Markets brace for more noise next week

The recent risk rally ran out of steam, and rightly so.

Federal reserve building
Source: Bloomberg

From a fundamental perspective, there was no significant improvement in the global growth outlook to justify the risk appetite. Even if the majority of S&P firms who have reported their quarterly results have exceeded (low) estimates, still it does not make much sense.

Singaporeans are extremely fond of acronyms, and local traders are probably aware of commonly used acronyms such as FANG (Facebook, Amazon, Netflix and Google) and FOMO (Fear of Missing Out). Now we have TIME (Tech, Industrials, Materials and Energy) added to the list, which could suggest that there is lack of clear investment themes.

The problem is more poignant amid an increasing uncertain investment environment. In the absence of market clarity, investors will grasp at any market developments and economic data to ascertain trends. The chase for yields, given extremely low or negative bond returns, may also push money managers into stocks.

Next week will bring quite a number of catalysts for traders. Not only do we have a barrage of economic data, we also have two key central bank meetings, the Federal Open Market Committee (FOMC), and the Bank of Japan (BOJ).

Although the European Central Bank (ECB) left policy unchanged yesterday, President Mario Draghi stressed that they would not hesitate to roll out further easing measures if necessary. He urged stakeholders to be more patient, and give current measures more time to take effect.

In particular, he asserted that criticism of ECB’s recent policies is not helpful, and may make it harder for the Bank to meet their goals. Nonetheless, the ECB may sit on the side-lines for a while as they assess the impact of the strong measures announced in March, where some are only effective from June, before deciding on the next course of action.

Meanwhile, the Federal Reserve is in a dilemma as they seek to skip a rate hike while simultaneously avoiding giving the impression that the rate hike cycle is going to be on hold for many more months. However, they will also be careful not to commit to any timeline. You should remember that the April FOMC meeting will not be accompanied by a press conference, which means that any communications will be confined to a short policy statement.

The BOJ will make their policy decision after the Federal Reserve. The recent batch of weak data in Japan increased the possibility of more stimulus from BOJ. Moreover, any signs that the Fed is reluctance to lift rates would lift the value of the Japanese yen against the US dollar. A stronger yen hurts Japanese exporters and depresses import prices, which would make it more difficult to hit the inflation target.

While BOJ governor Kuroda has expressed his willingness for more easing measures, he has avoided giving a clear signal that any action is forthcoming. There is the potential of a policy surprise, but let’s not hold our breath.

Central banks aside, the market would be bombarded with economic data, which should help them to gauge the health of major economies. In conjunction with the FOMC, it is important to keep an eye on US data, where new home sales, durable goods orders, consumer confidence and employment cost index are on the tap. More importantly, the advance release of Q1 GDP will scrutinised.

Japan will have a data-heavy week, with inflation, retail sales, industrial production, and employment figures slated for release. Meanwhile, only industrial profits data in China is noteworthy. For Singapore, analysts will monitor inflation data, industrial output and jobless rate.

 

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Denne informasjonen er utarbeidet av IG, forretningsnavnet til IG Markets Limited. I tillegg til disclaimeren nedenfor, inneholder ikke denne siden oversikt over kurser, eller tilbud om, eller oppfordring til, en transaksjon i noe finansielt instrument. IG påtar seg intet ansvar for handlinger basert på disse kommentarene og for eventuelle konsekvenser som et resultat av dette. Ingen garanti gis for nøyaktigheten eller fullstendigheten av denne informasjonen. Personer som handler ut i fra denne informasjonen gjør det på egen risiko. Forskning gitt her tar ikke hensyn til spesifikke investeringsmål, finansiell situasjon og behov som angår den enkelte person som mottar dette. Denne informasjonen er ikke utarbeidet i samsvar med regelverket for investeringsanalyser, så derfor er denne informasjonen ansett å være markedsføringsmateriale. Selv om vi ikke er hindret i å handle i forkant av våre anbefalinger, ønsker vi ikke å dra nytte av dem før de blir levert til våre kunder. Se fullstendig disclaimer og kvartalsvis oppsummering.

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Denne informasjonen er utarbeidet av IG, forretningsnavnet til IG Markets Limited. I tillegg til disclaimeren nedenfor, inneholder ikke denne siden oversikt over kurser, eller tilbud om, eller oppfordring til, en transaksjon i noe finansielt instrument. IG påtar seg intet ansvar for handlinger basert på disse kommentarene og for eventuelle konsekvenser som et resultat av dette. Ingen garanti gis for nøyaktigheten eller fullstendigheten av denne informasjonen. Personer som handler ut i fra denne informasjonen gjør det på egen risiko. Forskning gitt her tar ikke hensyn til spesifikke investeringsmål, finansiell situasjon og behov som angår den enkelte person som mottar dette. Det er ikke utarbeidet i samsvar med lovens krav for å fremme uavhengighet av investeringsanalyse og som sådan er ansett av å være markedsføringskommunikasjon. Selv om vi ikke er hindret i å handle i forkant av våre anbefalinger, ønsker vi ikke å dra nytte av dem før de blir levert til våre kunder.