It's been one of the best starts to a year ever for stock markets but it's not what it appears. The week ahead is all about the start of US earnings season, with important data from flash PMIs in the Eurozone, China Q1 GDP and US industrial production and retail sales. GBP currently leads currencies since the stat of a thinly traded Asian ession. Flagging signals as to whethet to square some longs or open shorts.
The temptation is to chalk up the rally in equities this year to better growth but it's been just the opposite. Growth almost everywhere has disappointed.
Instead, this is a rally entirely predicated on the Fed going to the sidelines and China stimulating. No surprise that on Friday, indices in most developed world markets rallied to their best levels of the year after March new Chinese loans rose 1.69 trillion yuan compared to 1.2 trillion expected.
Markets are increasingly betting on two things: 1) An end to the US-China trade war, and 2) PBOC, Fed and other central bank efforts working to spur growth in the second half. The looming problem is that their actions will help in Q3 or Q4, but we're facing Q1 earnings season.
Gauging Earnings Season
There is considerable risk for disappointment for revenues and earnings, but guidance will hold more sway. The week ahead is focused on financials, which do not reflect an accurate view at consumers or underlying economic conditions. But there could be clues from Netflix, Pepsi, Alcoa and Las Vegas Sands this week. Make sure to distinguish beteween forecasts for revenues, profits and profit margins. And when you read the term "earnings recession", that means overall forecasts for profit growth will be negative for two quarters in a row.
One spot we've been following closely is signaling a positive outcome. On Friday, AUD/JPY rose to the highest levels of the year. It had been trading in a tight, well-defined 3% range since the flash crash at the start of the year. The rally on Friday argues that central banks may have done enough to keep risk trades rising. On the same token, check out Ashraf's take on the topic in Friday's IMT here.
CFTC Commitments of Traders
Speculative net futures trader positions as of last Tuesday's close. Net short denoted by - long by +. This week's report was delayed because of the US holiday.
EUR -102K vs -99K prior GBP -7K vs -10K prior JPY -72K vs -63K prior CHF -28K vs -26K prior CAD -43K vs -44K prior AUD -54K vs -56K prior NZD -1K vs 0K prior
The euro rallied last week despite Draghi's decidedly dovish press conference. The net short is the largest since late-2016 and the pair is basing from a double bottom at 1.1180. If EUR/USD can keep the momentum going, shorts will start to get nervous.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
AUD/USD holds above 0.6500 in thin trading
The Australian Dollar managed to recover ground against its American rival after AUD/USD fell to 0.6484. The upbeat tone of Wall Street underpinned the Aussie despite broad US Dollar strength and tepid Australian data.
EUR/USD comfortable below 1.0800 lower lows at sight
The EUR/USD pair lost ground on Thursday and settled near a fresh March low of 1.0774. Strong US data and hawkish Fed speakers comments lead the way ahead of the release of the US PCE Price Index on Friday.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays near 4.2% after upbeat US data and makes it difficult for XAU/USD to gather further bullish momentum.
Google starts indexing Bitcoin addresses
Bitcoin address data is live on Google search results after users realized on Thursday that the tech giant started indexing Bitcoin blockchain data. However, mixed reactions have followed the tech giant's reversed stance on the cryptocurrency.
A Hollywood ending for fourth quarter GDP
The latest revisions put Q4 GDP at 3.4%, the second fastest quarterly growth rate in two years. Much of the upside was attributable to stronger consumer spending, yet fresh profits data affirmed it was a good quarter for the bottom line as well with profits up by the most since the Q2-2022.