It was a week when the world was supposed to come to an end, notes Bloomberg's Richard Breslow, but then it didn’t... I can’t say I’m disappointed, but it sounds like a lot of people are. Curious. Equities, the dollar and bond yields were put to the test on the failure of Congress to pass new health care legislation. All three survived the challenge. The Republicans have vowed to try again...
Article 50 was triggered in the U.K. and the market, with remarkable maturity, took it with calm. It’s going to be a long, perhaps ugly slog, with a lot of noise and posturing for the foreseeable future.
Very soft German and European-wide inflation numbers helped further deflate any expectations of near-term ECB hawkishness. Euribor futures moved steadily higher over the course of the week. Thursday’s release of the ECB minutes from their March “hawkish” meeting takes on added interest amid comments that the market misconstrued the message.
But Breslow warns, next week’s big events include a meeting between the Chinese and American presidents. Don’t underestimate the importance of it or the market interest it will garner. And the U.S. non-farm payroll report, where yet another good set of numbers has been penciled in. Perhaps adding fuel to the upbeat and hawkish Fed speeches of this past week.
*) Here's what Breslow sees as most critical next week;
- On Monday, the Bank of Canada releases its business outlook survey. The last report portrayed investment and hiring outlook as far more bullish than the caution consistently expressed by Governor Stephen Poloz. With the currency in a very tight range, we could see a breakout in either direction depending on the results.
- The RBA will announce its latest rate decision on Tuesday. Nothing expected from this meeting, but speculation keeps ebbing and flowing on their next move. At their last meeting there were some incrementally hawkish tweaks to the language. Their comments on labor conditions and housing prices will be key. The Australian dollar remains sneakily bid.
- Wednesday’s FOMC minutes come amid a synchronized chorus of upbeat speeches by Fed speakers. If the minutes are hawkish, reinforcing rather than showing recent comments as evolutionary, the short-end of the Treasury curve will have to take notice.
- ADP releases its monthly employment report. Last month it gave an accurate hint that NFP was going to be a beat. With 180k forecast, it will influence all expectations for Friday, no matter how many people claim it won’t.
- Thursday looks like a big day. Chinese President Xi Jinping visits U.S. President Donald Trump’s southern White House. Worryingly, and sadly not unexpectedly, Trump warned that these talks could be “very difficult” Perhaps by lowering the bar sufficiently there’s a greater chance of the meeting being a success. The Chinese, for their part, refused to take the bait and have expressed optimism for a constructive exchange. It’s a big event and there are many issues up for debate. Join the rest of the world in watching this with great interest.
- The ECB minutes from their March meeting will move the currency and bond markets. Were they hawkish? Was it all a misunderstanding? Have subsequent inflation reports rendered them dated? The release has a good chance of stirring up a fair amount of Sturm und Drang. Perhaps appropriately, as ECB President Mario Draghi will be speaking at Goethe University shortly after.
- And then on Friday, there’s non-farm payrolls. There’s little in the economist median forecasts to suggest an expectation of some payback from last month’s strong report. Although, I’d note that the dispersion of predictions looks wider than usual. Once again, focus on wages.
*) Perhaps that uncertainy explains the divergence below as traders push into protection...