The equity markets across the globe took a dive yesterday, ending their trading sessions well in the red. Johnson & Johnson (NYSE:JNJ) vaccine concerns are in focus. New Zealand and UK delivered their inflation numbers. Canada’s turn now to deliver CPI data and the Bank of Canada will announce its interest rate decision.
New Zealand CPIs
During the early hours of the Asian morning, we received the New Zealand inflation numbers for Q1 on a QoQ and YoY basis. All numbers managed to beat their initial expectations, where the QoQ came out at +0.8%, against the forecasted +0.7%. And the YoY reading showed up at +1.5%, when the initial expectation was for +1.4%. The New Zealand dollar did initially react positively to the news, but the current “risk-off” trading in the market is putting pressure on commodity-linked currencies, such as NZD and AUD.
Markets Turned Red
The equity markets across the globe took a dive yesterday, ending their trading sessions well in the red. Tuesday started off with Nikkei 225 and Shanghai Composite falling into the red zone. European indices followed suit, with DAX and FTSE 100 ending their sessions with a 1.55% and 2.00% loss respectively. The US indices were a sea of red as well. However, their losses were not as significant as the European ones. It could be because we are in the earnings season right now, where major companies report on their Q1 performances. On today’s schedule we have companies, such as NextEra Energy (NYSE:NEE), Verizon Communications (NYSE:VZ), Chipotle Mexican Grill (NYSE:CMG), Halliburton (NYSE:HAL) and Baker Hughes Company (NYSE:BKR), all delivering their financial results for the period starting from the beginning of the year.
Yesterday’s “risk-off” sentiment might partially have something to do with the fact that the European Medicines Agency (EMA) found a possible link between Johnson & Johnson Covid-19 vaccine and a rare blood clot. This is now the second vaccine-producing company, which is accused of the same problem. Let us remind our readers that AstraZeneca (NASDAQ:AZN)/Oxford’s vaccine is currently under investigation for the same side-effect. But many countries tend to close their eyes on this, as their justification is that this side-effect shows up on a rare occasion. For now, it is certainly unclear how many more people have this, or any other side-effect from the received vaccine shot. But one thing for sure, market participants are closely monitoring the situation surrounding the vaccine roll-out. The fact that Johnson & Johnson’s vaccine is now under the spotlight and has received some concerns over its effectiveness, this makes traders and investors worry about possible delays in getting the economy back on track. However, given that there is still no strong catalyst seen on the horizon for a possible stronger decline, the current slide in indices could be classed as a temporary correction.
DAX Technical Outlook
From the beginning of this week, DAX has been drifting lower. However, this move might still be classed as a temporary correction before another possible leg of buying, that is, of course, if a short-term tentative upside line, drawn from the low of Mar. 5, continues to provide support. For now, we will take a cautiously-bullish approach.
If the price is able to rebound from the aforementioned upside line, that could attract the buyers back into the game, in order to help the German index to recover some of its losses made from the beginning of this week. DAX may then travel back to the 15260 obstacle, or to the 15337 zone, marked by the low of April 19th. If the buying doesn’t stop there, the next possible target might be at 15405, marked by yesterday’s high.
Alternatively, if the previously-discussed upside line breaks and the price falls somewhere below the 15030 hurdle, marked by the high of Mar. 30, that might spook the remaining bulls from the field, allowing more bears to join in. DAX may then slide to the 14955 obstacle, or to the 14855 area, marked by the high of Mar. 26. If the selling doesn’t stop there, the next possible aim could be the 14720 level, which is the low of Mar. 29.
UK Inflation
In regards to the economic calendar, during the early hours of the European morning, Britain delivered its core and headline MoM and YoY inflation numbers for the month of March. The numbers were for March and the initial expectations for the YoY ones were for a slight increase. Only the core MoM CPI was able to beat its forecast, coming out at +0.4% against the forecasted +0.3%. The other numbers either met their expectations or declined slightly. This was the case with the headline YoY CPI reading, which showed up at +0.7%, missing the forecast by one tenth of a percent. UK’s headline YoY inflation has been declining steadily from November 2017, when it showed up at +3.1%. The BoE’s goal is to maintain the CPI figure at 2%, as per the UK government’s request.
GBP/CAD Technical Outlook
Although GBP/CAD is currently seen declining, we may class that move lower as a temporary correction, before another possible move higher. That is, of course, if the short-term tentative upside support line, taken from the low of Apr. 16, continues to hold. For now, we will take a cautiously-bullish approach.
As mentioned above, if the previously discussed upside line remains intact, the bulls may charge again by taking advantage of the lower rate. GBP/CAD might then drift back to yesterday’s high, at 1.7587, or to the 1.7604 hurdle, marked by the high of Mar. 10. If the buying continues, the pair could easily travel to the 1.7678 barrier, which is the high of Mar. 4.
In order to shift our attention to some lower areas, a break of the aforementioned upside line would be needed. A rate-drop below the 1.7463 hurdle, marked by the low of April 20th, could open the way to some lower areas, this way strengthening the bearish scenario. GBP/CAD could fall to the 1.7444 obstacle, or to the 1.7357 territory, marked by the high of Apr. 8. The pair may receive a temporary hold-up around there, but if the bears are still feeling strong, they might push GBP/CAD further south, potentially aiming for the 1.7335 zone, or for the 1.7289 level, marked by the current low of this week.
Canadian Numbers
Canada will also deliver its core and headline inflation numbers for the month of March on a MoM and YoY basis. There is no forecast at the moment for the core figures, but the current expectation for the headline MoM and YoY ones is for an improvement. The MoM is expected to go from +0.5% to +0.6%, but the YoY one is forecast to grow from +1.1% to +2.3%. If that’s the case, this would be close to BoC’s target of keeping the figure close to the midpoint between the 1 and 3 percent.
But speaking of the BoC, the Bank will deliver its interest rate decision, which is expected to stay the same, at +0.25%. As mentioned in our Weekly Outlook on Monday:
“Last time, the Bank kept its monetary policy settings unchanged and noted that the economic recovery continues to require extraordinary monetary policy support, until economic slack is absorbed so that the 2% inflation goal is sustainably achieved. According to the Bank’s January projections, this is not expected to happen until into 2023. The Canadian dollar slid somewhat at the time of the release, but was quick to recover those losses as officials reiterated that as they continue “to gain confidence in the strength of the recovery, the pace of net purchases of Government of Canada bonds will be adjusted as required”, something that may have kept the door for a QE tapering open. Since then, GDP data showed that the Canadian economy expanded by more than anticipated in January, while the employment data revealed a notable drop in the unemployment rate in the last couple of months, and very strong employment gains. As for the Canadian dollar, scaling back bond purchases could prove positive. Combined with potentially further improvement in the broader market sentiment and further gains in oil prices, monetary policy is likely to be an extra boost on the Loonie’s way higher. However, in order to be on a safer side, we would like to exploit any further CAD-gains against the safe-havens, like the yen, which we expect to stay under selling interest due to an increasing risk appetite.”
As For The Rest Of Today's Events
The US will deliver its crude oil inventory number. The previous reading was at -5889mln barrels, but the forecast is for an increase to about -2975mln barrels. If the actual number comes out even greater than the expectation, this may weigh in negatively on the price of oil, possibly pushing it slightly lower.