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In focus today

In a relatively quiet start to the week economic data-wise, markets will continue to closely monitor developments in the Middle East. Reports still suggest that Israel's retaliatory attack on Iran on Friday was relatively limited in size and force which alongside Iran's lack of response over the weekend could indicate a de-escalation of the conflict. This has also set the tone in the market opening this morning with price action generally reflecting relief.

In the euro area, focus is on consumer confidence for April today. Consumer confidence has remained stuck at low levels for the past months despite solid fundamentals for household finances. Private consumption has likely remained weak for this reason so an increase in consumer confidence could be a trigger for stronger consumption and thus growth.

Tuesday and Wednesday we look out for business sentiment surveys PMIs from the euro area and Ifo from Germany. Thursday, we receive first estimate of the Q1 GDP from the US. On Friday the Fed's preferred inflation measure PCE is released. Also Friday we get the Tokyo CPI excl. fresh foods for April. We expect the Bank of Japan to keep rates at the current level when they announce their rate decision the night before Friday. We expect the Hungarian Central Bank to announce a 50 bp cut to interest rates on Tuesday.

Economic and market news

What happened over night

In China, the loan prime rates were left unchanged as expected by markets. Chinese rates are on hold for now due to the pressure on the currency and the hawkish signals from the Fed.

What happened over the weekend

In the US, the house of representatives passed a 95 billion USD legislative package providing security assistance to Ukraine, Israel and Taiwan on Saturday. The Senate, controlled by the Democrats, is expected to vote on the bill Tuesday. They are expected to pass it, since they passed a similar measure over two months ago, which the house speaker Mike Johnson denied letting come to a vote in the House, which he finally did on Saturday.

Fed's Golsbee generally considered a dove said progress on inflation has stalled. It merits a pause to allow incoming data to provide more insight into how the economy evolves, he said.

The Oil market quickly calmed down again last Friday. The market was briefly alarmed by the news of Israel's retaliatory bombings in Iran, sending oil prices above USD90/bbl, but it ended the day around USD88/bbl.

Over the weekend, the US Congress passed new sanctions against the Iranian oil industry. Iran's oil production has increased by 600-700kbl per day over the year. If that oil disappears from the market, others will have to replace it, for example, Saudi Arabia, the US will have to sell from its strategic reserves, or the oil price will rise. Initially, we anticipate that the market will take a wait-and-see approach regarding the effect of the new sanctions. The US will likely tread carefully, given that a sharp rise in oil prices would probably be unpopular among voters ahead of the presidential election in November.

In Europe, ECB's Nagel said that the monetary policy needs to remain restrictive even after the first rate cut, and that it is too early to begin to discuss a rate path beyond the June meeting. We see a first rate cut coming in June as close to a done deal.

Equities: Global equities sold off on Friday as investors fled from tech stocks. Global tech lost more than 3% on Friday, while 5 out of 10 sectors managed to book gains, including financials. It is rare to see such a sharp sector rotation where financials, defensive, and small caps are outperforming simultaneously. The S&P 500 dropped 0.9% on Friday, while banks and insurance were the two best-performing industries despite yields ending marginally lower. The S&P 500 equal-weight outperformed MAG 7 by more than 1%, and defensives outperformed cyclicals by 2%. This just illustrates it was not a geopolitical or macro related, but a micro story where investors are questioning tech and AI-related earnings outlook after being disappointed by ASML and Taiwan Semiconductor. In the US on Friday, the Dow was up 0.6%, the S&P 500 was down 0.9%, the Nasdaq was down 2.1%, and the Russell 2000 was up 0.2%.

FI: There are not that many tier-1 economic data or events this week and the focus will still be on the Middle East. 10Y US Treasury yields have stabilised around the 4.6% together with 2Y UST trading around 5%. The key question is whether the market will continue to reprice the Federal Reserve. Previously, there has been good value in buying 2Y Treasuries around 5% given that we do not expect the Federal Reserve to hike rates. We still believe that the 5% level in 2Y and 4.75% in 10Y offer decent value for investors. The Bund ASW-spread has been testing the 35bp-level given the geopolitical uncertainty but has stabilised around 34-35bp level for now. We still expect it to move back to 30bp when the geopolitical uncertainty dampens.

FX: Friday's session was initially characterized by a strong USD and weaker Scandies, however this reversed towards the close and both SEK and NOK ended the day as outperformers within G10, defying the global equity sell-off. At the other end of the spectra, we found GBP following dovish remarks from previous BoE's Ramsden. USD/JPY looks set to start the week trading above 154.

Daily Pivots: (S1) 1.0618; (P) 1.0648; (R1) 1.0686; More...

Intraday bias in EUR/USD remains neutral and more consolidations could be seen above 1.0601. Upside of recovery should be limited by 1.0723 support turned resistance. Break of 1.0601 will resume the fall from 1.1138 to 100% projection of 1.1138 to 1.0694 from 1.0980 at 1.0536 next.

In the bigger picture, price actions from 1.1274 are viewed as a corrective pattern to rise from 0.9534 (2022 low). Current fall from 1.1138 is seen as the third leg. While deeper decline is would be seen to 1.0447 and possibly below, Strong support should emerge from 61.8% retracement of 0.9534 to 1.1274 at 1.0199 to complete the correction.

Daily Pivots: (S1) 153.93; (P) 154.30; (R1) 155.02; More...

Intraday bias in USD/JPY remains neutral for the moment. On the upside, break of 154.77 will resume larger up trend. But considering bearish divergence condition in 4H MACD, strong resistance should be seen from 155.20 fibonacci level to bring correction on first attempt. On the downside, break of 153.58 will turn bias to the downside, for deeper pull back to 55 D EMA (now at 150.97).

In the bigger picture, current rise from 140.25 is seen as the third leg of the up trend from 127.20 (2023 low). Next target is 61.8% projection of 127.20 to 151.89 from 140.25 at 155.20. Outlook will remain bullish as long as 146.47 support holds, even in case of deep pullback.

Daily Pivots: (S1) 1.2336; (P) 1.2402; (R1) 1.2437; More...

Intraday bias in GBP/USD remains on the downside at this point. Decisive break of 100% projection of 1.2892 to 1.2538 from 1.2708 at 1.2354 will extend the fall from 1.2892 to 161.8% projection at 1.2207 next. On the upside, above 1.2467 minor resistance will turn bias neutral and bring consolidations first, before staging another decline.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Fall from 1.2892 is seen as the third leg. Deeper decline would be seen to 1.2036 support and possibly below. But strong support should emerge from 61.8% retracement of 1.0351 to 1.2452 at 1.1417 to complete the correction.

Daily Pivots: (S1) 0.9032; (P) 0.9084; (R1) 0.9156; More....

Intraday bias in USD/CHF remains neutral as consolidation from 0.9151 is extending. Further rally is expected as long as 0.8996 support holds. Break of 0.9151 will resume the larger rise from 0.8332 to 0.9243 resistance. However, firm break of 0.8996 will turn bias to the downside for 55 D EMA (now at 0.8939).

In the bigger picture, price actions from 0.8332 medium term bottom as tentatively seen as developing into a corrective pattern to the down trend from 1.0146 (2022 high). Further rise would be seen as long as 0.8728 support holds. But upside should be limited by 0.9243 resistance, at least on first attempt. However, decisive break of 0.9243 will argue that the trend has already reversed and turn medium term outlook bullish.

Daily Pivots: (S1) 1.3714; (P) 1.3760; (R1) 1.3795; More...

Intraday bias in USD/CAD stays neutral at this point. Pull back from 1.3845 could extend lower, but downside should be contained by 1.3660 support to bring another rally. On the upside, firm break of 1.3845 will resume the whole rally from 1.3716 to 1.3976 key resistance.

In the bigger picture, price actions from 1.3976 (2022 high) are viewed as a corrective pattern only. In case of another fall, strong support should emerge above 1.2947 resistance turned support to bring rebound. Firm break of 1.3976 will confirm up resumption of whole up trend from 1.2005 (2021 low). Next target is 61.8% projection of 1.2401 to 1.3976 from 1.3176 at 1.4149.

Daily Pivots: (S1) 0.6376; (P) 0.6404; (R1) 0.6447; More...

Intraday bias in AUD/USD remains neutral as consolidation from 0.6361 is extending. Upside of recovery should be limited by 0.6480 support turned resistance to bring another decline. On the downside, break of 0.6361 will resume the fall from 0.6870 to 100% projection of 0.6870 to 0.6442 from 0.6643 at 0.6215.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which is still in progress. Overall, sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor.

Commodity currencies rises broadly in Asian session today, buoyed by slight improvement in risk sentiment after a relatively quiet weekend in the Middle East. This contrasted with the performance of typically safe-haven assets such as Swiss Franc, Japanese Yen, and Dollar, all of which traded mildly lower. Gold also dips away from 2400 mark, while WTI crude oil lingered around 82. Overall, the picture suggests relative calm in the markets for now.

China's central bank kept benchmark lending rates unchanged today, with one-year loan prime rate holding steady at 3.45% and five-year rate at 3.95%. On the geopolitical front, US Congress moved forward with legislation targeting TikTok, mandating the divestiture of its Chinese ownership within a year. Concurrently, a move mirrored the tensions as Apple dropped WhatsApp and Threads from its app store, in compliance with Chinese regulator's request. These developments have minimal immediate impact on market so far.

Looking ahead, the trading day is expected to be subdued with few economic data due. However, the markets are poised for a volatile period this week in anticipation of a slew of important data releases, including US GDP and PCE inflation. These figures, alongside global PMIs and Australian CPI, could significantly influence market movements. Additionally, central bank activities, particularly BoC's summary of deliberations and BoC policy decision and economic projections, are highly anticipated too.

Technically, CAD/JPY is extending its long term up trend today. Outlook will stay bullish as long as 110.85 support holds. Next target is 61.8% projection of 94.04 to 111.14 from 104.19 at 114.75. The momentum of the move would depend on how markets interprets BoC minutes and BoJ forecasts.

In Asia, at the time of writing, Nikkei is up 0.46%. Hong Kong HSI is up 1.97%. China Shanghai SSE is down -0.51%. Singapore Strait Times is up 1.30%. Japan 10-year JGB yield is up 0.0432 at 0.880.

Copper's momentum intensifies with trade sanctions with 4.7 level as pivotal marker

Copper's up trend resumed last week and accelerated significantly higher. The move was primarily driven by imposition of new trade sanctions by the UK and US, targeting Russian exports of key metals including aluminium, copper, and nickel to major commodity exchanges like LME and CME. This policy move, aimed at penalizing Russia for its actions in Ukraine, has effectively curtailed supplies of these metals, exerting upward pressure on prices.

The underlying fundamentals of Copper have also been robust, shaped by a combination of supply-side challenges and a upturn in the global economy. Notably, rebound in China's industrial activity has played a crucial role in bolstering market momentum. Additionally, disruptions at significant mining operations have tightened the supply further, adding to Copper's momentum.

From a speculative standpoint, the enthusiasm in the copper market is also palpable. According to recent LME data, hedge funds have increased their net long positions in Copper to the highest levels since February 2021. This influx of financial investments into copper futures suggests that prices may now be exceeding the actual market fundamentals, indicating a speculative bubble in formation.

Technically, the strong break of 4.3556 resistance confirmed resumption of whole rise from 3.1314 (2022 low). Near term outlook will stay bullish as long as 4.2645 support holds. Next target is 261.8% projection of 3.5021 to 3.9346 from 3.6324 at 4.7647.

This level is close to 100% projection of 3.1314 to 4.3556 from 3.5021 at 4.7263, as well as long term channel resistance. The cluster resistance zone at around 4.7 would be crucial to decide whether Copper is already in a secular bull markets that's ready to power through 5.000 psychological level.

SNB's Jordan cautions against using monetary policy to finance debt

In an interview with SRF, SNB Chairman Thomas Jordan stressed the critical issues of sluggish growth and the need for structural reforms. He underscored the importance of enhancing productivity to bolster economic growth across nations. Additionally, e highlighted the troubling high levels of debt and substantial deficits many countries are grappling with, which he deemed unsustainable in the long run.

Jordan emphasized that correcting these fiscal imbalances is imperative for future economic stability. He warned against the misuse of monetary policy as a tool for financing state debts, asserting that such practices could lead to dire consequences.

"It is very important that at the same time monetary policy remains geared towards price stability, rather than monetary policy being needed to finance debt, otherwise it will not end well," Jordan cautioned.

ECB's Villeroy: We must not wait too much on interest rate cut

ECB Governing Council member Francois Villeroy de Galhau, in a discussion with Les Echos, stressed that increase in oil prices due to conflicts in the Middle East would not trigger a "mechanical" policy shift. Instead, the bank would carefully assess whether these increases significantly fuel core inflation and inflation expectations before deciding on any action.

Villeroy made it clear that ECB is prepared to act without undue delay in lowering interest rates. "No — unless there is a surprise, we must not wait too much," he said.

"From the point we have sufficient confidence in the fact that we will meet the 2% inflation objective by next year, our duty is to minimize the cost in terms of activity and employment," Villeroy said. "That is the sense of a first cut in June."

Will US GDP and PCE inflation shift Fed cut expectations further?

A series of economic events are in focuses this week, including central bank activities in Japan and Canada, as well as high profile economic data globally.

Significant attention is on US Q1 GDP advance and March PCE inflation data, which would heavily influence Fed policy easing expectations, including timing for the first reduction and the number of cuts this year. Presently, Fed funds futures suggest about 65% likelihood of the first rate cut occurring in September. Meanwhile, the probability of a total of two rate cuts within the year stands at around 50% only. Stronger-than-expected economic growth paired with slowdown or even stalling in disinflation, could push the first cut further out, and even diminish the probability of multiple rate cuts.

BoJ meeting is also highlight anticipated due to the release of new economic projections. The central bank is expected to forecast inflation to stay at around 2% target well into early 2027. But some economist because this inflation outlook is insufficient to spur BoJ fort another rate hike this year. The central question is whether the recent wage hikes will effectively boost consumption enough to sustain inflation and support there economy, thereby justifying further tightening of monetary policy. A recent Bloomberg survey indicates that only about 40% of economists are pointing to October as a potential window for the next rate increase.

The markets are also monitoring BoC summary of deliberations too. Although BoC's latest statement has not explicitly indicated an imminent rate cut, Governor Tiff Macklem clearly indicated later that a June reduction is possible. The markets will scrutinize the summary document to understand the balance of factors BoC considers critical for the decision.

Spotlight is also on Australia's quarterly CPI data. According to ASX's RBA Rate Tracker, the first rate cut is not fully priced in until March next year, with no second cut anticipated yet. But these expectations could shift depending on the CPI data and its implications for ongoing disinflation.

Furthermore, the week is packed with other crucial data releases including US durable goods orders, Japan's Tokyo CPI, Germany's Ifo business climate, and Canada's retail sales, along with PMI figures from most major economies.

Here are some highlights for the week:

• Monday: Eurozone consumer confidence; Canada IPPI and RMPI, new housing price index.
• Tuesday: Australia PMIs; Japan PMIs; Eurozone PMIs; UK PMIs; US PMIs, new home sales.
• Wednesday: New Zealand trade balance; Australia CPI; Swiss Credit Suisse economic expectations; Germany Ifo business climate; Canada retail sales, BoC summary of deliberations; US durable goods orders.
• Thursday: Germany Gfk consumer climate; ECB monthly bulletin; US GDP, goods trade balance, pending home sales.
• Friday: Japan Tokyo CPI, BoJ rate decision; Australia PPI, import prices; US personal income and spending, PCE inflation

AUD/USD Daily Report

Daily Pivots: (S1) 0.6376; (P) 0.6404; (R1) 0.6447; More...

Intraday bias in AUD/USD remains neutral as consolidation from 0.6361 is extending. Upside of recovery should be limited by 0.6480 support turned resistance to bring another decline. On the downside, break of 0.6361 will resume the fall from 0.6870 to 100% projection of 0.6870 to 0.6442 from 0.6643 at 0.6215.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which is still in progress. Overall, sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor.

Economic Indicators Update

Copper's up trend resumed last week and accelerated significantly higher. The move was primarily driven by imposition of new trade sanctions by the UK and US, targeting Russian exports of key metals including aluminium, copper, and nickel to major commodity exchanges like LME and CME. This policy move, aimed at penalizing Russia for its actions in Ukraine, has effectively curtailed supplies of these metals, exerting upward pressure on prices.

The underlying fundamentals of Copper have also been robust, shaped by a combination of supply-side challenges and a upturn in the global economy. Notably, rebound in China's industrial activity has played a crucial role in bolstering market momentum. Additionally, disruptions at significant mining operations have tightened the supply further, adding to Copper's momentum.

From a speculative standpoint, the enthusiasm in the copper market is also palpable. According to recent LME data, hedge funds have increased their net long positions in Copper to the highest levels since February 2021. This influx of financial investments into copper futures suggests that prices may now be exceeding the actual market fundamentals, indicating a speculative bubble in formation.

Technically, the strong break of 4.3556 resistance confirmed resumption of whole rise from 3.1314 (2022 low). Near term outlook will stay bullish as long as 4.2645 support holds. Next target is 261.8% projection of 3.5021 to 3.9346 from 3.6324 at 4.7647.

This level is close to 100% projection of 3.1314 to 4.3556 from 3.5021 at 4.7263, as well as long term channel resistance. The cluster resistance zone at around 4.7 would be crucial to decide whether Copper is already in a secular bull markets that's ready to power through 5.000 psychological level.

ECB Governing Council member Francois Villeroy de Galhau, in a discussion with Les Echos, stressed that increase in oil prices due to conflicts in the Middle East would not trigger a "mechanical" policy shift. Instead, the bank would carefully assess whether these increases significantly fuel core inflation and inflation expectations before deciding on any action.

Villeroy made it clear that ECB is prepared to act without undue delay in lowering interest rates. "No — unless there is a surprise, we must not wait too much," he said.

"From the point we have sufficient confidence in the fact that we will meet the 2% inflation objective by next year, our duty is to minimize the cost in terms of activity and employment," Villeroy said. "That is the sense of a first cut in June."