There are a number of key events this week but inflation and the path in which the Fed is tightening remains at the forefront. This has literally taken the stability and liquidity out of the market which in turn has made other situations, i.e. the trade war, have a greater and more immediate impact on market conditions. CPI, a leading inflation indicator, is due Wednesday morning at 7:30 am CT. The Core read excludes the more volatile food and energy prices and takes precedent. The MoM read is expected to come in at the standard +0.2%. Inflation seemingly stabilized late in 2017; December and January posted strong +0.3% MoM increases. The YoY read will be watched as close as ever this month as expectations are for +2.1%, this would be the highest since February 2017. It is important to note that wage growth bounced back on Friday’s Nonfarm Payroll, coming in as expected at +0.3%. If CPI comes in merely in line with expectations it will not be enough to push the Federal Reserve faster than priced in. However, it will surely get the conversation going and place a lot of emphasis on next month’s data. While stronger than expected data will lift the U.S Dollar, it is also likely to put pressure on equity markets. Weak data would reinvigorate the Dollar bears but also help support equity markets as this would take pressure off the Fed and question three rate hikes this year.
The Federal Reserve releases the Minutes from their March meeting at 1:00 pm CT on Wednesday. Under former Fed Chair Yellen most recently, it had not been uncommon to see a more hawkish tone in the Minutes but a less hawkish or even dovish tone coming from the meeting itself and statement. This was new Fed Chair Powell’s first meeting but the CPI data earlier in the day will likely go a long way in helping to interpret the Minutes.
On Tuesday morning in Asia, Chinese President Xi Jinping will deliver the keynote speech from the highly touted Boao Forum. This is known as the Asian Davos; business and government leaders from around the world visit the South China island province of Hainan for the event. Though he may not address President Trump or the U.S directly, he is expected to generate a response to the heightened trade war and protectionism. China is also expected to use this event to signal new measures including opening up their financial sector. Data out of China will also be in the spotlight this week. On Tuesday evening at 8:30 pm CT CPI data is due and Friday morning, U.S hours, Trade Balance data is due.
The risk-off trade in the face of the U.S and China trade war dragged Crude Oil on Friday to the lowest close since March 15th. Also, the S&P lost 2%. The fear is that the trade war will slow Oil demand. Furthermore, the Commitment of Traders points to a 13.5:1 net-long position. This signals that weakness can quickly become exacerbated as these longs sell out of positions. The ante in a crucial week has just been upped. First, OPEC releases their Monthly Report on Thursday morning and the IEA releases theirs on Friday. Second, the market is entering a seasonally bullish time of year where demand usually begins to pick up. Now, geopolitical tensions have also picked up. The Saudi Arabia and Iran relationship has recently become tenser as talks of repealing the Iran Nuclear Deal gain traction. This weekend’s news of the horrific chemical attack in Syria is bound to garner an official response. However, President Trump has already tweeted blame towards Russia and Iran. The uptick in geopolitical tension is due to offset the trade war fears and Crude finds itself at a serious inflection point.
The U.S and China trade war is heating up, but the NAFTA talks could take a pleasant turn this week. President Trump is set to meet with Mexican President Nieto and Canadian Prime Minister Trudeau late in the week at the Summit of the Americas in Peru. While market conditions are likely to remain turbulent through Chinese President’s Xi Jinping’s speech at the Boao Forum, President Trump could use a NAFTA deal this week to soothe markets. NAFTA might not have the fire power on its own, but earnings season officially kicks off this week. Traders and investors alike will look to Friday morning where JP Morgan, Wells Fargo and Citigroup are all due to release Q1 earnings.
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