MarketPulse | Feb 21, 2021 01:12AM ET
Fed Chair Jerome Powell's appearances in Congress this week may come at the perfect time. Rising yields have made investors nervous and the Fed Chair may be the person to put their minds at ease. Meanwhile, UK Prime Minister, Boris Johnson, will lay out plans for the easing of the lockdown measures in the UK.
h2 US/h2Wall Street’s main event of the week will be Fed Chair Powell's testimony on Capitol Hill. Powell will have two days to answer questions on the Fed’s dovish strategy and at what point rising Treasury yields pose a risk to the recovery. Another disappointing weekly jobless claims figure points to a weak February payrolls |report and that should keep the Fed on autopilot in the short-term.
House Democrats are planning to move President Joseph Biden’s COVID-19 relief bill forward with a vote. Expectations are still high for conservative Democrats to support the Bill’s passing in the Senate by mid-March. The price tag of the Bill might come down and it seems unlikely the minimum wage hike to $15 will get enough support.
h2 EU/h2A sluggish start to the vaccine rollout in Europe may explain some of the softer services PMI readings the past week and will likely contribute to a slower reopening in the months ahead. Still, restrictions are working as vaccines are rolled out and COVID-19 numbers are improving and that should continue to see rising optimism in the coming months.
The data this week is tier two and three, including final CPI for the euro area, German GDP, Gfk and Ifo surveys, and French GDP.
h2 UK/h2The impressive vaccine rollout has traders optimistic about the outlook for the recovery this year. The economy has been among the worst hit by the pandemic but the UK has been among the most successful in rolling out the vaccine which should enable it to reopen soon. UK PM Boris Johnson is due to announce reopening plans on Monday starting with schools.
PMIs were vastly improved but retail sales data highlighted how important it is to get the consumer economy booming again. The UK jobs report is the only notable release on Tuesday next week.
h2 Turkey/h2USD/TRY is back below 7 after peaking above 8.5 in November; a sign of how far Turkey has come since replacing its central bank governor and finance minister. Traders are increasingly confident in the central bank—under the leadership of Naci Ağbal, President of the Central Bank of the Turkish Republic—to stay the course and not buckle under political pressure.
h2 China/h2PBOC continues to maintain USD/CNY fixing around 6.4500 while withdrawing liquidity domestically. Asia FX will remain stable while this continues.
China 1 and 5-year Loan Prime Rate decision Monday. It would be a huge surprise if they hiked and would be a strong negative for equities, positive CNY. Quiet data week otherwise. Geopolitical front is relatively quiet.
h2 India/h2India GDP in focus Friday, expected to moderate to -4.5-5.0% YoY. Better numbers, equities positive.
The Indian rupee continues to appreciate breaking long-term support at 72.75. The Reserve Bank of India may become more aggressive in currency intervention now to slow appreciation.
h2 Australia and New Zealand/h2The RBA minutes were very dovish but the currency and equities are at the mercy of movements on Wall Street. Commodity prices remain very firm, particularly base metals, limiting the downside on both. Slow week data-wise.
Reserve Bank of New Zealand rate decision on Wednesday. The RBNZ will remain unchanged at 0.25% but markets will be focusing on the statement. The RBNZ may signal that NZ has seen the best of its post-COVID-19 recovery until borders open, or signal that monetary policy might tighten sooner than expected. The later scenario will see NZD/USD spike sharply and be negative for equities.
h2 Japan/h2Tokyo CPI, Japan Industrial Production and Retail Sales all released on Friday. In line with PMI readings they are expected to show that export sector recovery continues, but inflation and domestic recovery remain weak.
The BoJ has signaled that it will continue buying ETFs as needed and has no intention of selling any. That pushed the Nikkei through 30,000 and should continue this week depending on developments on Wall Street.
The rise in US 30-year yields sparked an aggressive rally by USD/JPY above 106.00 this week. That has since partially been corrected but highlights the sensitivity of USD/JPY to US/Japan rate differentials. Another move higher by US 10-year and 30-year bonds this week could see the USD/JPY spike higher to 107.00. USD/JPY is maintaining the breakout of its 9-month falling wedge suggesting higher levels ahead anyway.
h2 Key Economic Events/h2 h2 Saturday, February 20th/h2Original Post
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