Spring has truly sprung – but what does that mean for the global markets? Especially in a week light on data?
US: Will the Dow Jones get through the week unscathed?
Though it didn’t quite end the month at an all-time high, the Dow Jones had a stellar March. Opening a fraction short of 31,125, the index closed at 32,981 – that’s an 1,856-point increase, the kind of rise that will be tough to match in April.
For while the Dow and the rest of the US markets spent much of last month dealing with fears over bond yields and rising inflation, it also had the rather significant boost of Joe Biden’s covid-19 stimulus success.
The President’s infrastructure reveal – labelled the American Jobs Plan – didn’t exactly garner the same reaction. The ‘once-in-a-generation’ $2 trillion scheme is intended to create the ‘strongest, most resilient, innovative economy in the world’, and is designed, in part, to help the States tackle the climate crisis.
Yet the big spend couldn’t prevent the Dow from drifting lower, suggesting that the index isn’t going to be quite as enamoured with governmental spending as it was when discussing the stimulus package.
The reason behind the milquetoast market reaction to the infrastructure plan may be the same thing that caused a flurry of worry around the American Rescue Plan – bond yields. The US 10-year Treasury yield is lurking at or near a 14-month high and rose oh so slightly in the aftermath of Biden’s announcement.
The Dow et al., then, are potentially entering a tricky situation, where anything that is read as positive for the US economy has a negative impact on the financial markets, due to the aforementioned fears surrounding a surge in inflation, and what that’ll mean for interest rates. This despite reassurances from the Federal Reserve that they aren’t exactly chomping at the bit to start hiking rates and turning the stimulus taps off.
Lacking the kind of positive central focus it had at points in March means April could see the Dow struggle to defend its recent levels.
Especially since, at a certain point, the Dow’s record peak-nearing levels may start to count against the index, with investors questioning the justification of said highs.
It would do good to get through this week relatively unscathed, so it can then re-up its focus on the latest earnings season from the middle of April onwards.
In terms of the week’s data, the US posts its final services PMIs and factory orders readings on Monday, followed by the JOLTS job openings figure on Tuesday, the latest Fed meeting minutes on Wednesday, jobless claims on Thursday and PPI numbers on Friday.
UK: Cleared for a grand reopening?
Back from a long Easter weekend on Tuesday, the UK could increasingly start to pay attention once again to covid-19 case numbers, to assess the impact of the country’s grand re-opening.
Beyond that there’s not much on the calendar. The final services PMI is out on Wednesday, followed by the construction PMI on Thursday, and the Halifax HPI on Friday.
Eurozone: A third wave to contend with
Concerns surrounding the third wave of the covid-19 pandemic, the sluggish rollout of the vaccine, and the various lockdowns that are popping up across the continent are all going to remain top of the list for the Eurozone this month.
Not that those worries have stopped the region’s indices from climbing higher and higher, especially the DAX, which is in the Dow-like situation of hitting a fresh record peak everything time it yawns.
In terms of data, the final services PMIs for March arrive on Wednesday, followed by the German factory orders and ECB minutes on Thursday, and the German and French industrial production readings on Friday.
This article is brought to you in association with Spreadex. All opinions expressed in this article are from the author and do not necessarily represent the opinions of The Armchair Trader. You can find out more about Spreadex products and services here, or find more articles from Connor Campbell here.