Vaccine rollout success in the US has Wall Street quickly pricing in rapid growth during the recovery stage. The trend in daily new cases is rising in the US but the successful vaccine rollout will make any sharp accelerations short-lived. The Biden administration is vaccinating 1.2% of all adults per day and that should make it very easy to hit the new goal of delivering 200 million COVID shots in hisfirst 100 days. Economic data is starting to get better in the US as jobless claims declined to a pandemic low. The country is about to quickly reopen, and the economy could run even hotter if Biden is able to deliver infrastructure spending this year.
Investors are prepared for some hot inflation prints but if expectations grow that the acceleration will last more than a few months, global bond yields could surge.
The upcoming week should be less busy with traders focusing on China’s PMI data, an important OPEC+ meeting on output, and the US nonfarm payroll report.
Country
US
Now that President Biden has doubled his vaccination goal for his first 100 days, expectations are growing that the economy could run even hotter this summer. COVID cases are starting to trend higher in the US but the risk for a major reversal with the reopening theme seems unlikely. The US is vaccinating around 2.5 million Americans a day, which is about 1.2% of all adults per day.
Some soft inflation data has helped provide a steading US Treasury yield curve and that has brought some calm to financial markets. The focus for the upcoming week will be primarily on the labor market. Now that some states have fully reopened, the nonfarm payroll is expected to post the strongest job increase in months. Traders are expecting to see 628,000 jobs created in March, a significant increase to the 379,000 positions filled in February.
Much attention will also remain with the Biden administration’s effort to move forward with his legislative agenda. On Wednesday, President Joe Biden will unveil his multitrillion-dollar infrastructure plan in Pittsburgh. If Wall Street becomes optimistic that Biden might have a chance to win over enough Republicans, GDP growth forecasts could massively get upgraded.
EU
The vaccine rollout in the EU has gone poorly, prompting EU officials to threaten to halt export shipments of AstraZeneca vaccines. The bloc has blamed AstraZeneca for failing to deliver on promised doses, but critics charge that the EU is demonstrating ‘vaccine nationalism’. The EU threat to halt vaccine deliveries to the UK has damaged relations between the two sides and weighed on the British pound.
The vaccine crisis overshadowed the EU Summit on Thursday. EU leaders stopped short of a ban on vaccine exports but agreed to toughen export controls and called on AstraZeneca to “catch up” on its deliveries to Europe.
On the fundamental front, manufacturing remains a bright spot in the eurozone economy, highlighted by Germany, which showed strong growth in February with a read of 66.6. The second-estimate PMIs are expected to confirm the initial readings and show manufacturing growth throughout the bloc.
In Germany, retail sales were dismal in January, coming in at -4.5% MoM and -8.7% YoY. The February data is expected to improve, with a street consensus of +2.0% MoM and -4.9% YoY. Unemployment surprised in January with a read of +9 thousand, its first rise in seven months. This was considerably worse than the forecast of -9 thousand. The February estimate stands at -1 thousand.
UK
The British government has set up a timetable to gradually lift health restrictions and the “stay at home” order should be lifted on March 29th. However, working from home is encouraged and many restrictions remain in place.
UK Mortgage Approvals have been slowing and fell below the 100K level in January, dropping from 103 thousand to 99 thousand. The February data will be released on Monday.
The UK will release Final GDP for Q4 of 2o20 on Wednesday and the final PMI readings on Thursday. The majority of the focus will be on strongly the economic activity picks up following he end of many pandemic restrictions.
Emerging Markets
Turkey
Global currency markets were rocked last week as the Turkish lira plummeted 15 per cent on Monday and fell close to its all-time low. The lira sank after Turkish President Erdogan fired the Governor of the Turkish Central Bank, Naci Agbal. The currency managed to recoup half of its losses after the country’s finance minister pledged that Turkey would adhere to free-market rules, but the potential for lira weakness to accelerate in Turkey’s toxic political environment remains a strong possibility.
Poland
Poland, which is the European Union’s largest eastern member, saw its currency fall to its lowest level since 2009. The Polish zloty fell 0.2% in early Friday to 4.6433 per euro. The zloty has declined by 2.6% in March, making it the second-worst performer in the emerging markets after the Turkish lira.
The EUR/PLN trade is becoming overcrowded, as concerns are growing that the worsening Covid pandemic will hamper Poland’s economic recovery and put a strain on the budget.
China
China releases Industrial Profits on Sunday which should signal whether the official and Caixin Manufacturing and Services PMI’s on Wednesday and Thursday will outperform. A weak number will pressure Asian equity markets on Monday morning. Likewise a downside miss on the PMI’s is likely to weigh more heavily on China equities than upside from a positive print.
China’s “national team” intervened in Mainland stock markets on Thursday sharply reversing a 2.5% slump. However both the Shanghai Composite and CSI 300 are in bearish correction territory. The government backstop threatens to make further downside more painful if it does not appear in force on each dip. If US markets also correct this may become problematic for authorities.
China’s tech crackdown has spread to Tencent and threatens to envelop other major players. Along with geopolitical tensions, especially delisting threats from the US, any rallies in China tech heavyweights will remain limited. China appears to also be threatening boycotts of major Western companies in China that move production from Xinjiang or implicitly criticise the government. That may spook foreign investors.
The Yuan has remained stable just above 6.5000, limiting the contagion of higher US rates and the Dollar in China and Asian EM as a whole.
India
Covid-19 cases are spiraling again in parts of India with the government allegedly bringing in an unofficial vaccine export ban. (India is the world’s largest vaccine producer) Both headlines should weigh on Indian equities which have struggled this week even as the INR shows surprising strength on foreign inflows. If Covid-19 cases rapidly increase from here, that may weigh on oil prices with India the 3rd largest importer.
India releases Q4 External Debt on Monday. As one of the countries most exposed to US Dollar strength, a sharp rise may spook investors. March Balance of Trade on Thursday is expected to improve slightly although higher oil prices will continue to erode it.
The INR has proven invulnerable to US Dollar strength although the Sensex ends the week 3.0% lower. With India forex reserves climbing to the 4th highest in the world, markets appear reluctant to sell the INR and test the RBI. Reserves data on Friday may show an even larger accumulation, limiting short-term INR downside. But a deeper US bond selloff next week (perhaps after Biden announces initial infrastructure package details) leaves both the INR and Indian equity markets vulnerable to an EM taper tantrum.
India remains one of the most vulnerable countries to rising US yields and commodity prices due to its weak current account and foreign currency denominated debt.
Australia & New Zealand
The New Zealand Dollar plunged after surprise government property price control measures took any immediate threat of RBNZ tightening of the table. Fragile risk sentiment and a firm greenback eroded both AUD and NZD and the technical picture on both is in firm downside correction territory.
Australian equities are treading water with steeper yield curves and firm commodity prices supporting banks and resources but weighing on other sectors. The technical charts show the ASX 200 in danger of joining the All Ordinaries in downside correction territory. Both are vulnerable to a weaker Wall Street next week.
New Zealand has no significant data, but Australia releases its Trade Balance, Retail Sales and Home Loans on Thursday. Although likely overshadowed by US Non-Farms on Friday, they should all show the strong recovery continues in Australia but are unlikely to be enough to support equities if external forces are strongly negative.
Japan
Japan has a heavy data release schedule in the coming week. The highlights being Retail Sales on Tuesday, Industrial production Wednesday and the Tankan report on Thursday. It should show an improving manufacturing picture, while highlighting domestic demand remaining soft. That picture is unlikely to change with Japan announcing that no foreign visitors will be allowed for the Olympics.
The Bank of Japan has decided to stop buying Nikkei 224-linked ETFs, concentrating on Topix related ones. That has weighed on Nikkei 225 sentiment with volatile intraday trading as it follows US markets in the past week. The technical picture remains negative with failure 28,300.00 heralding another large move lower.
Watch the 10-year JGB auction on Thursday. This is the first major one after the BoJ also announced a wider trading band for JGB’s. A weak result, with a higher than expected yield will negatively impact local equities. Perversely, it may also spur Yen strength on repatriation flows.
Markets
Oil
Energy markets will remain fixated over the Suez Canal blockage and if OPEC+ has any surprise production cuts in store for next week’s meeting. The uncertainty over how long it will take to dislodge the massive cargo ship will continue to weigh on oil prices. The situation could be resolved when tide picks up over the coming days or it could take weeks. One growing risk is that since the vessel is hung up on bags, if too much stress is relieved at the ends, the hull could crack and lead to an oil spill and worse closing the canal for months.
The upcoming OPEC+ meeting should be a validation of the cautious stance in ramping up output in the coming months. Expectations are for production to remain unchanged, but given the rise in global cases, a small surprise cut should not be ruled out. The emerging market and European Covid vaccine rollouts will likely lead to a much slower pickup in demand over the next couple of months.
Gold
Gold is stuck in limbo until we get a much better outlook for inflationary pressures, which will also determine investors’ outlook for global bond yields. The stronger dollar that has been a drag for gold prices remains in place but could be ending soon. Gold ETF selling has been relentless but is showing some signs of slowing down.
Bitcoin
Bitcoin weakness stemmed from concerns retail interest is fading. That might not be the case as many traders were focused on the expiration of nearly $6 billion in Bitcoin options. Many investors closed out positions leading up to the Friday expiry and could be ready to jump back in next week.
Bitcoin volatility is not going away anytime soon, so traders should not be surprised to see 20% swings in both directions over the next few weeks.
Key Economic Events
Saturday, March 27
Economic Data/Events:
- China industrial profits
Sunday, March 28
- Most European clocks advance one hour on Sunday for Daylight Savings Time.
Monday, March 29
- England’s “stay at home” is expected to end today.
- Fed Governor Waller speaks at an event with the Peterson Institute for International Economics.
Economic Data/Events:
- UK mortgage approvals, money supply
- Ireland retail sales
Tuesday, March 30
- New York Fed President Williams speaks on “The Role Small Business Plays in Building Financial Resilience for the 50+”
- Riksbank Governor Ingves will speak on “Sweden’s role in an internationalized world and the meaning of Sweden being a small open economy”.
Economic Data/Events:
- US FHFA House Price Index, S&P Case-Shiller House Prices, and Conference Board Consumer Confidence Mar: 96.0 estimate v 91.3 prior
- Australia building approvals
- China Mar Manufacturing PMI: 51.2 estimate v 50.6 prior
- Japan unemployment, retail sales, supermarket sales
- Australia ANZ Roy Morgan consumer confidence, weekly payroll and wages
- New Zealand building permits
- Eurozone economic/consumer confidence
- Spain Retail sales
- Poland industrial production, retail sales
- Mexico international reserves
- Finland unemployment
- South Africa money supply, monthly budget balance
- Spain CPI
- Poland CPI
- Germany CPI
Wednesday, March 31
- The Federal Reserve has signaled the emergency SLR exemption will not be extended.
- Official results in Israel’s election are expected to show Netanyahu has no clear path to remain Prime Minister.
Economic Data/Events:
- Australia retail sales, trade balance, manufacturing PMI, private sector credit, building approvals
- Unemployment: Brazil, Colombia, Germany, Denmark
- Chile unemployment, industrial production
- China PMI
- UK GDP
- Denmark GDP
- Eurozone CPI
- France CPI
- Italy CPI
- Poland (preliminary) CPI
- Singapore money supply, foreign-currency deposits
- Thailand BoP, manufacturing production index, capacity utilization
- India fiscal deficit, eight core industries growth, BoP
- Japan housing starts, construction orders
- Hong Kong budget balance, money supply
- UK Nationwide house prices
- Australia private sector credit, building approvals
- New Zealand ANZ business confidence
- Netherlands retail sales
- Turkey trade balance, economic confidence
- Japan industrial production
- South Africa Trade
- Thailand Trade
- EIA Crude Oil Inventory Report
Thursday, April 1
- OPEC+ meets to discuss production levels for May.
- Philadelphia Fed President Harker speaks at a virtual Fintech symposium.
Economic Data/Events:
- US construction spending, ISM Manufacturing Mar 61.0 estimate v 60.8 prior, initial jobless claims
- German Retail Sales
- Czech Republic GDP
- Russia GDP
- Manufacturing PMI readings for Eurozone, France, Germany, UK, Thailand
- Japan vehicle sales, Tankan index, Jibun Bank PMI, monetary base
- Thailand business sentiment index
- China Caixin PMI
- Czech Republic budget
- Singapore URA private home prices
- New Zealand ANZ consumer confidence, CoreLogic house prices
- Australia trade, AiG performance of manufacturing index, Markit PMI, CoreLogic house prices, job vacancies, commodity index
- South Africa manufacturing PMI
- Turkey manufacturing PMI
Friday, April 2
- Many banks across Europe will be closed for Good Friday. SIFMA recommends an early market close in the US for the trading of U.S. dollar-denominated fixed income securities.
Economic Data/Events:
- US Mar Change in Nonfarm payrolls: 600K estimate av 379K prior; Unemployment Rate: 6.0% estimate v 6.2% prior
- Japan monetary base
- Thailand foreign reserves, forward contracts
Sovereign Rating Updates:
- France (S&P)
- Poland (S&P)
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