the Reserve Bank of Australia is likely to keep interest rates on hold at 1.5% despite some analysts calling for a rate cut. I’d be very surprised if they cut. On Wednesday the US ISM services Index is expected to decline to 58 from the previous month’s 59.7. US ADP employment figures are expected to hold steady around the 180k mark.
On Thursday, the European Central Bank releases minutes of its latest interest rate policy meeting, and on Friday we have the simultaneous releases of both Canadian employment numbers (expected to drop by 10,000 jobs with the unemployment rate staying steady at 5.8%) and US Non-Farm payrolls. Can Canada back up last week’s better than expected GDP print (1.6% vs 1.3% expected Y/Y for Jan) with a strong jobs report? Will US Non- farm Payrolls surprise to the upside or disappoint again? Payrolls is expected at 175K. Expect a revision to last month’s derisory +20k. If payrolls prints anything less than 175k, then we may see US equity markets get rattled! (A good gauge is Wednesday’s ADP number.)
Gold spent most of last week in a congestion zone. With all the big data due out this week, we may see Gold push north of 1300 oz, particularly if there are some downward surprises to key US releases!
Good luck and good trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You can Too.