The recovery in markets continued for another week with the Dow Jones Industrial’s back in the black for the year and the S&P 500 just 10 points, 0.48%, shy with a close on Friday of 2,049.58. Crude oil was down on Friday night as traders rejected a test of the 200-day moving average.
That’s a threat to the risk rally in what will be a much lighter week of data and events ahead. But that means the rally needs to proceed under its own steam without the catalyst of central bank assistance.
Whether or not stocks, commodities, bonds and the US dollar will all continue their recent moves is the big question facing traders across financial markets globally this week.
Locally, two big questions face traders. Can the ASX200 finally break higher and how far will the Aussie dollar’s rally take it? Over the course of the last week, the ASX found Monday’s high at 5214 too strong closing at 5183, up 14 points, on the week. Likewise after reaching 0.7680 on Friday, the highest level since July 2015, the Aussie closed at 0.7599 up just 36 points on the previous Friday’s close.
Central bank conspiracy theory — was the FOMC decision decided at the Shanghai G20? There is a growing conspiracy theory after the Fed delivered an extremely dovish message at last week’s meeting, after which the US dollar weakened, that a deal was made by central banks at the recent G20 meeting in Shanghai. The theory goes that the actions of the ECB, FED, PBOC, RBNZ, Norges bank and others over the past few weeks were not a coincidence. In particular, the idea is that like the Plaza and Louvre accords many decades ago, a deal was done in Shanghai to impact the value of the US dollar and in so doing, lift a weight on global commodity prices and with it the overall risk rally.
If markets are right then this risk rally could run a lot longer and further than many expect. If not, disappointment awaits.
Risk rally reckoning — can stocks rally without oil?
Oil’s selloff Friday might have been a one off pullback in what could be a continuing move higher. If so, then the risk rally, and the strong relationship between it and the rally in oil, seems assured.
But if the oil rally is indeed maxing out near the 200 day moving average at $42.73, then the rally in stocks and other assets is at risk. It’s just another of the many questions traders will be grappling with in the weeks ahead.
Australian Calendar — (courtesy NAB and Commsec Economics)
“After a busy fortnight, the so-called ‘top shelf’ economic indicators will be virtually non-existent in Australia in a holiday-shortened week (Good Friday holiday). The highlights are the latest population and wealth figures to be released on Thursday, while a speech by Reserve Bank Governor Stevens will be closely scrutinised by investors on Tuesday,” CommSec’s Savanth Sebastian wrote in his look at the week ahead.
Also out is the CBA Business Sales indicator, ANZ-Melbourne Institute consumer confidence and skilled vacancies.
How far can the Aussie dollar run? Early last week the NAB’s currency team forecast that the combination of improving market sentiment, lower volatility, improved commodity prices and a falling US dollar would drive the AUDUSD to 78 cents.
But the big question, in what appears to be an increasingly supportive environment for the Aussie dollar, is what will the RBA do or say about the AUDUSD’s rise.
The NAB economics team said in their What to Watch weekly Friday that “all eyes will be on whether Stevens makes any attempts to jawbone the currency lower, which at $US0.76, is well above the level of $US0.65 that RBA Board Member John Edwards recently nominated as a desirable level”. However, Edwards also said he would be more concerned if it was not for Australia’s good export performance. The RBA staff have been relatively neutral on the currency with RBA Assistant Governor Guy Debelle noting in Q&A Thursday that:
Most central banks want lower currencies, to push up inflation or create a bit more activity… I don’t think we’re any different from that. But obviously everyone can’t have a depreciating currency
International Calender (also courtesy NAB Market Economics)
NZ: Consumer confidence Monday, trade figures Thursday, and residential lending figures also Thursday.
China: A quiet week with no significant data.
US: Chicago Fed Activity Index, weekly jobless claims, Capital Goods and the Markit PMI, and the final release of G4 GDP with no revisions expected.
There are a number of scheduled Fed speakers. The NAB says the “highlight will likely be the Fed’s Bullard (voter) on Thursday who is speaking on the economy and monetary policy in New York. Bullard’s previous road to Damascus conversion to a more dovish stance where he expressed concerns over inflation expectations will likely be tested given the pick-up in core inflation and stability in some market measures of inflation”.
Other Fed speakers during the week include non-voters Lacker and Lockhart Monday, and Evans and Harker Tuesday.
Euro: ZEW Survey Tuesday, Consumer Confidence Wednesday and Eurozone PMIs Thursday.
UK: An important week with CPI Tuesday and Retail Sales Thursday.
Canada: A quiet week with only the Canadian Federal Budget Tuesday.
And here is the NAB’s full calendar of all this week’s data and events: