Banking turmoil now in the rear-view, focus turns back to macro data flow. China PMIs, eurozone inflation, US PCE, may deliver lively action today. Month-end and quarter-end flows could also contribute to volatility

By Stuart Talman, XE currency strategist

The market is following a similar path to the day before, US and European equity markets are higher, bond yields are mildly stronger, the commodity complex firms and the dollar is broadly weaker against its major peers.

The euro and pound sit atop a condensed G10 leaderboard gaining over half-a-percent, whilst the New Zealand dollar gaining just shy of 0.50%.

Yesterday we flagged the bullish ascending triangle pattern – NZDUSD price action converging between 0.6270 resistance and ascending trendline support, originated from the 0.6084 low earlier in the month.

Having bounced off the trendline support, near 0.62, through Thursday, recouping most of yesterday’s losses, the Kiwi again looks primed for a topside breakout.  Logging an early morning high at 0.6260, NZDUSD consolidating above 0.6270 validates the ascending triangle’s prediction of a new upswing commencing.

The S&P500 climbs for a second day, trading over 6% higher from its 13 March low. The short-lived banking crisis appears to be just that……we can now get back to monitoring inflation and jobs numbers and picking apart expectations for the Fed’s next move.

To breakdown the market’s near-term directional bias in simple terms:

Banking crisis averted; systemic risk gone = US stocks higher.

More Fed rate hikes/no 2H cuts = US stocks lower.

The current set-up suggests that US equities and other risk assets can rally in the short-term until some data event or collection of data points takes the market back to where it was in February and early March – worried about the need for the Fed to keep hiking; the higher for longer mantra ensuring Powell and his FOMC colleagues will not be cutting the target rate during 2023.

Next week has the potential to disrupt the post-banking turmoil recovery.

US employment numbers for March are released on Friday evening.

You may recall that January’s hot non-farm payroll data point ended the market’s new year rally, raising concerns the Fed would keep hiking the Fed funds rate beyond 6%, increasing the odds that sustained ultra-aggressive monetary tightening would drive the US economy into a deep and protracted recession.

A material upside beat next week likely re-ignites these concerns, locking in a 25bps hike at the 03 May FOMC meeting.

A hot US jobs report would propel US bond yields and the dollar higher, whilst a tame report likely generates more upside momentum for US stocks.

Other US data points of note for next week include ISM Manufacturing and Services PMIs and ADP employment change. A strong services PMI result could also derail the risk rally as the Fed is laser focused on service sector inflation.

With policy updates from both the RBNZ and RBA, unlike this week, next week should be a lively one.

Shifting our focus back to the present, it’s been another quiet 24 hours absent any market moving headlines or data releases. US GDP came in slightly below the consensus, the US economy growing at an annualised rate of 2.6% (vs 2.7%, expected) for the last quarter of 2022, whilst weekly US jobless claims printed blow the 200K threshold. The US labour market remans both tight and resilient.

Friday may deliver an uptick in excitement for the market……in relative terms, not hard to achieve given the week has meandered along, devoid of conviction.

PMIs for China, CPI readings for Tokyo and the eurozone and the Fed’s preferred inflation gauge – personal consumption expenditure (PCE) are the potential market movers over the next 24 hours.

Should core PCE print below 4.7%, we likely end the week with a third day of gains for the S&P500 and the Kiwi piercing through 0.6270 resistance.

Stuart Talman is Director of Sales at XE. You can contact him here.