Week Ahead: Central Banks, Coronavirus, Joe Biden and Big Tech Profits
As the end of April approaches, central banks and earnings will give markets direction. The ECB held its own last week as the BOC chose to reduce its bond purchases from C $ 4 billion per week to C $ 3 billion per week. Are the FOMC and the BOJ in the same position to do this? As richer countries reopen, poorer countries are still hitting new daily highs in coronavirus cases. Can they control it anytime soon? In addition, US President Joe Biden will deliver his first speech to Congress, which will include a capital gains tax increase. Will there be spillover effects on the markets? BIG technology gains this week. How will their advice relate to the reopenings? Plus, end of month means end-of-month data! First Quarter GDP will definitely be the headline!
Central bank overload
The BOC was the favorite to raise rates first. However, with the recent spate of coronavirus cases and lockdowns in Canada, that was questionable as last week’s meeting approached. However, the BOC did not weaken and cut its bond purchases by C $ 1 billion per week. The ECB stood firm and provided little new information. So where are the FOMC and BOJ at? At the March meeting, the FOMC left rates unchanged and noted that bond buying would continue at its current rate until employment recovers fully and inflation is durably above 2. %. Although the labor market has recovered, it remains well below pre-pandemic levels. However, without new forecasts (dot plots) at this meeting, expect more of the same. The same goes for the BOJ, which meets on Tuesday. At their last meeting, they announced that they would widen the band around the zero target on the 10-year JGB from 20 bps to 25 bps, removed the forecast that they would buy JPY 6 trillion per year, and noted that they would no longer buy ETFs from the Nikkei, only the Topix. The BOJ will likely remain on hold until it has more time to see the effects of these decisions. Additionally, with the coronavirus outbreaks across the country, the central bank is unlikely to act again until the pandemic is under control.
The coronavirus is on the rise
Speaking of the coronavirus in Japan, Tokyo, Osaka, Kyoto and Hyogo and back under state of emergency. With the Olympics starting in 90 days, this is a concern. Japan lags far behind the US and UK in vaccinations, administering only ~ 1% of the population. India is in dire straits as it reports more than 300,000 new cases a day and hospitals are overwhelmed. India has ordered to buy millions of doses of the vaccine, but they are not expected until July. Russia has announced a 10-day “jobless” period to avoid a virus outbreak, even though its Sputnik vaccine is 91% effective. The WHO said new daily cases are also increasing in countries like Brazil (again), Argentina and Turkey. Europe is on the verge of breaking out of lockdowns, as the UK and US continue to have explosive economic data due to reopenings. UK retail sales released last week showed a 5.4% increase for the title issue in March from an expected 1.5%. The United States released retail sales data a week earlier. The title was 9.8% against 3% expected. The employment data for the United States is similar. Traders should consider the different reopening stages for each country to determine when one currency may outperform another. For example, will the euro outperform the US dollar now that the US is at a more mature stage of reopening? Or is the United States recovering too quickly for Europe to catch up. This will be an important question traders will need to ask moving forward.
Thursday last week, “sources” announced that Joe Biden would propose to increase the capital gains tax on those who earn more than $ 1,000,000 from 20% to almost 40%. The S&P 500 sold nearly 50 grips on the news, but picked it up on Friday. Joe Biden will speak to joint sessions of Congress on Wednesday after his first 100 days in office. The newly elected US President usually delivers this speech in February, but due to the current extraordinary circumstances in the world today (the pandemic), the speech has been postponed until now. Infrastructure spending, raising taxes on the rich, updates on the coronavirus, geopolitical tensions, and police reform will all be topics traders will be looking for!
Those with large stakes in some of the companies reporting profits this week may be on the list of people who will see their capital gains taxes increased. All of the FAANGs will report this week (minus Netflix which reported last week) as the earnings season shifts into high gear! Additionally, Elon Musk and TSLA will release their results on Monday. Other big gains to watch out for are: TSLA, SBRY, AZN, MMM, GOOG, RDSA, AMD, AMGN, BARC, LLOY, GE, SBUX, V, TXN, UPS, AAPL, BA, F, EBAY, FB, AMZN, GSK, BMY, MRK, MCD, X, CAT, MA, TWTR, XOM, CVX
In addition to central bank meetings this week, the United States will hold an auction of 7-year notes, Germany will release its employment trends, and several countries’ first-quarter GDP growth rates will be published. Other important economic data to watch this week is as follows:
- Germany: Ifo Business Climate (APR)
- United States: durable goods orders (MAR)
- Japan: BOJ decision on interest rates
- Japan: BOJ Quarterly Outlook Report
- United States: CB Consumer Confidence (APR)
- United States: 7-year ticket auction
- United States: 2-year ticket auction
- Japan: Retail sales (MAR)
- Australia: IPC (Q1)
- Germany: GfK Consumer Confidence (MAI)
- Canada: Retail sales (FEB)
- United States: Trade Balance Adv (MAR)
- United States: Fed decision on interest rates
- Stocks of crude
- New Zealand: Trade balance (MAR)
- New Zealand: ANZ Business Confidence Final (APR)
- Germany: evolution of unemployment (APR)
- EU: Economic sentiment (APR)
- EU: Consumer Confidence (APR)
- EU: consumer inflation expectations (APR)
- Germany: inflation rate (APR)
- United States: Adv GDP growth rate (Q1)
- United States: Pending Home Sales (MAR)
- Japan: Tokyo CPI (APR)
- Japan: prelude to industrial production (MAR)
- China: NBS Manufacturing PMI (APR)
- China: Non-Manufacturing PMI (APR)
- Australia: PPI (Q1)
- Japan: consumer confidence (APR)
- Japan: housing starts (MAR)
- Germany: prelude to GDP growth rate (Q1)
- EU: Inflation rate flash (APR)
- EU: GDP growth rate flash (Q1)
- EU: Unemployment rate (MAR)
- Canada: GDP (FEB)
- Canada: PPI Final (MAR)
- United States: Personal Income (MAR)
- United States: Personal Expenses (MAR)
- United States: PCE Price Index (MAR)
- United States: Chicago PMI (APR)
- United States: Michigan Consume Expectations Final (APR)
Chart of the week: Daily copper
Source: Tradingview, FOREX.com
Because copper is an industrial metal, the price of copper is said to show the health of the global economy. A high copper price shows that the economy is strong and will grow by leaps and bounds. A low copper price shows that the economy is fragile and that the world economy can contract. As a result, the commodity received the nickname “Doctor Copper”. Copper has been in a strong uptrend since its pandemic low in March 2020. February 23rd, the metal hit all-time highs near 4.19, only to retreat 2 days later. Price returned to 61.8% Fibonacci retracement level from February 2 lowsnd at the summits of February 23rd, just above 3.83. In doing so, the copper formed a rounded bottom in an uptrend. Copper tests on February 23rd highs of 4.3645, currently traded at 4.336. If price maintains resistance first support is 2011 high near 4.1904. Below there is an uptrend line from October 2nd, 2020 c. 3.97. If the price maintains any of these support levels and then increases, it will form a cup and handle pattern. The target for a cup and grip formation is the height of the “cup” added to the break point, which would be close to 4.85!
With more central bank meetings this week, significant tech benefits, and a continuing rise in coronavirus cases in many parts of the world, this week will provide traders with tons of information. Throw in some strong recent economic data, price action at the end of the month and stocks near all highs, and the markets might see some volatility as May approaches!
Have a great weekend and always remember to wash your hands.