In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.

RBC Capital Markets

Week ahead: Wednesday’s FOMC announcement is the main event in an otherwise relatively quiet week. Our economists do not expect much in the way of anything new or material from the Fed. The reality is that Fed Chair Powell has been speaking with quite a bit of regularity, so we think there is little new that he can say. We believe the committee will, in the not‐too‐distant future, introduce some form of outcome‐based forward guidance. But that conversation is still in its infancy stage. Expect Powell to be asked about negative rates (again) and yield curve control. While he is unlikely to take these additional tools off the table, we do not anticipate that he will sound enthusiastic about their potential for implementation, either. In the UK, we have April monthly GDP and in Australia, various confidence measures.

JPY: Detailed capital flows data for April shed some light on the heavy selling of foreign bonds by Japanese investors in the month. Total overseas bond selling of JPY3.0rtn was dominated by selling of USD bonds, with small positive flows into many other markets. Q1 GDP was revised up slightly (‐0.6% q/q from ‐ 0.9%), though the data have little bearing on policy.

GBP: The April GDP estimate (Friday) will show the peak impact of lockdown measures on GDP. The March GDP estimate provided a taste of what to expect; with the economy in lockdown for just one week of the month, GDP shrank by 5.8% m/m. The lockdown remained in place throughout April, with large parts of the economy shuttered due to either enforced (as was the case across the retail, hospitality, and leisure sectors) or voluntary closures (e.g., though not ordered to close, almost all car plants were shut during the month, with car production down 99.7% y/y).

CAD: May housing starts are the only data this week. The April outturn looked surprisingly high (171.3K annualized nationally) despite COVID‐19 shutdowns, with only Quebec’s outright closure of non‐essential projects reflected in the numbers. We think a bounce‐back there should be offset by declines elsewhere and we see starts at 160K in May. Friday’s break below the February high and 200‐dma at 1.3465 puts 76.4% retracement of the 2020 rally at 1.3357 in place as the next support level to watch, with resistance at 1.3486.

AUD: April business confidence lifted from its historic lows of March but remains depressed at ‐46. With the survey undertaken in the last week of May amid a further gentle easing in restrictions and encouraging developments on the COVID‐19 health front, we would expect another lift in confidence in May.

Citibank

Markets remain broadly optimistic following last Friday’s bumper NFP print. The risk rally into Friday’s NY close has broadly held in Asia, with the USD on the back foot and equities bid to varying degrees across G10 and EM. SEK, GBP and NZD lead the pack in G10 FX while in EM FX, KRW, ZAR and TWD stand out. In equities, we have seen S&P futures continue to test 3200 and Asia is a sea of green too. Lastly, Oil has broadly benefitted the weekend announcement of a 1m extension to production cuts. WTI has pierced $40/bbl while Brent trades around $43 at the time of writing.

Two points to watch in Europe.

  • GBP: Weekend reports by The Times suggest that the UK could reopen more parts of the economy weeks earlier than expected. This comes following warnings by cabinet members, including the Chancellor, that should the UK’s retail and hospitality sector not reopen for summer, up to 3.5mn jobs could be lost. Plans could be announced this week. Headlines here, on top of positive sentiment from Friday’s NFP print, could explain why GBP is outperforming in the G10 bloc in the Asia morning. Cable trades at 1.2710 at the time of writing and is firmly above the 200d MA at 1.2680. New ranges could form between 1.27 and 1.30 mirroring November/December 2019 should the risk rally continue.
  • EUR: Data and Lagarde speaking are two points to watch. We may see a little reaction in EUR to Germany April IP at 07:00 BST and investor confidence data due at 09:30 BST for June. However, FX is more likely to pay more interest to ECB President Lagarde who speaks at a European Parliament hearing at 14:45 BST. The ECB delivered last week. We expect Lagarde to reiterate the guidance although she may face some questions about the German constitutional ruling.

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