The European Central Bank meeting next week will likely be fairly unexciting, but keep an eye on multiple key data releases such as inflation and PMI readings
-Eurozone: ECB meeting to be fairly unexciting, but 2Q data will show signs of recovery
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-US: Keep monitoring the infrastructure plan, as well as an expected jump in Canada’s inflation
-UK: ‘Calm before the storm’ in busy data week
Eurozone: ECB meeting to be fairly unexciting, but 2Q data will show signs of recovery
The eurozone focus will be on the ECB next week. The central bank will look through any temporary increases in headline inflation and will not tolerate significant moves in bond yields unless they are the result of improved growth prospects. The bank’s decision to front-load asset purchases at the last meeting was meant to cap the rise in yields, which have tracked moves in US Treasuries.
The cyclical story is actually improving despite lockdowns being extended. Yes, it will take longer for the big rebound to happen, but economic activity is already improving despite lockdowns still being in place. April survey data from PMIs and consumer confidence will provide more information but we’re confident that the second quarter will mark the start of the recovery.
US: Keep monitoring the infrastructure plan, as well as an expected jump in Canada’s inflation
The data calendar is fairly light in the US next week so we will be following the progress of Joe Biden’s infrastructure plan. There is little sign of bi-partisanship on the $2tn package and it seems that the Democrats are going to push it through the reconciliation process to avoid the need for 60 Senators to agree to put it to a vote. Nonetheless, not all Democrats are fully on board, meaning we could yet see changes to the package, especially surrounding the taxation part. Nonetheless, the recent macro data has been painting a very upbeat picture of economic activity and job creation while there is growing evidence of emerging inflation pressures that we think could result in earlier Federal Reserve interest rate rises than the 2024 start data officials are currently indicating.
In Canada, we will see a big jump in annual inflation, which follows on from some good activity and employment numbers. This means that there is a strong chance we see another tapering of the Bank of Canada’s QE purchases, which have already been cut from C$5bn per week to C$4bn per week although actual interest rate increases remain some way off.
UK: ‘Calm before the storm’ in busy data week
There’s plenty of UK data to get our teeth into next week, though much of it is likely to paint a relatively calm, mid-lockdown and pre-reopening picture of the economy. Here’s a summary of what to look for:
Jobs data (Tues): Payroll-based data suggests employment has turned a corner since the start of 2021, and indeed outside of the hard-hit consumer services sector, the jobs backdrop has been improving. We don’t expect any drastic changes in this latest data covering the three months to February, but it is likely that we see a gradual grind higher in the unemployment rate towards 6% over the summer as we edge towards the date when the furlough scheme is due to be discontinued (September). Still, the subsequent recovery in the jobs market will, we suspect, be faster than after past crises.
Inflation data (Wed): After February’s surprisingly low reading, we’re likely to see headline CPI bounce back somewhat, albeit we’ll have to wait until April’s data for more seismic changes. Like everywhere else this is when base effects begin to become more prominent, but also there’s been a sharp 9% rise in the household energy price cap. We expect inflation to exceed 2% later this year, mainly on energy prices, before dipping back in 2022.
Retail sales (Fri): Credit card data points to another modest rise in retail sales in March, albeit spending is still some distance below the levels at the end of last year. However evidence from past re-openings suggests it won’t take long for sales to recover to pre-Covid levels in April and May.
PMIs (Fri): Optimism about reopening is likely to lift the services PMI further, though this hasn’t been a particularly reliable gauge of GDP movements during the pandemic. Still, the general tone is consistent with healthy 2Q activity, where we expect GDP growth in the region of 5%.
We saw bullish prices on both Gold and Oil last week. Oil prices back above $60 a barrel as we maintain our original bias of $50-$70 a barrel. Negotiations around the Iran nuclear deal could have an impact and allow a dip in price, however we would view that as an opportunity to get in at better prices. Gold had a stellar week after a period of consolidation and inconsistent price movements. Given the current climate there is a case for higher prices, however we would advise caution as currently markets seem to be hopping from Risk on/Risk off sentiment pretty frequently.
Crypto Markets had a wild ride on Sunday with 15% decline in bitcoin prices and $10BN of positions liquidated. Attributable to both confirmed and unconfirmed reports around crypto regulations and bans in multiple countries. We have also heard of the ‘whales’ selling bitcoin, however with mainstream adoption and more companies buying and adding bitcoin to their portfolio I wouldn’t be too concerned. There has been rumours of regulatory crackdown on cryptos around the globe, however I would caution a wait and see approach as China has softened its stance on Bitcoin and Stablecoins terming them ‘alternative investments’.
Netflix releases earnings this week with the stock needing a bit of a push. After a good 2020 increased competition from the likes of Diney+ has seen the stock under-perform the Nasdaq in 2021. The stock is up 1% this year while the Nasdaq in comparison is up 9%. If we are to see higher prices we believe that the earnings release could be the stimulus unless markets have priced it in.
European soccer clubs proposal for a European super league has been a major talking point globally at the start of the week. This would have huge implications for the global game both on a fundamental and financial perspective. Juventus of Italy whose president is currently the major driving force behind the super league saw a near 10% jump this morning on expectations of greater revenue thanks to the super league. Keep an eye on all listed football teams shares moving forward and we will update on the developments.
Big news out last week after Coinbase finally completed its listing on the Nasdaq with a near $100BN valuation. Share prices retreated from the highs of around $425 to around $320. The major news however was attributable to Cathie Wood of Ark Investments who purchased approximately $250M of Coinbase shares while simultaneously decreasing their holdings in Tesla. Does she know something we don’t?
We have personally added both the Ark innovation ETF (ARKK) as well as the Ark space exploration and innovation ETF (ARKX) to our portfolio with a medium to long term view.