By Michael Brown, Senior Research Strategist, Pepperstone
Financial markets were given a series of jolts last week, as volatility ratcheted higher once more, as participants digested another hotter-than-expected US CPI report, while also grappled with mounting geopolitical risks, and much else besides. Ultimately, though, a dash for havens proved the dominant theme, with the dollar notching its best week since September ‘22, stocks slipping once more, and gold rallying to fresh record highs. Over the week ahead, as the data docket thins out a touch, attention will remain on incoming geopolitics news flow, as well as the continuation of Q1 corporate earnings season.
It goes without saying that geopolitical developments will be traders’ primary focus over the course of the week ahead, with participants remaining attuned to developments in the Middle East. Any further escalation in tensions would likely see renewed haven demand.
Beyond this, however, another intriguing week of economic events awaits, even if the data docket is a little quieter than it has been of late.
Inflation is the primary focus this week
It is here in the UK where things are, perhaps, most interesting, with the ONS set to release the latest jobs (Tuesday), inflation (Wedsnesday) and retail sales (Friday) figures this week. Although concerns remain over the accuracy of the employment data, unemployment is expected to have risen to 4.0% in the three months to February, while earnings growth should continue to cool, with regular pay seen rising 5.5% YoY over the same period, 0.1pp slower than previously.
Inflation, of course, remains the primary focus for the Bank of England (BoE), however, and is set to have cooled further in March. Headline CPI is seen rising 3.1% YoY, 0.1pp below the February rate, while core inflation should cool to 4.1% YoY, from 4.5% prior. This should leave the UK on track to achieve the 2% inflation target, albeit briefly, in the spring, while a cooler than expected print would likely see the market dovishly reprice BoE expectations, with the GBP OIS curve currently assigning a roughly 50:50 chance of a June rate cut from the ‘Old Lady’.
Inflation figures are also due from plenty of other G10 economies this week, including Canada, Japan, and New Zealand. The Canadian figures, due Tuesday, are of considerably more interest than usual, given the openness with which Bank of Canada (BoC) Governor Macklem discussed a June rate cut last week.
China economy expected to grow
Other notable data points due this week include the latest Australian jobs report, which is likely to show a +10k rise in employment in March, though unemployment is set to rise to 3.9%, from 3.7%, resuming the trend of higher unemployment seen since last September. Meanwhile, China release a slew of activity figures, including last month’s industrial production and retail sales stats, as well as Q1 GDP. The economy is expected to have grown 4.8% YoY in the first quarter, slower than the 5.2% YoY pace seen at the end of 2023, though a healthy pinch of salt is – as always – required when interpreting this data.
In the US, this week’s data highlight stands as Monday’s retail sales report, with sales set to have risen 0.4% MoM in March, on both the headline and control group metrics, further reinforcing the case for ‘US exceptionalism’ continuing, as growth remains anaemic elsewhere. A busy slate of Fed speakers also awaits, including Fed Chair Powell on Tuesday, plus 14 other policymaker appearances.
US earnings season in full flow
Last, but by no means least, earnings season continues this week, with 44 of the S&P 500’s constituents set to report, including 6 members of the Dow Jones. Standout releases include the continuation of bank earnings with Goldman Sachs [NYSE:GS] (Monday), Morgan Stanley [NYSE:MS] and Bank of America [NYSE:BAC] (both Tuesday) set to report, along with the embattled UnitedHealth [NYSE:UNH] (also Tuesday), the largest stock in the Dow by weight, and Netflix [NASDAQ:NFLX] reporting after Thursday’s market close.
In summary, while geopolitical headlines will naturally steal significant market attention, and provoke substantial reaction if indicative of any escalation, market moves of this ilk are likely to be relatively short-lived. Overall, the path of least resistance continues to lead higher for equities and for the dollar, over the medium-term, as widening policy divergence continues to support the latter.
