Weekend Summary & The Week Ahead (abridged version)
March 29, 2016
Markets sold off ahead of the long weekend, as commodity prices took a hit and the wider market grew concerned that a Fed hike was potentially back on the table in April. As we said last week, the Fed's inconsistency is becoming more of a source of instability than any economic fundamentals, which we're pretty sure is exactly the opposite of what they should be doing.
Commodities lower is probably to be expected. The big buy back of the last two months has looked a little overdone, considering not many of the fundamentals have changed. Barclays have warned that, because the rally is built on weak fundamentals, any turnaround could result in another overshoot to the downside as investors rush to the exit.
Zerohedge writes about Saudi Arabia's drive to modernize their economy in the face of depressed oil revenues. The country has had to face up to two years of fiscal deficits, instead of their usual massive surpluses and is now considering implementing a 5% Value Added Tax – as the article points out, this doesn't sound abnormal, but it would actually be the first tax the country has imposed. The article is well worth a read.
The week ahead is short, but packed full of data. The Fed once again take centre stage, as Janet Yellen speaks at the Economic Club of New York today. Given the volatility we saw in currency markets last week, this speech will probably set the tone for more of the same for this week. Non Farm Payrolls on Friday will also give investors plenty to think about and they'll be trying to second guess that outcome based on what Fed officials have to say earlier this week. The market at the moment seems to favour the Dollar if it's a weak print and also favour the Dollar if it's a good one.
From Europe, we're still of the opinion that the ECB's actions overrule any economic data for the short to medium term. Adding to this, we also saw an Italian bank start to sell off it's non-performing loans under the new government guarantee scheme over the weekend, so if this can continue, it will bring further support to the European banking sector.
UK data is pretty thin on the ground, so the Pound will be at the mercy of the strength/weakness of its peers. There was limited Brexit chatter over the weekend, though the Hamilton Court Straw Poll has the No camp leading by a whisker (caution; we're probably as accurate as a YouGov survey(
Have a great week.