Q1 GDP is the headline statistic

The last week may have on occasion left traders struggling to decide quite how to interpret some of the economic data – most notably the Chinese trade data on Thursday – but the one overriding factor for markets was the overtly dovish tone of the FOMC meeting minutes. The onus appeared to be squarely on knocking back the idea that had become increasingly entrenched stating that rate hikes could be on the agenda as soon as Spring 2015 and although the reaction was to see the greenback tumble, given that sharp increase in US consumer borrowing, it’s difficult not to see another credit bubble in the making if money remains cheap.

USD/JPY

Having worked its way up to 104 just over a week ago, the retreat for the pair in recent days has certainly been dramatic although there has been no threat of the 101 level yet. Given the fundamentals from Washington have remained relatively bullish then it’s understandable why the market doesn’t see fit to push any lower for now, but we do have a couple of key numbers in the coming days. Granted the jump in US consumer borrowing suggests that the recovery in spending should remain in tact, but US retail sales later today and the inflation print on Tuesday will both be under scrutiny. Data from Japan remains relatively low key so it doesn’t look as if Tokyo will be driving the direction on USD/JPY in the short term.

AUD/USD

Upside for the Aussie dollar has been somewhat more restrained that we saw against the Yen, but with AUD/USD already looking toppy plus ongoing concerns over the state of the Chinese economy, it’s easy to see why the Aussie has only appreciated by around 1% over the last week even given the slightly hotter than expected property market. That said, with the currency around 0.9400, this continues to pose problems for Canberra as the optimistic growth forecasts were reliant on a significantly weaker dollar. The latest Chinese GDP release is however due on Wednesday amidst a raft of data and there’s been no holding back from Beijing with regard to the fact it’s going to be a battle to meet that 7%+ growth rate this year. Forecasts here have a habit of being relatively accurate and expectations are pitched at 7.3% but any shortfall would certainly give good reason to start closing out long AUD positions.

Asian equities

The big loser last week was perhaps rather predictably the Nikkei after that sharp jump in the value of the Yen, with the downside exacerbated by the rout in technical stocks in the US. This was however the stand-out, with gains being seen elsewhere – those hopes of the Fed’s cheap money supply lasting a bit longer are certainly positive for emerging markets in general, although changes to merger rules in China added further support to the Shanghai Composite, whilst traders in Hong Kong were left cheering the fact the local index traded up to a three month high. Clearly there’s still the risk of a correction on Wall Street and this would seem likely to hit equity markets globally, but you can’t underestimate the impact low US interest rates for longer will have on supporting stocks further afield.

Economic events to watch this week

There’s a raft of numbers out of China on Wednesday – Q1 GDP is the headline statistic, but retail sales will also be under scrutiny. There’s concern that any wobbles in the housing market will disrupt broader consumption and although property price data is due at the end of the week, any shortfall could be the proverbial canary in the coalmine.

US inflation data on Tuesday will also be watched closely – the Fed may want to maintain its dovish approach but inflation must remain in check.

Geopolitical events to watch

The situation in Ukraine remains volatile and has the potential to pose a significant threat to global stability should the West get actively involved. The bigger risk in the short term however appears to be the prospect of a slide into Civil War within the country.

Market holidays

The vast majority of markets will be closed on Friday for Easter. Japanese markets remain open.