After politics and trade war fears drove price action for most of the previous week, Friday’s US consumer confidence hitting its highest level in 14 years, successfully brought market attention back to the economic calendar and central bank action scheduled for this week.
Following the University of Michigan reading smashing expectations and hitting 105, versus expectations of 95, the Dow Jones closed 0.3% higher. However, it was a case of too little too late, with the index booking losses of 1.5% across the week. The S&P 500 also eked out a 0.17% increase on Friday, making for a fall of 1.2% across the week.
A mildly positive end on Wall Street, combined with news that the election in Russia saw an as expected landslide victory for Putin, his most successful Presidential election in his 18 years of power, has led to a mixed session in Asia, whilst Europe is also looking to a lower start.
House prices experience biggest monthly jump in since 2004
Despite a depressed start expected to trading on the FTSE, house builders could provide a ray of light after data overnight showed that house prices experienced the biggest monthly jump in 14 years. The Rightmove house price index showed house prices increased an impressive 1.5%, up from 0.8% in February. Meanwhile prices grew 2.1% year on year in March, up from 1.5% in the previous month. The strongest increase in house prices since 2004 is largely down to a combination of increased demand from first time buyers and a slowdown of supply into the market. However, as prices hit their highest levels ever, its worth keeping in mind that the affordability ceiling could be close to being hit. A hike or two in interest rates this year could have a big impact on first time buyer demand. The FTSE house builder sectors is already down 15% year to date, increased hawkishness from the BoE on Thursday could see the sector take another hit.
Busy week
Markets are expected to have a quiet start to the week with no high impacting data on the economic calendar. However, with the G20 finance minister’s meetings in Buenos Aires on Monday and Tuesday no doubt searching for ways to avoid a global trade war, a barrage of high impacting data from both sides of the Atlantic across the week, central bank decisions from the Fed and the BoE and the start of the EU Summit, the volatility that we have seen since the beginning of February is likely to pick up again heading towards mid-week.
Fed & BoE rate decision
In the forex markets the dollar has started the week higher ahead of Wednesday’s Fed rate announcement, the first under new Fed Chair, Jerome Powell. Whilst a rate hike in March is 94.4% priced in according to the CME Fed Watch, investors will be paying particular attention to the Fed’s future path of hikes. Any signs of four rate rises on the Fed’s dot plot, over the three which the Fed had initially assumed for the year is expected to push the dollar higher, with USD/JPY potentially rising towards 108.
After a certain amount of thumb twiddling last week, pound traders are set for a busy week with inflation data, wages growth figures and the BoE rate decision all due.
Opening calls
FTSE to open 24 points lower at 7140
DAX to open 25 points lower at 12364
CAC to open 20 points lower at 5262