Week Ahead: Fed’s inflation calm is about to get tested

The Fed has clearly signaled they are not worried about inflation and that should worry financial markets.  The Fed has repeated that inflation will be transitory, but financial markets have never seen this record amount of stimulus get pumped into the economy.  The US economy is about to run hot and investors should continue to expect stronger inflationary pressures with the next few months of US data.

If the next few months show that the inflation trend is for hotter-than-expected readings and seems poised to strongly be above the 2% level, the bond market selloff could accelerate, sending Treasury yields and the dollar higher.  Fed policy might be on cruise control until inflation is at 2% for at least a year and when the labor market returns to full employment, but if Treasury yields surge too quickly, that will force Fed action.  It might take a couple of months, but the Fed could be forced to act, probably starting with altering their purchases, increasing the weighing to more Treasuries and less mortgage-backed securities.

All eyes will be on the March inflation report, which could see a 2.5% year-over-year increase.  A lot of slack in the labor market is expected to keep price pressures from running away, but this historic unbalanced recovery could test that theory.  A wrath of Fed speak, 10 in total, could show some policymakers ease up on their confidence that inflation will be transitory.  Investors will also closely look at retail sales readings from both the eurozone and the US, and China’s first quarter GDP readings.

All eyes on US inflation.

Chinese Growth Roars back.

Will Turkey’s central bank (CBRT) stand pat?



The Fed has clearly signaled that they won’t raise the policy rate until the inflation rate has been at 2% for about a year and shows signs it could overshoot.  The upcoming inflation data on Thursday is poised to surge due to the base effects from when COVID hit the economy last year.  The base case remains that inflation will be transitory, but if pricing pressures are much stronger over the next couple of months that could shift expectations earlier on when the Fed moves on rates.  US retail sales will also be released on Thursday and will bounce back strongly given the reopening of the economy and impact of stimulus checks.

Wall Street will pay close attention to the big banks and financial firms that kickoff earnings season.  Investors will try to get the latest assessment of the health of the US consumer but this time they will also look to see if more prime brokerages follow Credit Suisse in tightening hedge fund limits following the Archegos Capital fallout.

Fed speak will be plentiful but should remain dovish as not much has changed over the past couple of weeks.  On Tuesday, the Fed hosts an event on racism and the economy.  On Wednesday, Fed Chair Powell speaks at the Economic Club of Washington.



The troubles continue for the beleaguered EU’s vaccine rollout, after the European Medical Agency stated there was a “possible link” between the AstraZeneca vaccine and rare blood clots. Germany has responded by restricting AstraZeneca shots to residents under the age of 60.

The IMF has noted that the sluggish EU rollout has reduced the bloc’s growth. Still, the IMF expects the eurozone to show significant growth, with a forecast of 4.4% in 2021 and 3.8% in 2022.

France imposed a stricter lockdown on April 12th, closing all schools for the first time. The lockdown will last for four weeks, in an attempt to curb soaring Covid rates.

In Italy, Prime Minister Mario Draghi’s government submits economic and budget forecasts to the lower house. The government has forecast that the economy, which suffered a sharp downturn due to Covid in 2020, will grow by 4.1% in 2021 and 4.3% in 2022.

On Tuesday, Germany ZEW Economic Sentiment is expected to rise to 79.1 for April. On Thursday, we’ll get a look at the Eurozone March Final CPI reading.


While many EU countries have tightened health restrictions, the UK is moving in the other direction. On April 12th, the next stage of lifting the lockdown goes ahead, which will allow the opening of restaurants, pubs and shops. However, the ban on foreign travel remains in place.

The UK will release February industrial and manufacturing production reports which should both show solid improvements.  This will be followed on Thursday with the February GDP reading which is expected to improve from -2.9% to 0.5%, the rolling three month print is expected to weaken from -1.7% to -1.9%.

Emerging Markets


The Turkish central bank will be in the spotlight this week, as the Monetary Policy Committee meets on April 15th. The bank has been in turmoil, as Turkish President Recep Tayyip Erdogan fired the bank’s governor, Naci Agbal, in March after only four months on the job.

Agbal had hiked the key interest rate to 19%, in an attempt to curb inflation, which is running at 16% and could undermine Turkey’s economic stability. Erdogan has said he is determined to lower interest rates and inflation to single digits. The new bank governor, Sahap Kavcioglu, could find himself quickly out of favor with the temperamental Erdogan if he fails to tame inflation and slash interest rates. Kavcioglu appears less enthusiastic than Erdogan, having stated that a tight monetary policy is needed in order to curb inflation.

Financial analysts expect the central bank to maintain the key interest rate at 19% at the upcoming meeting and it will be interesting to see how long of a leash the president provides to his new central bank governor.



China equity markets remain pressured as concerns rise that the PBOC may accelerate monetary tightening after China PPI far exceeded forecasts. Additionally the US has added seven China tech companies to its black-list darkening the geopolitical mood. Tensions also appear to be increasing in the South China Sea and the Taiwan Straits.

China releases New yuan Loans on Monday but the main data comes on Friday the 16th. China GDP, Fixed Asset Investment, Industrial Production, Retail Sales, Unemployment and Industrial Capacity Utilization are all released. Picking the bones out of that tier-1 data dump will be challenging. Keeping it simple, a general outperformance will lift equities but raise fears of monetary tightening so gains could be short-lived. An underperformance will see markets worrying that the China recovery is slowing, a negative for equities in China, but also across much of Asia. Asian currency weakness could follow as well.

The Yuan has remained stable just above 6.5500, limiting the contagion of higher US rates and the Dollar in China and Asian EM as a whole.


The Reserve Bank of India left rates unchanged as expected, but also announced the start of a formal quantitative easing programme, even though its makeup is complicated and the RBI refuses to call it that. The effect on the INR was immediate, USD/IDR rose over 1.0% through 74.00 and the weakness continued, with USD/INR testing 75.00 in the past two sessions. The aggressive retreats from 75.00 suggest that the RBI has a “line in the sand’ at that level. If USD/INR rises through 75.00 we expect INR weakness to resume in earnest.

Further muddying the waters, India’s Covid-19 cases continue spiraling and are rapidly spreading geographically. Lockdown fears have also weighed on the currency, and to a lesser extent, equity markets. India has banned vaccine exports officially, another negative for India internationally.

Higher than expected WPI Inflation on Wednesday, or poor Trade Balance data on Thursday will increase the downward pressure on INR. The currency in this circumstance remains acutely vulnerable next week if US Dollar strength internationally returns with force.

India remains one of the most vulnerable countries to rising US yields and commodity prices due to its weak current account and foreign currency denominated debt.

Australia & New Zealand

The RBNZ releases its latest interest rate decision on Wednesday with no change expected after the government property restriction measures effectively took future rate cuts off the table. Australia releases monthly employment data with job creation expected to fall after February’s outsized jump.

Neither data point should be particularly sensitive unless the RBNZ signals rate hikes ahead. Both the Australian and New Zealand Dollars are struggling to reflect the rise in risk sentiment of falling US yields and US Dollars seen elsewhere. That is a warning that US Dollar strength in the coming week could have outsized negative impacts in the currency space.

Australian markets face further headwinds from the RBA announcement it is watching house prices carefully, raising New Zealand-style fears and weighing on banking heavyweights. Additionally the Australian vaccination programme is now in disarray after AstraZeneca export bans and with age restrictions on its use being imposed by the Commonwealth Government and NSW.


Japan data releases are second-tier this week with market attention focused on widening Covid-19 restrictions, expected to be announced by this weekend. That will weigh on already weak domestic consumption and will be a headwind for Japan equities next week.

Like much of Asia, Japan equity markets have only been cautiously optimistic, as opposed to the exuberance seen in North America. Japan and Asia’s caution suggests that a rise in US yields and/or the US Dollar next week could wrongfoot the market and send equities and currencies lower.

USD/JPYremains at the mercy of the US/Japan interest rate differential. With US yields falling this week, USD/JPY has tumbled from 111.00 to 109.50 although the critical support region around 108.50 looks safe for now. Although Covid-19 is a potential headwind for the Yen, it will continue taking its cues from the US 10-year bond yield.



Crude prices have been consolidating as oil demand slowly recovers as much of the world continues to battle restrictive measures from COVID-19.  The OPEC+ to slowly increase output has markets in wait-and-see mode to see if stockpiles will continue to decline.  US production declined last week, but shale producers will likely be more optimistic going forward and face more pressures to invest in new wells.

Energy markets could closely follow the dollar as recent weakness might have been only temporary.  A dramatic improvement for the recovery in consumption will take some time, so the argument of a continued consolidation could remain.


It appears investors are not betting on a big rebound back to record high territory for gold prices.  Bullion demand faces two big hurdles, a very bullish stock market outlook that is taking away the need for a safe-haven and rising Treasury yields.  Gold volatility is plummeting as options markets are only pricing a modest increase over the next 18 months.  It seems the options market is eyeing $2,025 as a good area to buy calls while selling the metal at $2,225.

Gold’s bullish streak that started since the end of last month has hit some resistance and will likely take its queue if the Treasury yield rally remains capped.


It will be a busy week for the cryptocurrency world as Coinbase, the largest US crypto exchange goes public and as many central bankers speak on digital currencies.  A disappointing IPO or excessive concerns over enhanced regulatory oversight could weigh on Bitcoin and the other altcoins.

ECB Board member Fabio Panetta speaks on digital currency and will likely reiterate the differences between cryptocurrencies and how the digital euro.  The Swiss National Bank Governing Board Member Maechler will speak on markets and digital transformation to money market managers.  She may discuss how testing will evolve using CBDC going forward following the success with wholesale transactions.  Euro-area finance ministers will meet virtually and review insolvency frameworks and the digital euro.  If digital euro is closer to launching next year, that could be a negative driver for Bitcoin and cryptocurrency mainstream acceptance.

Key Economic Events

Saturday, April 10

Economic Data:

  • New Zealand home sales

Sunday, April 11

-The leadership of German CDU party holds a caucus meeting.

Monday, April 12

– German Chancellor Angela Merkel delivers a keynote at the Hannover Messe 2021 Digital Edition, a conference for industrial technology. Through April 16.

– Chip summit: the Biden administration’s top national security and economic advisers meet with semiconductor and auto company leaders to discuss the global shortage of computer chips.

– Bank of England policy maker Tenreyro speaks

– Riksbank Deputy Governor Ohlsson speaks

– Sotheby’s auctions NFT artwork by the anonymous digital designer Pak.

– Ramadan is the ninth month of the Islamic calendar, observed by Muslims worldwide as a month of fasting, prayer, reflection and community.

Economic Data:

  • Eurozone retail sales
  • India CPI, industrial production
  • Japan PPI, machine tool orders
  • Turkey current account
  • Bank of Canada Business Outlook Survey
  • Bank of France industrial sentiment
  • Norway GDP
  • Denmark CPI

Tuesday, April 13

– Fed Regional presidents George (Kansas City), Daly (San Francisco), Bostic(Atlanta), Mester (Cleveland) and Rosengren (Boston) speak at a virtual event.

-Philadelphia Fed President Harker speaks

– IMF managing director Georgieva, and EC Commissioner Gentiloni speak

-Bank of France Governor Villeroy speaks at the Peterson Institute for International Economics on “How to revisit central banking and financial stability.”

– Release of OPEC monthly oil market report

Economic Data:

  • US March CPI M/M: 0.5% expected v 0.4% prior; Y/Y: 2.5% v 1.7% prior
  • China trade
  • Germany ZEW survey expectations
  • Italy Industrial production
  • Turkey Industrial production
  • Australia NAB business confidence
  • Japan M2 money stock
  • Czech CPI
  • Portugal CPI
  • UK GDP, industrial/manufacturing production, trade balance
  • Poland current account, trade balance
  • Sweden unemployment
  • South Africa mining, gold, and platinum production

Wednesday, April 14

-Economic Club of Washington hosts Fed Chair Jerome Powell for a moderated Q&A.

-Fed Vice Chair Clarida speaks at virtual event hosted by the Shadow FOMC.

– Atlanta Fed President Bostic discusses redesigning cities to tackle systemic racism. New York Fed President John Williams is hosted by Rutgers Finance Society.

– Italy Prime Minister Mario Draghi’s government submits economic and budget forecasts to the lower house.

– ECB Vice President Luis de Guindos delivers the 2020 report to the European Parliament.

– ECB President Lagarde speaks

– ECB Executive Board member Panetta speaks on digital currency

– ECB Executive Board member Isabel Schnabel speaks about monetary policy for the future.

-BOE policy maker Haskel speaks at the Royal Economic Society 2021 Annual Conference.

-Greek Foreign Minister Dendias meets with Turkish Foreign Minister Cavusoglu in Ankara.

Economic Data:

  • Eurozone industrial production
  • Spain CPI
  • Russia CPI
  • Sweden CPI
  • Japan core machine orders
  • New Zealand rate decision: Expected to keep Official Cash Rate unchanged at 0.25%
  • New Zealand Food Prices
  • Australia Westpac consumer confidence index
  • Singapore GDP
  • South Africa retail sales
  • US Fed Beige Book
  • Big banks kickoff earnings season: JPMorgan, Goldman Sachs, and Wells Fargo report before the bell
  • EIA Crude Oil Inventory Report

Thursday, April 15

-US House Financial Services subcommittee hearing is scheduled to discuss the end of Libor.

– Atlanta Fed President Bostic speaks on economic inequality

– Cleveland Fed President Mester speaks on economic inclusion

– San Francisco Fed President Daly speaks on financial stability.

-New York Fed EVP Logan speaks on “The Impact of Abundant Reserves on Money Markets and Policy Implementation”

-Swiss National Bank Governing Board Member Maechler speaks on markets and digital transformation

-Riksbank Governor Ingves will discuss the money and payment systems

-Norges Bank Q1 survey of bank lending.

– Citigroup and Bank of America report first quarter earnings

Economic Data:

  • US initial jobless claims, industrial production, retail sales, Empire manufacturing, TIC flows
  • Canada manufacturing sales, existing home sales
  • Germany CPI
  • France CPI
  • Italy CPI
  • Poland CPI
  • India Trade
  • Turkey Rate decision: Expected to keep 1-week Repo Rate at 19.00%
  • New Zealand food prices
  • Russia industrial production, gold and forex reserve,
  • Australia Unemployment
  • Greece Unemployment

Friday, April 16

-White House summit with Japanese Prime Minister Suga.

-BOE Deputy Governor for Financial Stability Cunliffe and CEO for the BOE’s Prudential Regulation Authority Woods speak about regulation with technology.

-Euro-area finance ministers hold virtual meeting on insolvency frameworks and the digital euro.

– Bank of Italy quarterly economic bulletin.

Economic Data/Events:

  • US housing starts, building permits, University of Michigan consumer sentiment
  • Canada housing starts
  • New Zealand manufacturing PMI
  • Singapore electronic exports, non-oil domestic exports
  • japan
  • Eurozone CPI
  • Poland CPI
  • Switzerland producer & import prices
  • Morgan Stanley reports first quarter results

Sovereign Rating Update:

– France (DBRS)


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya