Friday ended with a risk-on tone, and China PMI data released today came in surprisingly strong. This could calm global growth fears that raged at the start of last week when global bond yields plunged, and push Indices, Aud & Nzd higher into the start of the week unless...Erdogan loses significant support in local elections and goes off the deep end.
Themes for the Week:
- BREXIT: after the 3rd loss on Friday, UK PM May is facing a new push by members of her Conservative Party to exit the EU sooner rather than later, even with a no-deal Brexit. On Monday, lawmakers will try to agree on an alternative to May's Brexit plan. The deadline is April 11th: without any clarity until then, the choice will be between May's deal or No-Deal with no time left to do anything else. May will resign on May 22nd in any case.
- US/China issues: talks between the US and China continue and the market will closely monitor comments from both sides of the table.
- RBA to join the doves? The RBA is widely expected to emphasize the downside risks, while not clearly shifting to a dovish bias.
- Yield Curve Inversions: the inverted US yield curve has analysts now expecting Fed rate cuts, but the US is by no means the only country with a yield curve inversion. The global slowdown is hitting many G10 countries and in the US in particular is creating a shortage of short-term T-Bills as worldwide investors seek the safety of the world's reserve currency within short-term maturities. The markets wil be tense still, and will react strongly to any miss in US and EU data.
- Turkey Elections: voters in Turkey are electing mayors for 30 large cities, and a main battleground for President Erdogan's party appears to be in the capital, Ankara. Opinion polls suggested the candidate of an opposition alliance, Mansur Yavas, could end the longtime rule of Erdogan's Justice and Development Party in Ankara. Another closely watched mayoral election is in Istanbul. Erdogan himself has said at campaign rallies that "whoever wins Istanbul, wins Turkey." I do suspect that the anti-establishment parties will win, but Erdogan will not accept the results and create more chaos, which might impact EM.
Data in the Week Ahead:
- China Caixing PMI
- US Retail Sales
- RBA Decision
- AU Retail Sales
- CAD Employment Change
- US NFP
On the Radar:
The best trending action still looks like it's in Indices (Dow, going up) and Bonds. Gilts and Bunds look like they want to push higher this week, although the moves in Gilts especially will be driven by Brexit headlines. The same goes for GBPCAD which is a decent short candidate technically speaking. Beyond GBP, I like the odds of further EUR weakness vs. CAD and USD. NZDCAD is also sending a decent bearish signal, and this CAD strength is driven by Crude advancing into last week's close but also by speculation the employment report will remain strong this week.
About the Author
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