Weekly Game Plan – 5.12.16

The beginning of the week will be dominated by the effects of the Italian Referendum and the Austrian Elections. We could detail what the Italian Referendum is about, but it would be pointless: voters have already transformed it into a “confidence” vote on Renzi – despite the fact he may not even step down in the event of a “No”. Any useful implications of the Vote are likely to be lost. The main preoccupation in Italy is not the constitutional reform. The main preoccupation is the banking sector and the fact that Italy is not Greece. Italy is “too big to fail” – and yet internal sources are already whispering about a structured default in the years to come. In Austria, the far-right candidate, Hofer, is also likely to win the elections as the populist movement sweeps across Europe.

NO” + Hofer will most likely impact risk appetite although, compared to Brexit and Trump, the implications should have less impact.

USD: Dull data week, so the markets will be driven by other events. We will have some Fedspeak (Dudley, Evans, Bullard) on Monday. Data risk is limited to ISM on Monday and trade data plus factory orders on Tuesday.

EUR: Our introduction majored on the main influences for this week. Data risk is present but less influential. Germany Factory orders (Tue), Industrial production (Wed) and Exports (Fri) will be the highlights, along with the ECB (Thur). The ECB is forecast to prolong it’s asset purchase program by 6 months. But depending on the Italian situation, further measures might be in store.

GBP: Data risk remains present this week with Services PMI (Mon), Industrial and Manufacturing production (Wed), Construction Output (Fri).

CAD: Enter the Bank of Canada. No change is expected.

ASIA: We will have the RBA meeting this week, which is forecast to remain on hold. The usual rules apply and market focus will be concentrated on the accompanying Statement. Markets and analysts will be will be trawling this statement for the central bank’s most up to date views on the housing and labour markets, as well as any commentary on the latest soft capex survey. We will also have Australia’s GDP print.

China has several important data releases. Caixin PMI (Mon), Export figures (Thur), CPI (Fri) which can impact risk-appetite.

My initial watchlist for this week includes Crude Oil long, EurGbp short, GbpUsd long. Perhaps EurNzd short and UsdCad short. GbpJpy and NzdJpy are on the back burner for now.

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