Drivers for the Week Ahead

  • The dollar is likely to build on its recent gains
  • As one of the few high frequency indicators, weekly jobless claims will continue to hold the spotlight; FOMC minutes for the March 15 decision will be released Wednesday
  • US March budget statement will come out Friday; Canada data highlight will be March jobs data Thursday
  • Oil prices are giving back some of their recent gains on reports that Saudi Arabia and Russia remain at odds
  • Germany has a heavy data week; UK has its monthly data dump Thursday; after a nice break from Brexit-related headlines, they’re back and they’re not good
  • Japan has a heavy data week; RBA meets Tuesday and is expected to keep policy unchanged

The dollar is likely to build on its recent gains.  DXY has retraced nearly two thirds of its March drop and a break of the 100.87 area would set up a test of the March high near 102.992.  The euro made a new low for this move near $1.0765 and is on track to test the Mach low near $1.0635.  Sterling has held up relatively better but feels heavy after failing to break above the $1.25 area.  Lastly, USD/JPY traded at a new high for this move but needs to break above the 109.90 area to signal a bigger move higher.

 

AMERICAS

As one of the few high frequency indicators, weekly jobless claims will continue to hold the spotlight.  Consensus sees another 5 mln initial claims to follow last week’s 6.648 mln.  If so, this would mean over 15 mln became jobless in the past three weeks.  March jobs data came in at -701k vs. -100k expected, but the worst is yet to come.  The claims data suggest we will likely get a reading near -15 mln this month, which is simply astounding.

FOMC minutes for the March 15 decision will be released Wednesday.  At that meeting, the Fed expanded its QE program and left it open-ended.  As such, the minutes are likely to reflect a very dovish stance on policy going forward.  We have no doubt that the Fed will continue to address stresses that appear in various areas of the financial markets.  Mester is scheduled to hold a virtual forum on the US economy and the coronavirus Friday.

Inflation data for March will be reported this week.  PPI comes out Thursday.  Headline is expected at 0.5% y/y vs. 1.3% in February, while core is expected at 1.2% y/y vs. 1.4% in February.  CPI comes out Friday.  Here, headline is expected at 1.6% y/y vs. 2.3% in February, while core is expected at 2.3% y/y vs. 2.4% in February.  At this point, it’s clear that inflation data have no bearing on Fed policy.

Besides the inflation readings, the US reports some other minor data this week.  February JOLTS job openings (6500 expected) and consumer credit ($14 bln expected) will be reported Tuesday.  February wholesale trade sales and inventories along with preliminary University of Michigan consumer sentiment (75.0 expected) will be reported Thursday.  Sentiment is expected to plunge to 80.0 from 89.1 in March.

The March budget statement will come out Friday and deserves some mention.  Why?  Well, a deficit of -$150 bln is expected and that’s probably the last “good” reading we’ll get for a long time.  Revenues are likely to dry up now, while expenditures will rise sharply.  These unprecedented conditions are likely to see annual budget deficits blow out to at least $4 trln, probably more.

Canada data highlight will be March jobs data Thursday.  Consensus sees -500k jobs, which is equivalent to a -5 mln reading for the US.  The unemployment rate is seen rising to 7.5% from 5.6% in February.  Like the US, jobless claims here point to an awful number that is only likely to get worse in April.  Ahead of that, the Bank of Canada releases its Q1 business outlook survey Monday.  March Ivey PMI will be reported Tuesday.  March housing starts and February building permits will be reported Wednesday.

 

EUROPE/MIDDLE EAST/AFRICA

Oil prices are giving back some of their recent gains on reports that Saudi Arabia and Russia remain at odds.  The virtual meeting planned for OPEC+ has been delayed to Thursday from Monday.  No reason was given, but Saudi Arabia and Russia have both been pointing fingers at each other regarding the recent collapse in oil prices.  To further muddy the waters, President Trump over the weekend threatened to slap tariffs on imported oil to support the domestic oil industry.

Germany has a heavy data week.  It reports February factory orders Monday, which are expected to fall -2.5% m/m.  IP will be reported Tuesday, which is expected to fall -0.9% m/m.  Trade and current account data will be reported Thursday, with exports expected to fall -1.0% m/m and imports by -0.7% m/m.  The German economy has held up relatively well compared to Italy and Spain, but more pain lies ahead.

UK has its monthly data dump Thursday. February GDP, IP, construction output, and trade will all be reported that day.  GDP is expected to rise 0.1% m/m, while IP is also expected to rise 0.1% m/m.  Construction output is expected to rise 0.3% m/m, while the trade surplus is expected at GBP1 bln vs. GBP4.2 ln in January.

After a nice break from Brexit-related headlines, they’re back and they’re not good.  Newswire reported last week that UK official are showing no desire to extend the transition period beyond December 31.  Most (including us) felt that talks would have to be delayed due to the coronavirus.  Now, it appears that the UK is willing to accept a bare bones trade deal with the EU this year.  Or worse yet, a possibility of no deal at all.  This is simply another reason to be bearish sterling.  Cable has given up nearly a quarter of its March rally.  Retracement objectives from the move come in near $1.2075 (38%), $1.1950 (50%), and $1.1820 (62%).

 

ASIA

Japan has a heavy data week.  February cash earnings and household spending will be reported Tuesday.  Real earnings are expected to contract -1.1% y/y, while spending is expected to fall -3.3% y/y.  February core machine orders (-3.0% m/m expected) and current account data (adjusted JPY2.02 bln expected) will be reported Wednesday.  March machine tool orders will be reported Thursday, followed by March PPI (-0.1% y/y expected) Friday.  The BOJ is expected to remain on hold for now, though WIRP suggests 33% odds of a cut at the next meeting April 28.  We think fiscal policy is likely to carry the load for the coming months.

Indeed, details of the Abe government’s record JPY60 trln ($554 bln) fiscal stimulus package are expected this week.  One facet that has emerged is a plan to give JPY300k ($2,768) to households that are impacted by the virus.  The payments will somehow be targeted based on need, which means that the timing is likely to get bogged down.  Senior LDP official in charge of tax policy said the consumption tax was unlikely to be lowered, but added that other taxes should not be raised.

Reserve Bank of Australia meets Tuesday and is expected to keep policy unchanged.  The bank has signaled that 0.25% is considered the lower bound, and yet WIRP suggests 55% odds of another cut this week.  It just cut rates and introduced QE and so another move now seems very unlikely.  Right before the decision, February trade will be reported.  AUD has given up nearly a third of its March rally.  Retracement objectives from the move come in near .5945 (38%), .5860 (50%), and .5780 (62%).