Improving sentiment

Markets

After wavering throughout the New York session as investors digested a slightly higher yield environment, stocks closed better on the day amid a constructive regional business sentiment survey. Still, investors remain on guard ahead of a flurry of earnings results expected across the economy this week.

But the subtle yet positive data beat goes on after last week's highlight reel was almost uniformly hopeful, including progress on inflation, better growth than expected, the possibility of fewer rate hikes, and some constructive big bank earnings.

And overnight, the good news has continued -- for the most part -- with more signs that sentiment, in particular, may be already improving much quicker than many had expected after the March banking sector-driven beat down.

Last week, we received a better-than-expected Consumer Sentiment survey from the University of Michigan. And overnight, we got two pieces of data suggesting that business sentiment may also be improving: the Empire State manufacturing survey and the NAHB Housing survey.

The improving sentiment readings, alongside the robust Payrolls report we received on Good Friday, suggest that the US consumer remains in a healthy spot.  

 What could derail the consumer and US growth?

Deterioration in bank lending activity is often considered a vulnerable flash point amidst the collapse of SVB in March. And this week, we get results from a few more big banks, several regional banks, and others who were perhaps more exposed to March's challenges.

Forex

Resilient US economic data serves as a reminder to Dollar shorts( long Gold+long BTC ) that factors that have kept the Dollar elevated—firm activity and high core inflation—still have not been fully resolved, and that leaves most policymakers with the impression that "there is still work to do," as Governor Waller said. 

That's part of why we thought FX markets have priced in too much divergence at the moment, and this is likely to be a more spiky Dollar peak than the last few demand-driven cycles. 

Still, policymakers are most uncertain about the degree to which tighter credit standards will substitute for changes in the price of credit through rate hikes, which is critical for FX.

To that end, traders remain entirely data-dependent while awaiting results and guidance from regional banks reporting quarterly earnings this week. There will also be a lot of focus on Fed speakers ahead of the blackout period.

Focus in Asia turns to China 1Q GDP, where onshore stocks took a bit of a pre-data flyer yesterday as the strong run of macro data in China of late, including robust TSF and the surprise to the upside on trade growth, have investors speculating on a solid rebound in 1 Q GDP growth. 

EMFX should also benefit from an above-consensus GDP and a more significant impulse from China to global growth: improved growth expectations should support CNY and the ASEAN FX basket.