Key event-risk is not hard to find on the economic calendar this week, with the US Federal Reserve’s rate decision taking the top billing given the markets’ heightened sensitivity around the future path of interest rates.
Add US payrolls data into the mix as well as other central bank decisions from around the globe and it’s fair to say that traders will not be found wanting for potential market catalysts in the week ahead.
The FOMC will probably hike rates by 25bp this week, but it’s the language used in the accompanying remarks which will sway market mood one way or the other.
With recession fears still circling, traders wouldn’t be jumping for joy to say the least if the Fed signals that rates have not yet peaked.
Elsewhere, the European Central Bank (ECB) and the Reserve Bank of Australia (RBA) are all set to announce rate decisions as well. The RBA will be the first cab off the rank among central banks this week and it looks to be a toss of the coin whether we get a continuation of the pause or not.
Even if the RBA does pause, with inflation still uncomfortably above the target band it would not surprise if Governor Lowe takes a hawkish tone to set the table for more hikes down the road. But with that said, this is most definitely a live meeting and a rate hike on Tuesday would be in keeping with recent rhetoric by RBA officials.
It was a bit of a sleepy start to the trading week with many markets closed for the start of May. For the markers that were open, trading was upbeat following the solid US close. In Australia, the local bourse advanced ahead of the Tuesday RBA meeting, with energy, health and utilities stocks leading the charge.
This despite the weaker PMY data released by China over the weekend. In Japan, the Nikkei pushed higher with a weaker Yen, certainly not doing the stock market any harm in the wake of the BOJ meeting last Friday. Yen continues to struggle on the prospect of lower rates for longer with new Governor Ueda happy for the time being to adopt the same dovish tone as his predecessor.
The euro continues to hover around the 1.10 mark against the greenback, with outcomes by the FOMC and ECB meetings this week likely to be the determining factor in deciding how much more upside the single currency has in its pocket. If the ECB comes across as more hawkish than the Fed, then 1.11 and above would come into play based on the yield outlook.
Gold in consolidation mode
Gold is in consolidation mode ahead of key central bank events this week, though the precious metal is poised to pounce on any USD weakness should the FOMC signal that US rates are at or near the terminal level. Meanwhile, the oil price has shaken off some of its recent ‘blues’ by following equities higher on improved market sentiment. Tech-sector health, a falling VIX and waning concerns about regional banks have put appetite for risk back on the table which has opened the door for gains in both oil and global equities.
Traders will be tuned in to any news about First Republic Bank as well as the ongoing earnings season in the US. Whether the bright trading mood from Monday can be maintained by Friday will be largely dependent on what the Fed has to say later in the week.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
