First quarter earnings season continues with major US investment banks generally beating expectations on Friday. JPMorgan Chase saw profits rising 52% with its “fortress balance sheet” helping it weather the recent banking stress. It seems this may be the theme for financial sector stocks with smaller, regional banks suffering at the hands of those “too big to fail” who are hoovering up deposits.

Expectations for company result are running low in general, with estimates having been continuously downgraded into this quarter. This could be the second quarter in a row of negative earnings growth and signal an earnings recession. But the grim picture hasn’t stopped the broader market’s strong rebound from the banking stress lows.

Resistance in the S&P 500 will be strong around 4,200, while long-term trendline resistance which is now support should help bulls around 4080. Stock watchers will comb earnings from Charles Schwab on Monday, major investment banks during the week and Tesla numbers on Wednesday. Is the EV-maker on track to beat its 1.8mn vehicle sales target this year and break through its 200-day simple moving average at $213.75?

The current environment has seen the dollar suffer recently as 200bps of Fed rate cuts got priced into the interest rate curve until the end of next year. That saw the greenback hit lows last seen a year ago amid five straight weekly losses, though it has bounced off this year-to-date low. Going forward, dollar rallies still might struggle even though there is now above an 80% chance of a Fed rate hike in May. The ceiling for rates is near even if Fed officials may challenge this in the next few days ahead of the FOMC blackout period.

We get the usual UK data dump this week which will likely cement another 25bp rate hike by the Bank of England in the second week in May. The MPC have been relatively quiet, keeping their options open on the future rate path. But CPI is still exceptionally high and well above the bank’s 2% target. GBPUSD closed below 1.25 last week. It would need to trade back below 1.2344 to turn into a “double top” reversal pattern and see a potential drop to towards 1.21.

Major risk events of the week

19 April 2023, Wednesday:

-China data: Analysts expect GDP growth at 3.8% y/y with consumption and infrastructure investment as the main drivers. Retail sales are forecast to continue recovering, but industrial production will be affected by weak external demand.

– UK Jobs: Analysts forecast the unemployment rate ticking up one-tenth to 3.8%. Average weekly earnings ex-bonus are seen falling to 6.2% from 6.5%. Official wage data has finally started to turn which should please the MPC.

-German ZEW Survey: The current situation index is expected to improve in April to -22.0 from -46.5. The forward-looking expectations measure is forecast to drop modestly to 10.0 from 13.0. The pickup in activity is continuing with hard data resilient to banking sector stress and economic headwinds.

20 April 2023, Thursday:

–PBoC Meeting: Consensus sees the bank leaving the 1-year prime rate unchanged at 3.65%. Analysts say policymakers are likely to keep an accommodative stance to support the ongoing economic recovery. 

–UK CPI: Headline inflation is forecast to drop to 9.7% which would be below double digits for the first time since August. Falling petrol prices and helpful base effects will unwind the sharp rise in the February print, which climbed to 10.4% from 10.1%.  

–ECB Meeting Minutes: Focus will be on the path for future policy tightening and the debate between the hawks and doves. There are currently no signs of the disinflation process, so the bank is seen in tightening mode.

21 April 2023, Friday:

–UK Retail Sales: Analysts estimate a reversal in March to -0.3% from 1.2% m/m. This year has seen a strong series of sales data and the dip in energy prices from summer may underpin solid activity.

–Eurozone PMIs: The market median is for manufacturing to tick up to 47.9 from 47.3 in April and services to fall to 54.5 from 55.0. The composite moved further into expansionary territory last month as supply chain issues faded and energy prices eased. EUR/USD has enjoyed seven straight weeks of gains but couldn’t close above the February high at 1.1032. Bullish momentum is still evident unless prices drop below 1.0831.