Asian markets kicked off the week on a bearish note, but Alibaba shares rallied 8% in Hong Kong despite news that the company will pay a record antitrust fine of $2.8 billion for having abused its market dominance over merchants and its competitors. The curious positive reaction was partly due to a relief that the case is finally over, partly due to Alibaba taking the news with ease and thanking the government.
Elsewhere, the US index futures eased from record highs and activity in FTSE and DAX futures hint at a lackluster start on Monday.
It’s unsure why the investor sentiment is dull this Monday, but the rising inflation expectations ahead of Tuesday’s US inflation data and the beginning of earnings season could explain a part of that skepticism: the US stock prices flirt with historical high levels and earnings should absolutely live up to expectations if companies wish to keep investors onboard despite prospects of rising taxes, higher input costs and tighter financial conditions moving forward. Big US banks will start the dance.
Due tomorrow, the US inflation figure could shoot up to 2.5% year-on-year from 1.7% printed a month earlier. So far, the tame inflation figures gave Jerome Powell the benefit of the doubt regarding his prediction that inflation won’t rise as dramatically as investors expect, and that any overshoot in consumer prices should remain short-lived. But a jump in actual inflation data this week could spur panic in the market and weigh on the global risk appetite. Therefore, risks in global equities are tilted to the downside at the start of this week.
Jerome Powell will speak today and again later this week to reiterate – before and after the inflation data – his dovish stance until millions of jobless Americans find jobs. The Fed head has done a good job training the investor mind that high inflation won’t last long enough to compromise the Federal Reserve’s (Fed) inflation target of an average of 2%, and that there is no need to worry about a premature tightening of the US monetary policy. Investors are somewhat hypnotized right now, but a solid inflation figure could easily pull them out of that deep hypnotic state and get them to take profit on some risky holdings. If that happens, the US tech stocks will be on the chopping block.
Gold failed to clear offers near the 50-day moving average ($1760 per oz), and the positive pressure on the US yields weigh on the yellow metal ahead of Tuesday’s inflation data. Solid inflation read could boost demand in gold, if and only if the positive pressure on the US yields remain contained.
Besides the inflation data, the US retail sales data is expected to print a solid figure on Thursday. Then, investors will also watch the UK GDP figure on Tuesday, expected to have retreated 2.9% last month, 7.3% year-on-year, slight improvement in British industrial production in February, German ZEW survey which should show improvement in expectations, and we could even see some rise in German inflation to 1.7% from 1.3% in March. But rising inflation is not an issue for the Eurozone for now, it will hardly spur the European Central Bank (ECB) hawks anytime soon. The European inflation is expected to have remained unchanged near 1.3%. ECB President Christine Lagarde is also due to speak this week, and she should sound supportive given the latest lockdown measures and slowly progressing vaccinations that delay the economic recovery in the Eurozone. The divergence between dovish ECB and hawkish Fed expectations despite Powell’s efforts to contain the hawks, should continue weighing on the EURUSD and keep the pair on a bearish trajectory aiming a deeper sell-off toward the 1.17 support tested earlier this month.
Then, Chinese trade balance on Wednesday and GDP data on Friday will be closely watched by investors. According to a consensus of market expectations, the Chinese GDP may have grown 18.9% in the first quarter versus 6.5% printed earlier. Such a huge jump in Chinese growth can only revive hopes of seeing an imminent rebound in world economy despite the actual lockdown measures in Europe and rising new Covid cases elsewhere. So, there is hope, and perhaps a reason to support oil bulls in their battle against the $60 per barrel resistance this week.
On the central bank front, the Reserve Bank of New Zealand will likely keep rates unchanged this week, while the Turkish central bank which have freshly fired its new President and replaced him with a newest one is expected to maintain the interest rates unchanged at his first monetary policy meeting. If he moves lower by an inch, the Turkish lira will get severely punished, and he knows that.
Elsewhere, Bitcoin is pulling out the $60K resistance ahead of Wednesday’s Coinbase IPO. The first crypto-exchange IPO could consolidate the idea of inclusion of cryptocurrencies in the traditional financial avenues. Therefore, we shall see Bitcoin refreshing record, especially if we see solid interest in freshly out-of-oven Coinbase shares, as expected. Though it looks like there isn’t much risk in Coinbase IPO, traditional investors will say the final word from Wednesday.