Week Ahead of April 4

Fed minutes are released in the coming week. Rising covid cases in China bring back worries over supply chains, while the market looks for a new normal with Ukraine-Russia talks dragging on.

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Week in review

Markets started the week strongly on optimism following positive developments in peace talks between Russia and Ukraine. The FTSE & DAX rose to 6-week and 8-week highs respectively while EUR/USD briefly flirted with $1.12.

But bears were quick to step in and sell the rip when optimism faded at no concrete news from Ukraine as well as an inversion of the US yield curve, a classic sign of an upcoming recession.

The Biden Administration announced a record draw from US strategic oil reserves to combat rising prices at the pump. It’s an attempt to make up for the shortfall from Russia and the rest of OPEC+ which declined to raise production last week, affirming the view that the cartel won't be joining efforts to push prices down. WTI plummeted some 13% last week but holds firm at its 50-day support near $100/bbl. Rising covid cases in China have caused further shutdowns in major cities, including the capital of Shanghai. Shipping giant Maersk disclosed it was having trouble loading at two of the ports in Shenzhen.

The week ahead

Fed minutes

Following the NFP results, attention is focused on the Fed's next move. A majority of economists surveyed by Reuters now expect a 50 basis points hike at the next meeting. So, there will be a lot of focus on parsing the minutes for clues as to how hawkish members are.

Of note, last week ultra-dove Kashkari (who isn't a voter this year) said he was surprised inflation was this high. Arguably if the most dovish member is pencilling in up to 7 rate hikes this year, the FOMC could be quite aggressive when they meet next time. Last time investors shrugged off the well-expected 25bps hike.

Geopolitics

Peace talks between Russia and Ukraine are scheduled to continue during the week, with what is seen as the pivotal point to settle still out of reach: a meeting between the presidents of the two countries. Nonetheless, markets appear to be adjusting to the new normal of supply chain interruptions to Europe, meaning that no agreement is not necessarily cause for alarm.

Bond jitters

The US yield curve has inverted and yields are rising in the Eurozone as expectations increase that the ECB will have to turn more hawkish and pull the area out of negative rates by the end of the year. Supply chain issues are expected to be exacerbated as China continues its spot shutdowns to combat the spread of omicron. STOXX 600 is shy of its 200-day average of 467. A break there could see the index return into a bull market.

The rest

China and Taiwan will be closed for a holiday during the first two days of the week. The RBA holds an interest rate decision, but the consensus is that policy remains unchanged. AUD/USD could break to multi-month highs if positive: 76c is resistance; 74c is support.

Tuesday sees the release of Services PMIs in Europe, which are in focus as purchasing managers weigh up rising producer and consumer prices against the continent progressively moving towards lifting all remaining covid restrictions.

Also from Europe is the release of retail sales on Thursday. On the equities front, it is the quiet before the storm, with few firms reporting ahead of official Q1 earnings season. Of note next week, there is Imperial Brands and weed stock Tilray.