Asia markets are expected to be volatile as the US first-quarter earnings season kicks off this week. Broader markets paused amid more aggressive tightening plans unveiled by the US Federal Reserve to counter high inflation. Whether businesses can cope with the tough environment with ongoing war-induced disruptions and less stimulus monetary policies are key factors in focus for market sentiment in the week ahead.
Key Points
- US banks' first quarter's earnings may send jitters to the broader markets. But investors could look for dip-buying opportunities
- Oil faces near-term pressure due to massive reserve release from the US and its allies but it is not a permanent solution to undersupply
- Currency markets are to be volatile amid the three central banks' policy meetings. Both NZD and CAD could reach a near-term peak against the EUR.
Key instruments to be watched
US bank stocks
The big US banks, including JP Morgan Chase & Co, Citigroup Inc, Goldman Sachs Group Inc, Morgan Stanley, and Wells Fargo & Co, will kick start the first-quarter earnings reports. Since February, the US financial sector has been hammered by a combination of factors. Bank stocks suffered from sanctions on Russia due to extensive exposure to Russian debt. Also, the flattening yield curves and the Fed’s plan for balance sheet reduction are all pointing to shrinking profit margins. Whether the big banks can weather the storm is the key price mover. At the same time, it is a short week with some crucial economic data and events before the Easter weekend. See the US bank stocks moves
Oil, gas, and gold
The crude oil price faces near-term downside pressure after the joint efforts of the oil reserve release by the US and IEA countries, along with weakening fuel demand amid China’s lockdowns. At the same time, the natural gas price surged to a fresh 13-year high due to new sanctions on Russia. Gold has been moving in a tight range lately but may face pressure as the USD strengthens to an 18-month high amid surging bond yields. See commodity prices
The Canadian dollar and New Zealand dollar
The two commodity currencies have lost steam last week as the USD firmed on spiking US bond yields. However, both local central banks, the BOC and the RBNZ are expected to be more aggressive with their rate hikes this week. The strong commodity prices also lend strength to the currencies. Fundamentally, both CAD and NZD will continue to hold the upside momentum against the low yielder’s currencies, such as JPY and EUR. Technically, however, the bearish signals are merging in the cross pairs of CAD/JPY, CAD/EUR, NZD/JPY, and NZD/EUR. See the currencies pairs' moves
Key economic data and events
US CPI, PPI, and retail sales
The upcoming US economic data will provide more clues as the Fed looks at more aggressive tightening moves. Investors may also expect higher inflation and product costs, in which the March Consumer Price Index is estimated at 8.5% YoY, and the Producer Product Index at 8.4% YoY. But a positive read on the retail sales could balance off the worry if consumption stays strong at the same time, which is forecast at 0.6% MoM.
Reserve Bank of New Zealand policy meeting
The RBNZ faces an ongoing dilemma when it comes to the rate decision. On one hand, high inflation and overheated housing markets are urging the central bank to take more aggressive measures to slash the spiking cost of living. On the other hand, diving business confidence and a strong local currency are not what the policymakers want to see. As markets have priced in a more aggressive approach from the Reserve Bank, a 25-basis-point rate hike will not be enough to lift the New Zealand dollar.
Australian employment data
Australian employment is expected to keep its strong momentum. Consensus calls for 40,000 new jobs that have been added in March, with the unemployment rate dropping to 3.9% from 4.0% in February. The country will go to the polls for a federal government election on May 21.
Bank of Canada policy meeting
Markets have priced in a 50-basis-points rate hike by the BOC amid a strong labor market, decades of high inflation, and overheated housing markets. The Canadian unemployment rate dropped to 5.3%, the lowest since 1976 March. And the headline inflation rose to close to 5.7% in February. The central bank is also expected to commence balance sheet unwinding, which allows asset holdings to mature, known as Quantitative Tightening.
European central bank policy meeting
The war and ongoing sanctions on Russia doomed the Eurozone’s economic outlook. However, the odds are skewed to a more hawkish tone from the ECB in the upcoming policy meeting this week amid spiking inflation but no interest rate changes are expected.
Europe's Week Ahead
- UK March CPI - Tuesday
Tesco full-year results - Wednesday
UK February wages, unemployment - Tuesday
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