Market News – Dollar continues to surge on interest rate outlook

Dear Reader,   It’s a holiday shortened week, with the Easter break starting with Good Friday when all markets are shut. Markets remain shut next Easter Monday apart from North American markets which are open as usual.   Review of last week’s key action   FTSE +131 +1.75% DOW unch S&P +56 +1.27% NASDQ -59 -0.43% DAX -162 -1.13% NIKKEI -680 -2.46% Hang Seng -167 -0.76%   Equities sold off last Wednesday in reaction to the Fed minutes from the last FOMC meeting, where policy makers said they would act aggressively with rate rises if needed. The Fed also announced its plans to shrink its massive balance sheet, accumulated over the past dozen years or more. Lael Brainard effectively trailed this in a speech last Tuesday as bond markets adjust to the reality that the Fed may well be behind the curve. Markets expect a full 0.5% hike in rates at the next FOMC meeting on 4th May. Analysts now expect the ECB to start raising rates soon, although it’s unlikely to be at this next policy meeting this Thursday.   EURUSD -1.71 -1.54% GBPUSD -0.78 -0.6% USDJPY +1.74 +1.42%   The US dollar rallied further last week as investors priced in the possibility of aggressive Fed tightening. The yield on US treasuries has risen to a 3-year high – with the closely watched 10-Year treasury Bond yielding 2.64%. Only a month ago the 10 year was yielding 2.01%.   The French Presidential election looks more in the balance following yesterday’s first round. Marine Le Pen, from the right, will challenge Macron in the run-off poll on the 24th of April. Although Macron was the convincing winner, with just two candidates in the run-off, pollsters believe the outcome will be very close. A win for Macron would be positive for the euro in terms of stability and the devil you know, the opposite the case for a victory for le Pen.   Gold +22 +1.14% UK OIL -2.1 -2.01% US OIL -1.59 -1.6% Bitcoin -4,031 -8.7%   Gold remains constrained between the effects of the massive global event in Ukraine and a sharply higher US dollar. The chart clearly shows a significant amount of support in the $1920-$1905 region. This will be key and needs to hold if the precious metal is to push back above $2,000.   Crude oil continues to slip back down with US Oil falling back below $100/barrel. The inability of the EU to agree on any Russian oil & gas embargo has reduced further supply pressures. Hungary has announced that it would effectively veto any move to embargo Russian energy whilst Germany and Austria would find it impossible to manage their needs with a complete embargo. Germany believes will be able to wean itself off Russian energy in 2023 but for the time being the EU has paid €34 Bln to Russia for energy whilst providing just €1.5 bln financial aid to Ukraine. That’s where the problem lies.   Data / events for the week ahead   Although a shortened week with the Easter celebrations starting this Friday, there are some key releases before then.   Monday   Germany    ZEW economic sentiment indicator. A survey of investor sentiment from German institutional investors and analysts.   Tuesday   US              Inflation data. CPI – headline data is year on year change. The headline rate is expected to hit 8.4%, up from 7.9% – the highest rate since 1981. Whilst the core rate, which excludes food and energy, is expected at 6.6%, up from 6.4% last month. Markets will react negatively if this rate is worse than these predictions. Equities, bonds, USD and commodities all sensitive to this news.   US              FOMC member Lael Brainard speaking again. Last Tuesday she made it clear that the Fed would have to start shrinking its massive balance sheet in the months ahead, especially if the Fed remains behind the curve in its battle with inflation.   Wednesday   NZ              RBNZ policy meeting. Expect another increase of 0.25% to 1.25%. contrast this with the Australian position.   UK              Inflation data. CPI expected to rise to 6.7% from 6.2%. This will result in an inevitable rise in rates at the next MPC meeting on 5th May. GBP and Gilts sensitive.   US              PPI – producer Price Index – the costs of goods and services going into production.   Canada      Bank of Canada policy meeting. Expect BOC to raise rates by 0.5% with inflation tracking higher and as record high employment and record high house prices show no sign of abating.   Thursday   ECB           Monthly policy meeting. No change this time around although the ECB has become noticeably more hawkish – about time, many would say. More likely a rate rise in the June meeting. Euro, European equities all sensitive to this announcement.   US              Core retail sales. Expect better number than last month.   US              Prelim UoM consumer sentiment.   Friday   Markets closed   OK, so that rounds up what’s ahead this week.   I hope you have a good week in the markets. Check out the live trading webinar dates on this page – sign up for your free session.   Regards,   Jerry Miller Managing Director Trendsignal