This article is a preview of new likely market drivers of all global markets this week that we suspect will appear this week. It's a continuation of Part 1, which covered market movers from last week that should continue to exert influence this week
Review of 6 Coming Week Market Movers From The Prior Week
Here's a quick listing of fundamental and technical forces that drove market action last week and that we expect to continue to influence markets this week. See Part 1 for a full discussion of them.
Four Fundamental Market Drivers
- Recent policy moves by the central banks of the EU and Japan: Ongoing BoJ easing likely to continue boosting stocks, lowering the JPY.
- Continue Complacency about the EU. Significant deterioration and growing risks of a new crisis continue to not be reflected in current price levels, which suggest growth prospects should be as high or higher, and contagion risks lower, than at any time in the past decade. In fact, reality is far closer to the opposite.
- Ramifications of last week's monthly US Jobs reports for this week. Stimulus with no end in sight, with Japan nearly doubling what had been coming thus far just from the US. The rally that began in the summer of 2011 with QE 2 suggests this should be enough to keep risk assets up despite the far more dour fundamentals noted in #2.
- Bearish Divergence between risk currency pairs and stocks may signal at least a coming pause or correction. We could see a 10% correction on the S&P 500 without sustained damage to the overall uptrend.
Two Technical Market Drivers: Ongoing stalemate between
- Long established upward momentum
- Decade-old resistance.
Given that the balance of fundamental drivers behind the rally of the past year has not materially changed, we must conclude that the rally is likely to continue until some change in the balance of underlying fundamentals that have driven this rally. These are:
- Bearish: weak global growth and corporate earnings. These have historically driven asset prices, however they've been temporarily overpowered by…
- Bullish: ongoing central bank stimulus on an unprecedented scale, and with it financial repression that forces yield seeking investors into riskier assets and to accept greater risk in exchange for lower yields than they would have gotten prior to the advent of this coordinated central bank intervention.
Likely New Market Drivers To Appear This Week
Q1 2013 Earnings
While some announcements will trickle in earlier, the season officially begins with global materials bellwether Alcoa (AA), which announces April 8th. These have been steadily revised lower, so expectations are not high. However the usual game is to lowball estimates so that we get headlines telling of upside surprises. The fact that these came from falling estimates gets forgotten and viola, markets rally. So while the continued decline in earnings is predictable, market reaction to them is not.
Are markets ready to take profits with prices at decade highs, or will the upward momentum keep markets selectively focused on the positive?
US inflation and Retail Sales Data
Friday's reports on US retail sales could confirm the picture of a weak US recovery that was indicated by the poor jobs number, or refute it.
Fed Meeting, Speeches
After the disappointing jobs report, no one expects the Fed to suggest any coming tightening in the coming week's FOMC meeting and assorted speeches, so this is probably a non-event.
Other Calendar Events. It's a relatively light week for scheduled events.
Other than the above, China inflation and trade balance data Tuesday and Wednesday are the only top tier events out of an economy that's big enough to move markets. There is an Italian 10 year bond auction, but it's unlikely that the EU let's this look bad unless they want to send a message to Italy about the consequences of failing to install a government that suits the Germans.
North Korea Or Mid- East Flare UP
Markets continue to remain largely unaffected by North Korea's bluster, which they've seen before. However it's worse than usual and remains the most likely source of a surprise military threat that could scare markets.
Don't forget the Mid-East. While we don't expect any action between Israel and Iran, both Syria and Egypt remain without functioning central governments.
Technical Picture: Rising Risk of Further Pullback
Last week was the worst pullback for global stocks this year. A selloff of some kind wouldn't surprise anyone, and indeed would be considered a normal, healthy development to flush out week hands. Barring any huge surprise from the EU or Korea, any pullback is likely to remain limited.
Until we have some major new catalyst for a bullish or bearish move, the likelihood is for minor, range bound trade.
Sorry if that's a bit dull, but that's the reality we face barring a black swan event in Korea or the perhaps the middle east.
Disclosure/disclaimer: No positions. The above is for informational purposes only. All trade decisions are solely the responsibility of the reader.