Data-heavy week to keep markets busy

There are plenty of events this week to undo the general calm we saw seeping back into bond markets late last week. 

Japanese flag
Source: Bloomberg

Several accounts of recent major central bank meetings and BOJ meeting along with inflation data, manufacturing activity and Japan’s GDP should keep things very interesting for the week.

FOMC minutes for the 28-29 April meeting should shed more clarity, especially after the somewhat hawkish tint in its statement against the backdrop of a poor GDP data.

The minutes could reveal more worries and this would add more pressure to the dollar further. On a related note, Fed Chair Janet Yellen’s speech on US economic outlook this Friday may unveil the Fed’s view given a rather mixed April data set.

Markets will also be eyeing China’s flash manufacturing PMI where they are looking for another contraction in May at 49.4, although it would be an improvement from the one-year low at 48.9 in April. Another weak number could add fuel to domineering expectations of more stimulus measures.

Uneasy calm in bond markets

While a few analysts think that the worst is over for the violent selloff in the bond markets, it is unlikely that investors feel the same. Although no one knows the precise reason for the rout, the various motives continue to persist. Oil prices continue to head higher and lower liquidity in the fixed income market still remains.

The German 10-year bund gained a huge 54bps over the past few weeks, surging to 0.62% last Friday, from 0.08% a month ago. Similarly, 10-year US treasuries climbed 27bps to 2.14%. There is a strong belief that the massive one-way bet on global bonds is beginning to unwind as investors no longer feel confidence with record low bond yields.

In the currency markets, the moves remain dominated by the greenback although this time, they hinge on dollar reversal. The dollar index has fallen for the fifth straight week and gave back almost 7% since surpassing the 100 mark in mid-March. Disjointed economic data continues to push back expectations of a Fed rate increase to the Fed funds rate.

Ahead of the Asia open

Ahead of event risks, investors may opt to hug the sidelines. We expect major Asian bourses to open slightly lower. Hang Seng may still benefit from the ongoing news of the Shenzhen-Hong Kong trading link. We are calling CSI300 4582 -35, Hang Seng 27871 +55, Nifty 8249 -13, and MSCI Singapore 388.37 -0.4.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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