Weekly Economic Events Overview
This week sees only four actual trading days, with Monday being a public holiday in the United States and the United Kingdom. Key data releases and speeches to watch include remarks from the Governor of the Bank of Japan, U.S. Consumer Confidence Index, U.S. GDP preliminary quarterly comparison, and the Core PCE Price Index month-on-month on Friday evening. Here’s our global asset allocation for the week:
– Domestic Stock Market: With the situation in the Taiwan Strait and the completion of the Taiwan leadership transition, the domestic stock market is currently in a political vacuum. Hence, we lean towards expecting overall volatility in the domestic stock market, but not a significant downturn. We suggest maintaining the current risk exposure and consider buying on dips.
– U.S. Stock Market: Considering the potential decline in the U.S. dollar index, we are bullish on tech stocks represented by the Nasdaq in the short term and bearish on manufacturing stocks represented by the Dow Jones. Moreover, with relatively minor fluctuations expected in next week’s economic data, we recommend maintaining the current spot risk exposure.
– Japanese Stock Market: Given the decline in CPI, negative GDP growth, and a new round of labor-management adjustments, the Japanese market appears weak in the short term. However, in the long term, it remains within an upward trend.
– Cryptocurrency: Following the logic of the potential decline in the U.S. dollar index and the expected launch of Ethereum ETFs, we still believe in long positions on Ethereum and Bitcoin. However, hedging should be considered before crucial data releases. In the foreseeable future, the U.S. Republican Party is attempting to gain the support of young American voters, indicating future support for the cryptocurrency industry. This could serve as the foundation for the next long-term bull market, prompting considerations for buying on dips.
For the Governor of the Bank of Japan, the current situation is awkward. April’s CPI at 2.2%, down from March, coupled with negative GDP growth, suggests that long-term expectations for a rate hike in Japan may fall short. Short-term challenges include stabilizing the yen’s exchange rate without further rate hikes. It’s worth noting that this week, the price of Bitcoin priced in yen has hit an all-time high, primarily due to yen depreciation. Hence, we anticipate the Bank of Japan’s remarks to aim at boosting short-term yen exchange rates, with further judgments to be made after economic data releases in the following months. As long as Monday’s speech at 8:05 a.m. by the Bank of Japan does not exceed our current expectations, its impact on the market is expected to be relatively limited.
The U.S. Consumer Confidence Index will be released on Tuesday at 10:00 PM, with the previous value at 97 and the expected value at 96.1. In recent months, this data has had a relatively limited impact on both the cryptocurrency market and U.S. equities. For example, in March, the expected value was 104, but the actual value came in at only 97, significantly below expectations. However, the market impact was minimal, with a brief 1% drop followed by a recovery. A decline in the Consumer Confidence Index is favorable for a reduction in inflation but also indicates a slowdown in economic growth. This increases the likelihood of a soft landing for the Fed, making a below-expectations confidence index beneficial for rate cuts. Given the trend of this data underperforming in recent months, we anticipate this month’s figure will also likely fall short of expectations but converge towards the forecasted value, further reducing market volatility.
The preliminary U.S. GDP quarterly growth rate will be released on Thursday at 8:30 PM. The market expects a growth rate of 1.3%, down from the previous 1.6%. Historically, this data has hovered around 2% in the U.S. If the GDP aligns with market expectations, its impact will be minimal. However, any deviation from expectations will influence the market. An above-expectation result suggests the U.S. economy remains robust, giving the Fed more time to wait for inflation to decrease. Conversely, a significantly below-expectation result could lead to a potential market downturn due to increased risks of a hard economic landing, which is bearish. We are inclined to short equities in this scenario.
Additionally, it’s important to note that the initial jobless claims for the week will also be released at this time, potentially resonating with the GDP data. There are four possible outcomes:
1. Above-expectation GDP and below-expectation jobless claims (strong economy, maintaining or even increasing interest rates possible).
2. Above-expectation GDP and above-expectation jobless claims (neutral).
3. Below-expectation GDP and below-expectation jobless claims (neutral).
4. Below-expectation GDP and above-expectation jobless claims (increased risk of hard landing, raising rate cut expectations).
Overall, we lean towards shorting the equity market under these conditions.
The U.S. Core PCE Price Index month-on-month will be released on Friday at 8:30 PM, with an expected value of 0.2%, down from the previous 0.3%. Given that the previously released CPI met expectations, we have reason to believe that the Core PCE will also be in a downward trend, making it less likely to exceed expectations. However, this data will directly impact weekend market sentiment, especially in the continuously trading cryptocurrency market. If the data falls short of expectations, it will be bullish and positive for weekend market sentiment. In this case, one could consider going long or maintaining the current risk exposure. However, if the data exceeds expectations, it indicates persistent inflation, and the risk of further rate hikes or maintaining high interest rates remains. We would then lean towards reducing risk exposure after the data release.