It was a strong end to last week for US markets, with S&P 500 up over 1%, helped by stronger than expected new home sales and April US Markit purchasing managers indices (PMI) data. As risk assets rallied the US dollar and US Treasuries sold off. There are plenty of event risks this week. Also, there will be deluge of US earnings releases this week including most tech heavyweights while markets will likely remain nervous over President Biden’s tax plans. Geopolitical risks will also remain on the forefront.
Even as the progress on the vaccination front continues the renewed increases in virus cases in many countries, particularly in India, where the situation has deteriorated markedly, threatens to delay recovery. The acceleration in virus cases has been dramatic, with Prime Minister Modi noting how it has “shaken the nation”. Virus cases hit 349,000 on Saturday and show no sign of receding. The toll on the health system in India has been massive, but the variants also holds risks to the rest of the world while it will also lead to a major disruption in India’s vaccine exports, threatening vaccination programs in several countries.
Friday’s economic data round was broadly firm. Alongside the US releases noted above, Euro area April PMIs were generally better than expected, with G10 manufacturing PMIs pointing to strengthening momentum overall. Separately, Russia’s central bank, the CBR surprised with a bigger than expected 50bp rate hike. Today’s data releases include the April German IFO business confidence survey; consensus expectations forecast an increase to 97.8 from 96.6 previously. In the US, durable goods orders are forecast to rise in March by 2.5% m/m following a weather-related 1.2% m/m drop in February.
The focus over the rest of the week will turn to central bank decisions in Japan, Sweden and Hungary (all on Tue) and the Federal Reserve FOMC (Wed). Although the Bank of Canada’s shift last week will prompt a little more nervousness about G10 central bank tapering the policy meetings are likely to be largely uneventful, this week. Nonetheless, the Fed tone is likely to be more positive than in March, while in contrast the Bank of Japan may sound more cautious amid a third state of emergency in Tokyo.
A key event this week will be President Biden’s address to a joint session of Congress. After the hit to markets in the wake of the news of a proposal to hike taxes, markets will look for any further details. Key data releases this week include Australia Q1 CPI inflation (Wed), US Q1 advance GDP (Thu), China’s April purchasing managers indices data (Fri) and Euro area Q1 GDP (Fri).