Market sentiment: RiskOff – 3 days
Recap of the past week:
The past and very important week brought quite a big disappointment from the US CPI numbers. Unfortunately, inflation continued its upward trend, increasing by 0.1% MoM and YoY to 3.5% from 3.2%. The data was quite unexpected and the readings brought the strongest negative news of the year in terms of market impact. Despite a little help of the US PPI readings, the market was further disappointed with Friday’s Michigan (increased inflation expectations), and escalating tensions between Israel and Iran. As expected, market sentiment switched to negative RiskOff, ending the RiskOn sentiment that had lasted over a month.
Outlook for the following week:
The upcoming week will be mainly about earnings. Major companies such as Goldman Sachs, Bank of America, Morgan Stanley, ASML, TSMC, and Netflix will be reporting. There will also be numerous speeches by members of the Fed and several significant macro events. Since the conflict between Israel and Iran escalated from Saturday to Sunday, financial markets will be quite nervous, and increased volatility can be expected.
On Monday, the market will digest the ongoing conflict between Israel and Iran. At the time of writing this overview, the situation has somewhat calmed down, and it is awaited whether Israel will respond further with a counterattack. If not, the market might tend to recover some of Friday afternoon’s losses. On Monday, we will also receive results from Goldman Sachs, Fed’s Logan speech, the NY Empire State Manufacturing Index (April), and US Retail Sales(March).
On Tuesday, the main macro day of the week, we’ll receive Chinese GDP and Retail Sales during the Asian session. Especially with the GDP, the market will be watching which direction the Chinese economy is taking. If we see another (expected) decline, the market will begin to question whether the Chinese government is doing enough and will likely increase pressure on the PBoC. In the EU, we will receive the UK labor market and ZEW (DE and EU). During the US session, just US home sales, US Industrial Production (March), and Canadian CPI (highly watched!). During the day, results from Johnson & Johnson, Bank of America Corporation, and Morgan Stanley.
On Wednesday in Asia, just the Japanese Trade Balance. In the European session, UK CPI, PPI, Retail Sales, European CPI update, and results from ASML. Before market’s close, the Fed’s beige book to be released and also a Fed’s Mester speech.
On Thursday, we’ll get Australian unemployment, results from TSMC (during the EU morning session), weekly US labor market overview, Philadelphia Fed Manufacturing Survey (April), Home Sales, and speeches by Bostic and Williams from the Fed. After close, highly anticipated results from Netflix.
On Friday, Japanese CPI, German PPI, and UK Retail Sales (March). We will receive results from The Procter & Gamble Company, American Express Company, and BHP Group Limited. Throughout the week, the market will undoubtedly be flooded with tons of headlines on Israel, Iran, and Gaza. It will depend very much on further developments, especially on whether Israel will respond to a major rocket attack.
Long-term sentiment
As shown by the moodix market sentiment indicator, after a very long time, the negative RiskOff sentiment has started. Its strength is still at a rather low level and as you can see in the image, it has not yet surpassed the strength of waves from January and February.
So far, we perceive this – as usually – just as another market test, which has already occurred twice this year. The development of the conflict between Israel and Iran and especially the outcome of the earnings season will be very crucial. Considering valuations, it can be expected that the market will be strict. To enter a short trade, it is necessary for the negative sentiment to reach the “Correction Threshold” at a value of -0.21. Trading systems are currently turned off.
Good luck! Team moodix!