The talk last week was all about the expectation of an upcoming economic boom into the spring and over the summer months. Although there are current lockdowns spread throughout Europe and Canada, traders are forward-looking. With vaccines rolling out non-stop and US stimulus checks, “re-openings” are occurring, or soon will be. The US and Canada already posted strong employment data for March. This week brings Australia’s employment data. Central banks have been singing the same tune across the globe: It’s all about the jobs. Will a boom in hiring cause central banks to rethink policy? We’ll see what the RBNZ thinks this week at their Interest Rate Decision meeting. Germany and the US will hold bond auctions this week as well. In addition, banks kick off earnings season.
Is the end in sight?
Last week, coronavirus discussions seemed to be focused at opposite ends of the spectrum. On one hand, some European countries are under lockdown. Germany has restrictions and is considering lockdown. India is seeing the most daily cases since the pandemic began. Parts of Japan are under strong restrictions, including Tokyo, with the Olympics only a few months away. Ontario, Canada is under lockdown and other providences are under restrictions. On the other hand, in the US, vaccinations are occurring at a rate of up to 3 million per day! President Biden said he hopes all American citizens will be eligible for vaccination by April 19th. In the UK, the situation is similar. Nearly 46% of the population has had at least one jab. Outdoor pubs, gyms, retail shops and hair salons will reopen this week. But traders are forward-looking. Investors know that its only a matter of time before Europe and other countries are on the same path as the US and UK. And with central banks not concerned about inflation expectations or rising interest rates, stocks continue higher. The Euro was the main beneficiary of “looking ahead” this week. As the US and UK had “priced in” the recovery of the Dollar and the Pound, last week it was the Euros turn. EUR/USD was up nearly 1.23% and EUR/GBP was up nearly 2.10%! Traders will be paying astute attention to economic data moving forward. What happens if employment and manufacturing data become so strong that central banks will be forced to step on the stimulus breaks? What happens when the stimulus checks run out? What happens if inflation gets to high? These are all questions traders will be asking themselves over the coming weeks and months.
Earnings
Its that time of year again: Earnings season! As usual, banks kick things off. Last year, banks were the dogs of the stocks market as interest rates were plummeting and the world was under lockdown. This year, they may be the darlings! See our bank earnings preview. Important earnings to note this week are as follows: JPM, WFC, JD, GS, BAC, TSCO, TSM, UNH, PEP, C, MS
Economic Data
As mentioned above, the US and Canada had blowout employment numbers for March. On Thursday, we will get to see employment data from Australia. Expectations are for +35,000 vs +88,700 in February. Last week, the RBA held their Interest Rate Decision meeting and said they will keep monetary policy accommodative until actual inflation is within the 2%-3% target, which they expect to not be until 2024. They also started an additional A$100 billion bond purchase program. Both Australia and New Zealand have done a good job, thus far, at controlling the coronavirus. What happens if their employment data is much stronger than the +35,000 expected? The RBA is concerned about high house prices as well. Will they be forced to “talk down” interest rates (verbal intervention is considered a tool for monetary policy)? The RBNZ will have its Interest Rate Decision meeting this week. They are also concerned about rising houses prices but are not considering adjusting monetary policy. New Zealand will release their Q1 Employment data on May 4th. This week will also bring February GDP, Manufacturing, and Industrial Production from the UK, Germany’s ZEW, and CPI and Retail Sales from the US. On Friday, China will release all their major monthly data (as usual).
Bond auctions will also be noted this week. Traders will pay attention to the German Bobl and Bund auctions, as well as the US 3-year, 10-year and 30-year auctions. Bond traders won’t easily forget debacle of the February 25th 7-year note auction that sent yields soring higher.
Other important economic data is as follows:
Monday
- Japan: PPI (MAR)
- Japan: Machine Tool Orders (MAR)
- EU: Retail Sales (FEB)
- Canada: Business Outlook Survey (Q1)
- US: 10-Year Note Auction
- US: 3-Year Note Auction
Tuesday
- Australia: HIA New Home Sales (MAR)
- Australia: NAB Consumer Confidence (MAR)
- China: Trade Balance (MAR)
- UK: Trade Balance (FEB)
- UK: Industrial Production (FEB)
- UK: Manufacturing Production (FEB)
- UK: GDP (FEB)
- Germany: ZEW Economic Sentiment (APR)
- US: Inflation Rate (MAR)
- US: 30-Year Bond Auction
Wednesday
- Japan: BOJ Governor Kuroda Speech
- Japan: Machinery Orders (FEB)
- Australia: Westpac Consumer Confidence Index (APR)
- New Zealand: RBNZ Interest Rate Decision
- EU: Industrial Production (FEB)
- Germany: 30-Year Bund Auction
- US: Import/Export Prices (MAR)
- EU: ECB President Lagarde Speech
- US: Fed Chair Powell Speech
- US: Fed Beige Book
- Crude Inventories
Thursday
- Japan: BOJ Governor Kuroda Speech
- Australia: Employment Change (MAR)
- Germany: Inflation Rate Final (MAR)
- Turkey: CBRT Interest Rate Decision
- Canada: Housing Starts (MAR)
- Canada: PPI (MAR)
- US: Retail Sales (MAR)
- US: NY State Empire Manufacturing Index (APR)
- US: Philadelphia Fed Manufacturing Index (APR)
- US: Industrial Production (MAR)
- US: Manufacturing Production (MAR)
- US: NAHB Housing Market Index (APR)
Friday
- New Zealand: Business NZ PMI (MAR)
- China: House Price Index (MAR)
- China: GDP Growth Rate (Q1)
- China: Industrial Production (MAR)
- China: Retail Sales (MAR)
- China: Unemployment Rate (MAR)
- EU: Trade Balance (FEB)
- EU: Inflation Rate Final (MAR)
- US: Housing Starts (MAR)
- US: Building Permits (MAR)
- US: Michigan Consumer Sentiment Prel (APR)
Chart of the Week: Daily Lumber Futures (LBS)
Source: Tradingview, FOREX.com, CME
Sometimes more is less. Rather than mark up this chart with trendlines, I thought it would be nice to just look at the waves. Lumber prices are used as a leading indicator for the housing market and the commodity is currently trading at all-time highs! Lumber has been moving higher since putting in pandemic lows on April 1st, 2020 near 251.5. Five months later, it closed near 945.0. By November 1st, lumber had given back nearly half its gains, however held the 200 Day Moving Average near 493.9. Price bounced and put in another low on January 12th near 634.9. Although off by 10 trading days from the cycle low, price bottomed once again on March 17th, with another higher low near 826.3. Since then, Lumber has been on a tear higher, only closing lower on 2 days, none of which were in the last 8! According to the cycle chart, lumber may bottom again sometime near June 10th, however, note that it may be a higher low! Support is back at the February 23rd highs near 1030.4, then horizontal support near 973. Resistance above is at the 161.8% Fibonacci extension from the February 19th highs to the March 17th lows near 1162.10. Notice that the RSI is nearing extreme overbought conditions (near 80) which indicates a pullback or sideways consolidation may be ahead. Traders should be keeping an eye on this chart for possible pickups or slowdowns in the housing market.
Although there may not be any large events or expected headlines to watch for this week, the updates on lockdowns, rollouts of the vaccine, and economic data will play an important role for determining market direction.
Have a great weekend and please remember to always wash your hands!
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