Equities | FX | Global | Rates
Markets to Watch This Week: FOMC and BoE in Focus, with NFP to Follow
- By Bilal Hafeez
- 1 min read
Market Moves
The US Dollar continued to strengthen, with DXY up 2% on the week. Meanwhile, CNH continued to weaken (-3.1 std-devs over the past week) – Bert suggests remaining short CNY until the PBOC stops the move. JPY also weakened, driven lower by a continually dovish Bank of Japan. Meanwhile, a less bullish outlook on commodity had seen commodity currencies fall over the past week.
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We standardise price changes across different markets to allow for cross-market comparisons.
Market Moves
The US Dollar continued to strengthen, with DXY up 2% on the week. Meanwhile, CNH continued to weaken (-3.1 std-devs over the past week) – Bert suggests remaining short CNY until the PBOC stops the move. JPY also weakened, driven lower by a continually dovish Bank of Japan. Meanwhile, a less bullish outlook on commodity had seen commodity currencies fall over the past week.
Metals underperformed once again, continuing their downtrend as real yields trended higher. The US 10-year TIPs yield returned above 0% for just the second time since the start of COVID-19. Gold was down 1.0 std-devs for the week, and it’s high-beta partner, silver, was down 1.6 std-devs.
Sweden 2-year swaps rose 2.3 standard-deviations last week as the Riksbank raised their repo rate by 25bps, against a market expectation for no hike until June. They signaled at least two more hikes are to come in their remaining three meetings for the year. Norway 2-year swaps also moved 1.0 std-devs higher. In APAC, Australia 10-year swaps rose 1.5 std-devs on the back of higher inflation (5.1% YoY). Meanwhile, this morning, the RBA hiked their cash rate by 25bps (above consensus) and committed to no longer reinvesting the proceeds of the Bank’s government bond holdings as they mature. Afterwards, the 2-year swap added over 20bps.
Earnings season left equities mixed. Tencent’s share price jumped 2.2 std-devs as the Chinese government announced it planned to normalise regulation and ‘promote the healthy development of the platform economy.’ Meanwhile, the disappointment in Amazon’s earnings led it 3.1 std-devs lower. Globally, equity indices are generally struggling to perform, with the Hang Seng and FTSE the only indices within our selection to see positive performance.
High yield credit spreads widened. Both the Euro (+1.8 std-dev) and US HY CDS (+1.5 std-dev) leaked wider over the past week.
Markets this week
This week, the spotlight turns to the FOMC meeting. Dominique expects a 50bps hike and for the Federal Reserve to push back against a 75bp hike in June. Looking further out, she sees the terminal Fed funds rate likely reaching 8%. Today (4pm UK / 11am ET) she’ll lay out her case (register here for the webinar). Turning to the data for the week, Dominique sees more scope for a positive, rather than negative surprise at Friday’s NFP reading. Elsewhere, the Bank of England is expected to raise another 25bps, but may use its new MPR forecasts to dampen market expectations for tightening further out. You can read Dominique’s view on the week ahead and our COVID trackers here.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.