Week Ahead: French election, GDP and inflation vie with FAANG results
April 22,2022 16:14:36Central banks are turning more hawkish across the globe as the front-loading of interest rate hikes gets priced into markets. Upcoming growth and inflation data is likely to bolster this sentiment as traders look beyond some key psychological levels in bond markets and FX, the notable one being the 3% level in the US 10-year Treasury. The 1.08, 1.30 and 130 levels in euro, sterling and the yen will also be keenly watched, while stocks look to be rolling over into recent lows.
The presidential election in France on Sunday will be the initial focus, with gap risk in euro markets if Le Pen surprises everyone and claims victory. Recent polls suggest the incumbent Macron is the favourite. He has a lead of over 10pts, but low voter turnout may make the win less comfortable. The result should become clear around 19.00 GMT. EUR/USD is again trading around the 1.08 level and it seems any uptick post a Macron triumph may be sold again.
A packed data week sees lagging GDP numbers from several developed countries. Any softer data is not likely to knock the Fed and other central banks off their hawkish stride. The next two FOMC meetings price at least half point rate hikes at each, with the chance of a big 75bp move growing. The Fed’s blackout period starts on Saturday, so we won’t hear from any more officials ahead of their meeting on 4 May.
More of the FAANGs release their latest earnings results next week with Meta, Apple, Amazon and Google standing out. It’s been a tough quarter for tech stocks as concerns about valuations and rising rates cause investors to become more defensive and discerning. Will any misses on profits or revenues see another meltdown, similar to this week’s Netflix crash?
Major risk events of the week
25 April 2022, Monday:
–IFO German Business Survey: Economists expect a print of 88.1 in April from the prior 90.8. The Ukraine conflict is expected to weigh heavily on sentiment with high energy costs and ongoing distressed supply chains. Record high inflation rates will also cloud the demand outlook.
27 April, Wednesday:
–Australia CPI: Both the headline and trimmed mean prints are forecast to exceed the RBA’s 2%-3% target band. The latter core readings reflect broader price pressures amid robust domestic demand. A full 25bp rate hike is priced in June but AUD is suffering in the strong dollar environment.
28 April 2022, Thursday:
–Bank of Japan meeting: No action is expected from policymakers. Underlying price pressures remain muted, so the bank is firmly committed to its price stability target with an overshooting commitment. The focus will be on recent yen weakness after more frequent comments by officials. Is 130 the line in the sand for USD/JPY? Markets will test here and look to 135 unless a rare bout of intervention takes place.
– US GDP: First quarter growth is estimated to show the economy expanded at 1%, sharply below the previous quarter’s 6.9% rate. Omicron restrictions and supply chain issues for inventory weighed on activity. Analysts predict stronger growth in the second quarter.
29 April 2022, Friday:
–Eurozone CPI, GDP: Analysts see the flash CPI estimate rising above 7% after the record 7.5% in March. Energy inflation remains strong and may solidify the ECB hawks for policy tightening. Markets are pricing in nearly three 25bp rate hikes by the end of the year, with July the likely start date. GDP is expected to be positive despite soaring prices and production disruptions.
–US Core PCE: The Fed’s favoured inflation marker is expected to hit 0.9% in March. The core figure is forecast to fall a tenth to 0.3%. This data will be important in driving market expectations for Fed policy with markets going into hawkish overdrive.
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