The equity markets across Asia may stay resilient this week despite the recent roller coaster moves of US stocks. The Chinese equities jumped last Friday in the hope of further stimulus taken by the PBOC, while Australian markets remain strong on rebounding mining stocks. Both Chinese and Japanese exchanges will shut down for three days for International Workers’ Day.
However, the risk remains ahead of the FOMC meeting later this week when the Fed is expected to raise interest by 50-basis points and commence its $9 trillion balance sheet unwinding by US$95 billion per month, the fastest pace on record. But any signs of scaling back on tightening may spark a turnaround in the risk assets, or a “buy the fact” factor could again help lift the risk-on sentiment.
- The US stock market has been falling throughout April due to global headwinds. However, will there will a "buy the fact" bullish factor that could provide a rebounding opportunity amid the upcoming FOMC meeting?
- Will the USD keep the bullish momentum on a widely expected Fed's 50-basis point rate-hike move? AUD may find some support if the RBA raises the interest rates for the first time in 12 years.
- Crude oil prices may remain strong on a potential EU ban on Russia’s oil export.
Key instruments to be watched
US tech stocks
In the last two weeks, the mega-cap tech companies’ earnings came with mixed results, reflecting businesses are undergoing hardships of the global economic headwinds. The tech giants’ capitalization account for roughly 20% of the total US market cap. The tech-heavy US index, Nasdaq, had its worst month since 2008, down 13.26%. But investors may look beyond slowing economic growth and merge into beaten-up tech shares to seek bargains, making a potential near-term bottom of the broader markets, while the following company earnings will keep weighing on sentiment, with Advanced Micro Devices, Uber Technologies, and Block Inc. reporting results this week. See the big techs' prices here
USD/JPY, EUR/USD, AUD/USD
The USD/JPY topped 130, a fresh 20-year high last Thursday on the BOJ’s pledge of the bond yield curve control. The sharp devaluation of the Yen suggests the Japanese economy is struggled to shrug off the decades-long deflation despite an extending stimulus monetary policy. It may change the risk-off nature of the Yen and accelerate directing funds to seek safety to EUR, and USD in the uncertain time.
The Australian dollar will be in the spotlight ahead of the RBA meeting this week. The reserve bank is expected to raise interest rate for the first time in 12 years after an unexpected spike in the first quarter CPI data, which printed at 5.1%, the highest since 2008. AUD/USD fell to 0.7060, a month-low due to a strengthening US dollar powered by the weakness of the Japanese Yen. But the AUD may have reached a near-term bottom if the RBA’s rhetoric becomes more hawkish. See the latest Short-term FX Technical Strategy. See the USD's movements here
The oil prices are gripping around the $100-mark as traders assess the ongoing impact of China’s lockdowns and a potential EU ban on Russia’s oil export. Nonetheless, oil markets will remain strong as the Ukraine war has a material impact on supply. China’s stimulus policy to boost infrastructure may also lead to rebounding demands for fuel, together with global borders reopening. See the oil prices here
Key economic data and events
FOMC meeting, ISM manufacturing PMI, US non-farm payroll
Later in April, Fed Chair Jerome Powell provided a clear indication to rate the benchmark interest rate by 50-basis points to 1% this week, with a possible move to start reducing its balance sheet. As the hawkish measures have been priced in, Powell’s further policy guidance will be more sensitive to the market's movement.
The April ISM manufacturing PMI will report on Tuesday. Consensus calls for another strong expansion of 57.6 vs. 57.1 the previous month. The April non-farm payroll is expected to add 400,000 jobs, with an unemployment rate of 3.6%, and wage growth of 0.4% m/m, suggesting the US labor markets remain tight.
The RBA policy meeting
Economists expect the Reserve Bank of Australia will increase interest by 15 basis points in the upcoming meeting this Tuesday due to an unexpected inflation spike in the first quarter. However, the RBA had indicated in its last meeting that the aggregate wage rise would be another key factor apart from inflation. A move on the rate hike will also have an unfavorable impact on the Australian election later in the month, which may weigh on the RBA’s decision.
The BOE meeting
The Bank of England has toned down its hawkish stance in the last meeting due to dampened consumers’ spending on climbing inflation. It is expected the BOE will increase the rate by 25 basis points to 1% this week, but it may slow the balance sheet reduction.
Canada and New Zealand employment data
Both Canada and New Zealand are expected to report another strong jobs data this week. Canada will report the April employment data on Friday, with an expectation of 57,500 jobs added, and an unemployment rate of 5.2%. New Zealand’s first-quarter unemployment rate is forecasted at 3.2%, the lowest since 2005. Both central banks stay hawkish on their monetary policies.
The OPEC + is not expected to change its stance on the current output increase of 400,000 barrels per day, which will not provide any pressure on the oil prices.
The Europe Week ahead
Tuesday – BP Q1 results
Bank of England interest rate decision