The Week Ahead : FXWW Chatroom

There is a steady flow of US data due, much of it likely to be a shade disappointing. Maybe of more interest is the Fed speaker schedule getting back to full speed. 

February existing home sale are on Monday and should see a 3.5% rise to 4.99mn after a weak January. New home sales are on Tuesday and should fall to 450k after a strong 481k last time. The latter will be released after February CPI which is expected to post 0.2% on the headline, 0.1% ex-food and energy. 

February Durable Goods Orders are on Wednesday (unchanged on the headline, -0.5% ex-transport), then on Thursday weekly initial claims should again be close to unchanged (290k from 291k). Friday is likely to see inventories lead a downward revision to Q4 GDP from 2.2% to 2.1%, that followed by final March Michigan CSI where we look for a modest upward revision to 92.5 from 91.2, still below the 95.4 seen in February. 
First Fed speaker is hawkish non-voter Mester early Monday, followed later by moderate voters Williams and Fischer. Hawkish non-voter Bullard speaks on Tuesday, dovish voter Evans on Wednesday. 
Bullard is up again on Thursday, followed by moderate voter Lockhart, while Fischer also gets a second outing, this time on Friday. 

A busy week for Eurozone surveys starts with flash March PMIs on Tuesday. We expect modest rises to overall manufacturing (51.5 from 51.1) and services (54.0 from 53.7) to push the composite (output) measure to 53.7 from 53.3. The BNB business survey is later on Tuesday (expect -7.5 from -8.3). 
The March Ifo survey is on Wednesday where we expect a headline of 107.4 from 106.8. We expect the German expectations measure to rise to 103 from 102.5 current conditions to 112 from 111.3. French business confidence is also on Wednesday, expected unchanged at 99 for both domestic and external measures. 
On the consumer side the EC flash estimate of Eurozone March sentiment is on Monday. We expect -4.5 from -6.7 in February. German April Gfk is on Thursday (10.1 from 9.7), French consumer confidence on Friday (93 from 92). 
February M3 is on Thursday (expect 4.6% from 4.1%), moving it above the 4.5% reference value and giving a 3 month y/y average rate of 4.1% from 3.6%. 
France and the Netherlands report final Q4 GP on Friday.
The usual end of month rush of data from Japan starts on Friday, February nationwide CPI expected to post 2.2% y/y, just 0.2% with the sales tax hike taken out. February retail sales are also due where we expect -0.4% m/m sa, – 2.9% y/y. February unemployment and real household spending will also be released. 

The UK starts the week with the CBI industrial trends survey on Monday, the net balance of order books expected to correct to 8% in March following February’s strong 6 point increase to 10%. 
Inflation data is released on Tuesday, CPI seen up a softer 0.3%m/m in February to take the y/y measure down to just 0.1%. RPI is seen up 0.4%m/m, 0.9%y/y, core CPI at 0.5%m/m, 1.3%y/y. PPI will be released at the same time. 
February retail sales are on Thursday, sales volume (inclusive of fuel) expected to post a 0.4%m/m rise, 4.7%y/y. Ex fuel sales volumes are seen up 0.5%m/m, 4.2%y/y. Thursday will also see the CBI distributive trade survey which should show a considerable upward correction in net sales to 25% after the sharp fall to 1% (from 39%) in February. 

It’s a quiet week in Switzerland with no major data or events scheduled. 

It’s quiet too in Australia, RBA Assistant Governor Edey with a speech on Tuesday, while the Bank’s Financial Stability Review is released on Wednesday. There are no first tier releases due from New Zealand or Canada either, although CAD traders will again be paying close attention to the US oil inventory releases from the API on Tuesday, the EIA on Wednesday. 

After all the recent excitement generated by both the Riksbank and Norges Bank over the last week the Scandinavian calendar should be quite subdued. On Wednesday Sweden’s NIESR survey is likely to see consumer confidence edge up to 98.6 while manufacturing confidence is seen lower at 105.6 
Norway sees two measure of unemployment, January AKU/LFS on Thursday expected to slip to 3.6%, the March NAV version steady at 3.0%. Both Sweden and Norway report February retail sales on Friday. 

The probability of a June hike went from ~40% pre FOMC to ~20% currently.  However, there is still a ~85% probability of lift-off by September.  If the market stays that way, then the USD should continue to rally. After all, what is another three months for Fed lift off or a more gradual pace of tightening when all the other major central banks, with the exception of the BoE, are cutting rates or conducting QE?  The quite weak Canadian retail sales on Friday increases the odds of an April cut.  And Greece is back in the headlines, providing another potential catalyst for lower EUR/USD.  Our Chief European FX Strategist, Thanos Vamvakidis, a Greek by birth and a former IMF official, just came back from Greece and is quite concerned –  today’s FT headline is “Greece Bailout Summit Ends in Disarray.”Monday is a key meeting between Prime Minister Tsipras and Chancellor Merkel. 

We are generally seeing buying of USD on back ups. However, there are a few risks to the trade. One is positioning. The USD buying on dips suggests that positioning is still not too heavy.  However, if we did see a sharp squeeze, there should be some decent stops (as we evidenced Wednesday), given the overall size of the position. Second is the concerns about the strong USD pass through we have been highlighting. Are we getting close to tipping points where the first Fed hike has to get pushed out past September given the disinflationary pressures of the strong USD (we estimate that the 20% USD rally will shave 50bps of US growth and inflation and hit corporate earnings)? We’re not there yet, it feels like, but there are more and more mentions of the strong USD by the Fed. 

While most of the recent USD focus has been vs EUR, our Chief Japanese Economist Masayuki Kichikawa thinks further BoJ action could be on the table and thus USD/JPY could be back in play. More below.  The Fed reprieve should aid EM FX.  EUR/EM pairs are starting to look attractive and for those who think EM can appreciate vs the USD, EUR/USD lower and USD/EM lower (or at least not higher) dual binaries are a cheap way to play the theme. 

FT: Global fund managers warn of a bond bubble 
Four out of five fund managers said bonds were overvalued in a survey of 300 global managers by CFA UK. Corporate bonds are more overvalued than ever before, while government bonds are the most overvalued asset class, the group said. 

“You only know you’re in a bubble when it pops. But this market could pop. There is more tension and anxiety over valuations than for a long while.” – Aberdeen Asset Management 

“There could be a bubble as investors have loaded up on high yield and corporate bonds. If we do see a reverse in the market, there could be price dislocation and a messy unwind.” – Investec 

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