April week 4, Looking Back and Looking Forward

Looking back to the last week:

First Republic's massive exodus in deposits led to a drop in bank sector stocks and Wall Street sentiment on April week 4, while tech shares outperformed with Microsoft, Alphabet, and Meta beating earnings estimates. Meta's share price surged due to an optimistic outlook and Q1 revenue growth. The trimmed mean and weighted inflation in Q1 for Australia were lower than expected, leading to a 100% expectation of another RBA pause, despite inflation remaining above the central bank's target. Germany raised its economic growth forecast for 2023, further strengthening the euro, and the RBNZ proposed easing macroprudential requirements to stabilize their falling housing market.

These events in the global economy have affected the forex market in various ways. The announcement of the RBA's expected pause has already caused the Aussie dollar to fall, with traders anticipating less upward pressure on interest rates. Similarly, the rise in Germany's economic forecast has bolstered the euro, and the possibility of the ECB increasing the pace of quantitative tightening is likely to further strengthen the euro. Additionally, the FOMC meeting and US employment data will be closely watched by forex traders, as any weak economic data could lead to a drop in the US dollar.

Looking forward to the next week:

The week ahead (calendar):

Monday, May 1st:

• US: S&P Global US Manufacturing PMI (final), Construction Spending
• Canada: S&P Global Canada Manufacturing (final)
• Japan: au Jibun Bank Japan Manufacturing PMI (final)
• Australia: Judo Bank Manufacturing PMI (final)
• New Zealand: Household living-costs, Property transfer statistics

Tuesday, May 2nd:

• US: ISM manufacturing PMI, JOLTS Job Openings, Manufacturers’ Shipments, Inventories, & Orders
• EU: Consumer Price Index (flash), HCOB Manufacturing PMI (Eurozone, Italy, France, Germany), Intra-EU trade in goods
• UK: Nationwide House Price Index
• Switzerland: Consumer Confidence
• Japan: Monetary Base
• Australia: RBA cash rate decision, Speech by Philip Lowe, Governor, at the RBA Board Dinner, Judo Bank Australia Services PMI (final)

Wednesday, May 3rd:

• US: FOMC meeting, ADP National Employment Report, ISM Services PMI, S&P Global US Services PMI (final), Q4 Residential Vacancies and Homeownership
• EU: Industrial turnover, Building permits, Extra-EU trade in agricultural goods, unemployment
• Japan: Consumer Confidence Survey
• Australia: Retail trade
• New Zealand: Labour market statistics
• Other: S&P Global US Sector PMI (final)

Thursday, May 4th:

• US: Initial Claims, Conference Board CEO Confidence, Weekly Economic Index, Productivity and costs, U.S. International Trade in Goods and Services
• Canada: IVEY PMI, Trade balance, Fireside Chat: Tiff Macklem, Governor
• EU: ECB interest rate decision, Natural gas supply, Energy trends, Industrial producer prices (domestic), HCOB Eurozone Composite and Services PMI (Eurozone, Italy, France Germany), Trade Balance (Germany)
• UK: S&P Global / CIPS UK Services PMI (final), BOE David Bailey: Speech at the Building Societies Annual Conference 2023 'supervisory priorities and credit risk management'
• China: Caixin China General Manufacturing PMI (final)
• Australia: International Trade in Goods and Services
• New Zealand: Labour market, Building consents
• Other: JPMorgan Global Manufacturing PMI, S&P Global PMI Commodity Price & Supply Indicators, Global Supply China Index

Friday, May 5th:

• US: Nonfarm Payrolls Report
• Canada: Employment report
• EU: HCOB Construction PMI (Eurozone, Italy, France Germany), retail trade, industrial import prices, Service turnover, Industrial producer prices (external and total), Service production, Industrial Orders (Germany), Manufacturing Output (Germany)
• UK: S&P Global / CIPS UK Construction PMI (Final)
• Switzerland: Consumer Price Index, Employment situation, FX reserves
• China: Caixin China General Services PMI (final)
• Australia: Lending Indicators (Housing, Construction)
• Other: JPMorgan Global Composite PMI (final)

FOMC meeting

The odds favor another 25bp Fed hike, but traders are looking for clues to determine if it will be a hawkish or dovish hike. US employment data before the Nonfarm payroll report will also be closely watched, as weak data could lead to a drop in the US dollar.

ECB meeting

After six hikes, the ECB may choose to drop interest rates by 25bp, but the decision remains uncertain. ECB members have continued to make hawkish noises, and the lack of forward guidance in March complicates matters.

RBA meeting (and Lowe speech)

Despite inflation data being softer, the RBA may pause their rate hikes. Governor Lowe's speech is expected to provide more insight into their policy decisions. The falling Aussie and bond yields after the inflation report suggest that markets agree with a pause.