Weekly Game Plan - 10.4.16

Themes for the week and potential opportunities

Risk appetite:  China's CPI (Mon), Trade Balance (Tue), GDP-Industrial Production-Retail Sales (Fri) will play an important role in shaping the outlook for commodity currencies and risk appetite this week. Exports are expected to rebound sharply but GDP growth will most likely slow. Chinese data also matters to the U.S. because the Fed's primary concern right now is global uncertainty. The resulting sentiment is easy to read: good numbers will drive risk appetite higher and rebound the Jpys, Crude, and Comm dolls; bad numbers will add more pressure. IMF Economic forecast updates (Tue) will also contribute to the risk-appetite equation.

US: Retail sales (Wed) and industrial production (Fri) are expected to show modest growth. CPI (Thur) is also expected to reach the highest level since mid-2012. US data has been mixed recently, but a good print especially in CPI can fuel USD strength.

UK: Bank of England should maintain rates and asset purchases unchanged at 0.50% and GBP375bn, respectively, with voting decisions to be unanimous, i.e. 9-0. CPI, on the other hand, is expected to rise modestly. GBP is under pressure and there aren't any real winds of change.

CAD: BoC (Wed) should leave rates on hold. The stabilisation in Crude Oil, a key sector for Canada, has reduced some of the pressure on the BoC to consider further policy easing despite mixed data output. 

AUD:  home loans and lending finance (Mon) are expected to tick up,  whereas employment data (Thur) could rise 6.2k and unemployment rate rising to 5.9%. Finally, the RBA releases its Financial Stability Review on Friday and focus is on the RBA’s assessment of the housing market. It mentioned pockets of stress in its last missive, and those pockets have likely worsened since. A more cautious tone would feed into a broader narrative consistent with more eventual easing.

Energy: The oil producers’ meeting to discuss an output freeze on 17th April looms as a key date for the oil price outlook. In the meantime, the coming week’s updates of oil supply and demand forecasts from the IEA, OPEC and the US government will impact on prices.

Going into the week, I still favour shorts on Gbp vs. Cad, Jpy and Eur. Aud is also weakening vs. Nzd and Jpy; UsdCad remains bearish as Crude climbs back to recent highs; Copper remains a sell on rallies.