Taking profit?
Looking at the data calendar, yesterday should have been a relatively quiet day for markets. Limited central bank speak, little in the way of salient statistics and limited opportunity for macro headlines was the order of the day. Despite that set up, significant moves in the US treasury market created a spillover into other markets providing more directional flow. Due to the size of the move and the originating asset being US Treasuries, this could be written off as profit taking. However, it could also be a sign of further market stresses inviting less predictable price swings.
With the penultimate trading sessions of the week now underway, we expect to see a change in market dynamics. A quiet data calendar gives way to a significant number of inflation and growth reads over the next 24 hours. In particular, the market will have to contend with the following: growth data publications in the US today and the UK tomorrow. Inflation readings from France, Italy and the US: the latter being all the more important as it takes the form of the Fed’s preferred measure of core PCE. If that wasn’t enough German unemployment and the US Michigan consumer sentiment publications are due tomorrow.
The major risks will be how the market digests any potential surprises from Core PCE at a time when we might expect a bid into the Dollar as investors brace for the first round of the French elections on Sunday. The alternative FX havens of CHF and JPY are all but written off meaning that from a cash perspective, investors may struggle to identify a suitable weekend bolt hole should they perceive a risk to the EUR this weekend. Due to the composition of French voting rules, the true success of the populist National Rally party will be largely unidentifiable until the second round of voting. Provided risk sentiment remains robust, hedging Euro exposure could be seen as non-essential from seasoned investors. However, if should neither of those assumptions hold as the market’s median case, there could be gaps in prices tomorrow.
Discussion and Analysis by Charles Porter
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