Calendar Week 18-2023

Busy week ahead of us, but Europe is on holidays Monday and Japan from Wednesday to Friday. We have Central Banks meeting in Australia Tuesday, USA and Europe Thursday. Also are jobs data from New Zealand Wednesday and Canada and USA on Friday. Finally, after the bell on Friday Apple earnings will be a key driver for stocks.

All eyes will be on the Fed at the FOMC. Odds are high for a 0.25% move again which is in stark contrast to the RBA who will not raise rates. Making the interest rate differential between the two economies at 1.65%. That will put a massive squeeze on Australian bank margins as they get much of their financing from USA.

The AFR today article today discussed the conflicting views of the bond market and the stock market. The former believe a recession is coming whilst stocks are not concerned about it. Partial reason the stocks are not concerned is due to the track record of the Fed bailing out assets with their Quantitative Easing programs (and frequent readers know my loathing of them). The bond market however, is pricing in a crash of growth and the battle over inflation to be won and equities often peak 3 months ahead of recessions.

“Bond markets are better at detecting recessions than equity markets, and equity markets are much better at picking recoveries than bonds,” says Gerard Minack.

Another point to note, which Zerohedge also notes, is that the equity rally is very narrow. With financial sector still being punished, the rally is being led by the big tech stocks so how real is the growth when FANGS are the only ones performing? Makes Friday’s Apple earnings all the more interesting when you consider Apple makes up 7% of the S&P500 index.

Currency Guidance

USD – 100.50 has held firm in a market trading sideways, caught between risk on and risk off markets and events. I expect these conditions to continue this week with big risk events around FOMC, Apple and Payrolls.

AUD – New resistance levels at 0.6630 area, poor Chinese data over the weekend, tanking commodity markets and key export prices, a benign RBA widening the interest rate differential all point to the Aussie coming under further pressure this week and I expect price to be in the low 0.65’s by the end of it.

EUR – Rather choppy thanks to lack of US direction, but with ECB set to raise again this week I still see this on track for 1.12 being traded, until proven otherwise.

GBP – Out did its cousins across the Channel and is on track for our target of 1.2650. Might need a little fading back to 1.25 to make it first though.

JPY – Yen got spanked against all peers after the BOJ announcement on Friday. The BOJ continues to be very dovish in contrast to other Central Banks. Next major resistance comes in at 138, with a fade back to 135 the favoured position to take it and run up to 138.