The trade war de-escalation has been a major driver of market fluctuations this week. Although hopes for an agreement between the US and China turned out to be premature, we are seeing significant gains on the US stock market, with major Wall Street indices reaching their highest levels since April 3rd and almost fully recovering losses linked to tariff announcements.
Next week brings several important events, such as Friday’s release of US labor market data, Monday’s elections in Canada, and Thursday’s monetary policy decision from the Bank of Japan. It's also worth noting that although May 1st is a public holiday in many countries, it will not affect trading sessions in the United States. Therefore, next week it's worth keeping an eye on USDCAD, JP225, and GOLD.
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The trade war turmoil has led to early elections in Canada, scheduled for April 28th. Mark Carney, leading the Liberal Party, has not only regained public trust amidst the US threat but current polling suggests a potential path to a majority government. Conversely, the Conservative Party, also a potential winner, is campaigning on promises of significant tax cuts, which could limit the scope for interest rate cuts and advocates for immediate renegotiation of the USMCA trade agreement. While the base case points to a Liberal victory, unlikely to generate significant CAD volatility, an unexpected Conservative win could lead to further strengthening of the Canadian dollar. USDCAD is currently trading at its lowest since November.
JP225
In January, the Bank of Japan raised interest rates to 0.5% — the highest level in 17 years. Although further tightening was initially anticipated, the situation has shifted. Inflation in Japan has decreased, and the trade war has strengthened the yen, seen as a safe-haven currency. A stronger yen and declines on Wall Street have negatively impacted the Japanese stock market. However, given the reluctance for further rate hikes and the potential for a trade agreement between the US and Japan, the chances for a rebound in the JP225 chart have noticeably increased. The BoJ decision will be announced on Thursday, early in the Asian session.
GOLD
Gold has been the biggest beneficiary of the trade war, gaining value also due to declining confidence in the US dollar. However, with hopes of de-escalation emerging, the price of gold has dropped from $3,500 to $3,280 per ounce. While the trade war and uncertainty remain key drivers for gold, US data will play a major role next week. The most important will be Friday's labor market report. The previous report showed solid job growth, but the April report may not be as strong, which could support buyers. However, if the data turns out strong and the dollar strengthens, we may see a continuation of the correction in gold prices.
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