Week of 13 april

Last week, markets tracked events in the Middle East, which overshadowed the release of FOMC minutes and the RNBZ's rate decision. Brent started the week just under $110 per barrel amid negotiations and a pressure campaign that culminated in a ceasefire on Wednesday, after which Brent dropped to $95. However, uncertainty about whether a deal could be reached, along with accusations of failing to abide by the ceasefire, kept Brent between $95 and $100 in the second half of the week.

The week ahead sees a fairly quiet economic calendar, with China and UK GDP the highlights amid the unofficial start of earnings season, allowing markets to react to the potential outcome of talks to end the war in Iran.

Week in Review

Markets had a slow start, with Europe closed for the holiday, and markets reacted to overnight news that US President Donald Trump increased pressure on Iran amid negotiations. OPEC agreed to increase production by 206K bbl/d when the Strait of Hormuz reopens. On Wednesday, markets experienced an abrupt unwinding of war premium assets after the US and Iran announced a 2-week ceasefire as they worked towards a peace agreement. There was confusion over the opening of the Strait of Hormuz, with Iran initially announcing a "controlled" reopening, but later Iranian media reported it was closed. Some ships crossed the Strait, but they were mostly dry bulk carriers. Crude prices fell, with WTI still slightly higher than Brent, which fell as low as $92 right after the announcement. Gold rose above $4,800 as markets raised the odds of a Fed rate cut this year to 50% in the middle of the week. Global stock indices shot higher, with notable performances in the DAX and Kospi. However, those gains moderated later in the week as investors await the outcome of talks between the US and Iran.

The FOMC minutes showed a growing openness to raising rates, as officials raised the inflation outlook due to the war-related oil shock. The hawkish tone left yields slightly higher, but the concurrent optimism about a potential end to the war left the dollar weaker and the euro gaining. Markets still see the ECB raising rates twice this year and pencil in one rate hike from the BOE.

The RBNZ kept rates unchanged, as was expected. What came as a bit of a surprise was the warning that it would act decisively if inflation heats up, delivering a more hawkish tone than markets were anticipating. This helped the NZD recover all its losses from the last couple of weeks.

Biggest Market Movers

• The dollar hit a four-week low after the ceasefire agreement, coming under pressure as safe-haven flows reversed.
• NZDUSD had the strongest performance among the major pairs, aided by a more hawkish tone from the RBNZ.
• Gold rose for the third week in a row, jumping from $4,650 to just shy of $4,900 after the ceasefire agreement was announced, but settling under $4,800 towards the end of the week.
• Brent is set to end the week just shy of $100 per barrel and down over 10% after experiencing the largest single-day drop in six years on Wednesday.

Top Events in the Week Ahead

The coming week will likely begin amid the fallout from US-Iranian negotiations, which are expected to extend into the weekend. Traders will be watching closely for clear signs that crude exports can resume normally through the Strait of Hormuz or if attacks on Iran intensify in an effort to resume failed negotiations. On the data front, the focus will be on China, with the release of its latest trade numbers and also as the first major country to report Q1 GDP figures. The UK will also report its February GDP data.

China Trade Falling Amid War

The world's second-largest economy is expected to post growth of 0.8% in Q1, below the 1.2% in the final quarter of last year. China's March trade surplus is expected to be halved from the record $214 billion in February to $105 billion, as the world's largest crude importer is forced to pay higher energy prices, drastically increasing imports. Traders will be keen to see if the country's exports are also affected by the war. The breakdown of imported categories will be vital for commodity currencies, as disruptions in global energy markets could reduce demand for raw materials. This could be particularly relevant for the Aussie because Australia's largest export is iron ore, which requires significant energy to process into steel. The AUDUSD could rebound towards the 0.7190 handle, the peak during the war period. But bad news could send it back to the recent swing low at 0.6830 if 0.6900 gives way to bears.

US Producer Inflation Pressure From Energy Costs

Gasoline and diesel prices in the US have been elevated as Asian refiners have offered premiums to buy US crude amid supply disruptions. This is likely to have contributed to inflationary pressure in the US, with traders looking to producer prices to gauge how much of the effect is being passed through to the broader economy. March PPI is projected to jump to 1.3% from 0.7% in February. But the core rate is expected to slide to 0.4% from 0.5%. This could affect the odds of the Fed cutting rates this year and the dollar's outlook against the Euro, where the ECB is seen raising rates twice to fend off energy-related inflation. EURUSD could return towards resistance at 1.1800, where it stood at the start of the war, while support could be found around the 1.1600 support, which it visited before the ceasefire announcement.

UK Economy Barely Moving Before the War

February UK monthly GDP data comes out on Thursday, with the consensus for anaemic growth of 0.1%, a marginal improvement over January's 0.0%. This sets a very low baseline that could easily be pushed into negative territory by the war-related economic disruptions in March. With crude oil still near triple digits, markets are pricing in at least one rate hike by the BOE to curb rampant inflation despite a lack of economic expansion. GBPUSD could break above the pre-war level of 1.3500 unless it finds resistance, or it could turn lower towards 1.3150, the latest swing low.

Other Events and Earnings

Monday has the US existing home sales data. Tuesday includes the Australian Westpac consumer confidence and the NAB business confidence. Wednesday sees Eurozone industrial production. For Thursday, UK manufacturing data is expected. The Eurozone's trade balance comes out on Friday.

This week sees the unofficial start of Q1 earnings season with updates from the largest US banks on Tuesday. Major names expected to report include Goldman Sachs, Fastenal, JPMorgan, Johnson & Johnson, Wells Fargo, Citigroup, ASML, Bank of America, Morgan Stanley, Netflix, Pepsico, and State Street.