Volatility to pick up as busy week begins?

Summary:

• European stocks pullback from 2019 highs
• Several key economic events in the coming days
• Oil remains under pressure after Friday's swoon

What could be a major week for financial markets has begun in a pretty upbeat fashion with stock markets in Europe hitting their highest levels of the year while US futures are within a whisker of their record peak ahead of the cash session. However, the foray higher has run into resistance in recent trade and with a busy week on the economic calendar to come we could be set for a pick-up in volatility. In London the FTSE trades up by single-digits at the time of writing as the pound is edging higher and trades in the green on the day against all its major peers.

Central banks, manufacturing data and employment in focus   

The main event on traders’ radars will likely be the Fed rate decision on Wednesday evening where markets are expecting the US central bank to reaffirm their dovish view. Despite a strong US GDP print on Friday, White House economic adviser Larry Kudlow wasted little time in once more calling for a rate cut and despite data in the world’s largest economy continuing to outperform its peers the market is still pricing in a better chance of the next move in the Fed funds rate being a cut rather than a hike.

On the US data front, Wednesday’s PMI release and Friday jobs report are two tier 1 releases to keep an eye on, while the markets will also be watching keenly to see how the latest manufacturing figures from China come in. Closer to home, Super Thursday rolls around once more for the Bank of England with Governor Carney and fellow MPC members widely seen as keeping rates on hold at 0.75%. Given the longer Brexit extension there is some scope for a bit of a hawkish tilt from the BoE, but it still seems unlikely that the bank would risk hiking anytime soon given the ongoing political uncertainty.

Crude Oil pulls back on sanctions talk

Last week saw the price of Oil hit a 6-month high as reports that US waivers on Iran were due to expire sparked fears of a supply shock, but the market made a pretty sharp reversal on Friday erasing all the gains and actually ending lower for the week. Reports that China would be exempt from the sanctions caused price to dip before news that US president Trump had contacted OPEC to increase supply caused Brent crude to fall by as much as 4%. Both these reports are yet to be confirmed as true but what is telling is the market reaction and after an incredible rise of more than a third since the start of the year, the price of oil could now be set to come back under pressure in the days and weeks ahead.