News over the weekend helps to dampen the market's perceived geopolitical risks and generally supports sentiment across asset classes as the week begins. All parties appear to have chosen to downplay the scale and impact of Israel's attack on Iran on Friday. The volatile trade below $90 a barrel suggests concerns about widespread conflict in the region have eased. In other important news for geopolitics, the US House of Representatives approved the much-debated $95 aid package for Ukraine, Israel, and Taiwan. The impact on risk sentiment is less clear here, as the latest developments in the Russia-Ukraine conflict do not seem to be driving market movements lately.
A less volatile geopolitical landscape also paves the way for the return of data as a key market driver. There are two major releases in the US this week. GDP growth is widely expected to slow in the first quarter, and when the latest numbers are released on Thursday, it is expected to be an annualized 2.6% sequentially, slightly above the consensus of 2.5%. Masu. We are looking for a consensus of 0.3% month over month for the March core PCE deflator, which will be released on Friday. This is lower than the housing-heavy core CPI (0.4%), but still too high for the Fed to revise its view of an impending rate cut. Remember, PCE is the Fed's preferred inflation measure.
The Fed has entered a policy comment blackout period ahead of the May 2nd FOMC meeting, but with both inflation and employment showing unexpected upside, the Fed will dial back some of its dovish rhetoric. It is currently expected that this will be necessary. Recent comments from most members (including Chairman Jerome Powell) have emphasized patience, and market expectations are set for simpler guidance, in contrast to the moderately dovish pseudo-guidance seen through April. It should converge towards regression of data-dependent approaches.
A calming risk environment could further weaken the dollar's momentum, but the key fundamental arguments for a stronger dollar should not be undermined as data supports our view of the resilience of the US economy despite lingering inflation problems. do not have. The risk of DXY moving to 107.0 is still quite high.
Francesco Pesole