Week Ahead – Markets Entering Choppy Waters

Fundamental analysis of Forex market

Wall Street seems to be finally agreeing with the Fed that inflation will be transitory. Despite all the robustness with US manufacturing and service sectors, financial markets will remain in wait-and-see mode over how high pricing pressures get and if the job market recovery continues to disappoint on labor supply issues. Wages are going up, bottlenecks over a range of products will remain the theme for months, and elevated commodity prices will keep the debate lively over when the Fed should taper.

The upcoming week is filled with another round of Fed speak and a plethora of economic releases, with many traders focusing on consumer data points. On Tuesday, the Conference Board’s Consumer Confidence reading is expected to soften from 121.7 to 119.3. The Friday release of personal income and spending will show dramatic drops as the stimulus impact wanes.

Traders will pay close attention to EU leaders summit meeting on Monday, which will include strategy over reaching the EU’s 2030 target of reducing greenhouse emissions, Brexit, and Russia. Tuesday, the IFO report should show a modest improvement in Germany. Wednesday’s RNBZ rate decision should see no change with monetary policy, but discussions over tapering bond purchases could begin.



As the US recovery accelerates concerns are growing that worker shortage problems could derail the swift labor market recovery that has been mostly priced in.  Delays in getting infrastructure spending done is also starting to weigh on the outlook.  President Biden will likely have to abandon bipartisan negotiations, but if he waits too long, the cyclical rotation trade could see a little more of an unwind.

Fed speak will come from Brainard, Mester, Bostic, George, and Quarles.  Investors will be fixated on each members’ timeline for considering a tapering of asset purchases.  The Jackson Hole Symposium is expected to happen in August and remains the favorite time for when the Fed could unveil a plan for tapering.

It is a busy week of economic releases, with financial markets focusing on Consumer Confidence, Durable goods, Personal Income and Spending, and the second GDP reading  and Fed’s preferred inflation measure, PCE Core Deflator.  If the core PCE price index rallies to 3% or higher and seems likely to remain elevated going into next year, many traders may think the Fed may have to consider an accelerated QE tapering with a rate hike before the end of next year.


On Monday, there are no economic releases out of the eurozone, with markets in France and Germany closed for a public holiday.

European Council leaders will hold a summit in Brussels on Monday and Tuesday. In this special session, the leaders will discuss how to achieve the EU’s 2030 target of cutting greenhouse emissions. Other topics include the Covid pandemic, the U.K., and Russia.

On Tuesday, the focus will be German data. The German economy is expected to contract in Q1, with a consensus of -1.7% (QoQ) and -3.0% (YoY).

On Wednesday, France releases manufacturing confidence and consumer confidence.

ECB Governing Council member Francois Villeroy de Galhau speaks at the French National Assembly finance committee. ECB Vice President Luis de Guindos speaks at a virtual conference on the topic of financial integration. EU agriculture ministers hold a two-day meeting in Brussels to discuss a reform of farm subsidies in the EU, agri-food techniques, and organic farming.

On Thursday, Germany releases GfK consumer confidence which should modestly improve from -8.8 to -5.2.

ECB Executive board member Isabel Schnabel speaks at the Forum New Economy about a new mandate for central banks. The Institute of International Finance live-streams its IIF European Summit, titled “The Role of Financial Services in a Sustainable, Innovative and Resilient Europe.”

On Friday, the eurozone releases economic confidence and consumer confidence data.

The Global Solutions Summit is being held in Berlin. Speakers include German Chancellor Angela Merkel, Italian Prime Minister Mario Draghi, UN Secretary-General Antonio Guterres and OECD Secretary-General Angel Gurria.


On Friday, Norway releases unemployment.


On Wednesday, Riksbank First Deputy Governor Cecilia Skingsley speaks on the Swedish economy and participates in a panel discussion. The central bank will also release its Financial Stability Report.

On Friday, Sweden releases retail sales and household lending.


The UK has been on a steady path to recovery, with the economy reopening. However, the next reopening phase set for June 21 could be endangered by a new Covid strain, with hotspots at London’s Heathrow airport and several other locations. This new strain has more than doubled in the UK in just one week.

On Tuesday, the UK releases public sector net borrowing(ex banking groups), which should increase slightly from GBP 28 billion to GBP 32 billion.

BOE policymaker Silvana Tenreyro presents a lecture at the Latin America Centre in Oxford, titled “Economic Challenges from the Pandemic”.

On Wednesday, BOE policymaker Gertjan Vlieghe gives a speech at the University of Bath, on the topic “What government bond yields can tell us about future growth and inflation.”

On Friday, U.K. Chancellor Rishi Sunak hosts a virtual meeting of G-7 finance ministers and central bank governors ahead of the in-person gathering in June.

Emerging Markets


The Hungary Central Bank will announce a rate decision on Tuesday. No change is expected to the current rate of 0.60%, with the bank waiting on any rate hikes.

Hungary’s inflation remains a key concern, as inflation was the fastest in Europe and the highest since 2012. At the same time, core inflation was much more stable, with a rise of only 3% in April, which was the lowest since 2019. Central bank policymakers are in a wait-and-see mode, with the bank forecasting that the rise in inflation will temporarily peak at around April’s levels before slowing to within the 2%-4% tolerance range in the summer.

Money-market traders raised bets for a rate hike in the next three months only slightly after the data was published, still broadly expecting an increase of about 15 basis points via the central bank’s most-influential one-week deposit rate. The forint has risen slightly to 355.80 per euro, far from the 370 level that analysts have circled as a potential trigger for the central bank to intervene and raise rates.


Poland President Andrzej Duda visits Turkey on Monday and Tuesday, as Poland is looking to purchase military drones.

On Wednesday, Poland releases unemployment data.


On Monday, Russia will release unemployment, retail sales and industrial production.

South Africa

On Wednesday and Thursday, South Africa President Cyril Ramaphosa appears before a panel probing graft during the rule of former South African President Jacob Zuma.

On Friday, South African releases its budget balance.


China releases Industrial Profits on Wednesday but it is unlikely to be market moving unless it diverges massively to the downside.

The week is a slow one data wise meaning that Mainland markets are likely to move in sync with US markets, unless some unexpected local headline risk is introduced. That is likely to be inthe shape of more technology clampdowns/fines, or more noise about “speculation” in the commodity space.

China’s “national team” continues to appear on the bid the moment equity markets start looking soft. A sudden drop in equity markets could occur if they suddenly make themselves scarce.


No significant data. The focus remains on India’s Covid-19 situation which has yet to show any improvement.

USD/INR continues to fall and that may accelerate next week as the fall in oil prices mean that importers will have to buy even less US Dollars.

Australia & New Zealand

No significant data from Australia. New Zealand sees the RBNZ announce its latest rate decision on Wednesday. No change is expected but as usual, it will be the wording of the statement that matters. Markets will be looking for hints of potential QE tapering given the strength of the NZ recovery. That could send NZD sharply higher.

RBNZ aside both the AUD and NZD continued to be buffeted in choppy ranges as proxies to global risk sentiment which is shifting daily at the moment. Despite the noise, both remain not far from important support levels, and a sharp reversal in risk sentiment could send both currencies lower quite quickly.


Japan adds more provinces to its Covid-19 states of emergency, a theme we are now seeing recurring all over Asia. The elephant in the room is the Olympics with a final decision on go, or no go expected later in June. A strong short-term negative for Japan markets if cancelled.

Japan equities continue to gyrate noisily in wide ranges as the retail dominant flows chase their tails in sync with US markets. The Nikkei 225 has failed a number of times to recapture its 28,300.00 downside breakout point and the chart picture still suggests the Nikkei 225 has peaked for now.

Japan releases Unemployment, Tokyo CPI, Retail Sales and Industrial Production next week. Soft inflation indicators this week will see CPI underperform, and the data should highlight that domestic activity is falling due to Covid-19, although manufacturing should be steady. Not immediately market moving.



Crude prices are respecting a relatively tight trading range that has been in place since February.  Bullish momentum from an optimistic crude demand outlook for the second half year has been exhausted and now prices are drifting lower on expectations Iranian crude output is about to steadily increase once sanctions are lifted.  The Iraninan nuclear deal could get finalized during the upcoming week and that could mean half a million barrels per day of more crude could hit the market by the end of summer.


Big bets continue to pile into gold as Treasury yields have been mostly anchored.  A laundry list of items have turned bullish for gold: central bank buying remains healthy, ETF selling has ended, Chinese demand has picked up, Wall Street has resumed betting against the dollar, growing inflation hedges, and portfolio diversification.

Traders are closely watching both the $1,850 level and psychological $1,900 level. If gold continues to rally, momentum trades could make a run towards the highs seen in early January.

Gold’s kryptonite remains surging Treasury yields and bond market volatility should remain intense throughout the summer.


Cryptocurrency traders are still licking their wounds over a price crash that almost saw Bitcoin break below the $30,000 level. China’s regulatory crackdown was one of the key bearish catalysts, but now the focus could shift to what actions should we expect from the Fed and SEC.

Now that the Fed has announced their plans to publish a discussion paper on a US central bank digital currency, every Fed member will get grilled for potential clues on what to expect on the regulatory side for cryptocurrencies.  The Consensus by CoinDesk event from May 24-27th will feature comments from Fed Governor Lael Brainard and Bridgewater founder Ray Dalio.

Bitcoin volatility should remain elevated now that the retail world is split on whether prices will stabilize from here or suffer one last crash towards $23,000 before finding the bottom.

Key Economic Events

Monday, May 24

  • A public holiday is celebrated across most of continental Europe. Canadians celebrate Victoria Day.
  • European Council leaders summit in Brussels.
  • Cleveland Fed President Mester makes opening remarks on diversity and central bank communication.
  • Kansas City Fed President George speaks at an agricultural symposium
  • Atlanta Fed President Bostic speaks on public policy response to Covid-19.
  • Consensus by CoinDesk (May 24-27) to talk about NFTs, exchanges and the role of central banks. Fed Governor Brainard and Bridgewater founder Ray Dalio will participate.  Investors will closely listen to see if Brainard gives any insights on the Fed’s report (expected later this summer) on the US digital currency.
  • Poland President Duda visits Turkey

Economic Data:

  • New Zealand retail sales ex inflation
  • Russia unemployment, retail sales, industrial production
  • Taiwan industrial production, unemployment,
  • Mexico CPI
  • Singapore CPI
  • Czech Republic consumer and business confidence
  • Poland industrial output, retail sales

Tuesday, May 25

  • Fed Vice Chair for Supervision Quarles gives semi-annual testimony before the U.S. Senate Banking Committee.
  • BOE policy maker Tenreyro gives the Guido di Tella Memorial Lecture, titled “Economic Challenges from the Pandemic”
  • BOJ Governor Kuroda, Riksbank Governor Ingves, and ECB Chief Economist Lane participate at the 2021 BOJ-IMES Conference.
  • EU monthly MARS bulletin is published, covering weather and crop conditions.

Economic Data:

  • US new home sales, FHFA house price index, S&P CoreLogic CS home prices, Conference Board consumer confidence
  • Germany GDP, IFO business climate
  • Mexico international reserves, trade
  • Hungary Rate decisions: Expected to keep interest rate at 0.60%
  • Japan machine tool orders
  • Singapore GDP, industrial production
  • UK public sector net borrowing
  • Turkey capacity utilization, real sector confidence
  • Sweden PPI

Wednesday, May 26

  • Goldman Sachs and JPMorgan CEOs testify before lawmakers in the Senate Banking and House Financial Services committees
  • Fed Vice Chair Quarles speaks at a virtual Brookings event
  • ECB Governing Council member Villeroy de Galhau speaks at the French National Assembly finance committee.
  • BOE policy maker Vlieghe speaks on “What government bond yields can tell us about future growth and inflation.”
  • Riksbank First Deputy Governor Skingsley speaks on the Swedish economy and participates in a panel discussion.
  • ECB Vice President de Guindos speaks at a virtual conference on the topic of financial integration.

Economic Data:

  • New Zealand (RBNZ) Interest Rate Decision: To keep Cash Rate unchanged at 0.25%
  • Russia CPI
  • Japan PPI, supermarket sales, leading index
  • Australia Westpac leading index
  • New Zealand trade
  • Mexico Q1 Final GDP
  • Denmark Retail sales
  • France manufacturing and consumer confidence
  • Sweden Riksbank Financial Stability Report
  • Poland unemployment
  • EIA Crude Oil Inventory Report

Thursday, May 27

  • ECB Executive board member Schnabel speaks at the Forum New Economy about a new mandate for central banks.
  • South Africa President Ramaphosa appears before a panel probing graft during Zuma’s rule
  • The Global Solutions Summit, the world policy forum, discusses responses to major global problems.

Economic Data:

  • US initial jobless claims, GDP, durable goods, pending home sales
  • China industrial profits
  • Germany GfK consumer confidence, retail sales
  • Trade: Hong Kong, Zambia, Sweden
  • Mexico unemployment, central bank meeting minutes
  • South Africa PPI
  • Switzerland imports and exports, Swiss watch exports
  • Sweden Business and consumer confidence

Friday, May 28

  • UK Chancellor Sunak hosts a virtual meeting of G-7 finance ministers and central bank governors ahead of the in-person June gathering.
  • President Biden’s fiscal year 2022 budget request to be released
  • Global Solutions Summit speakers include German Chancellor Merkel, Italian Prime Minister Draghi, UN Secretary-General Guterres and OECD Secretary-General Gurria.

Economic Data:

  • US personal income/spending, wholesale inventories, University of Michigan consumer sentiment, Chicago PMI
  • Eurozone economic confidence, consumer confidence
  • France GDP
  • Sweden GDP
  • New Zealand ANZ consumer confidence
  • Japan Tokyo CPI, jobless rate
  • France CPI
  • Portugal retail sales, consumer confidence
  • Italy PPI
  • Sweden retail sales, household lending
  • Norway unemployment
  • South Africa budget balance
  • Baker Hughes rig count