BoC Highlights Upside, UK Reopens

The quarterly business survey from the Bank of Canada was another extremely strong sign for the reopening but also had some warning signs on inflation ahead of Tuesday's crucial US CPI report. Gold and silver fell against all currencies, with XAUUSD retesting the mid 1720s after failing 1750s highlighted on Friday. after failing CFTC positioning highlights a brewing opportunity in the euro.

Canada entered some new harsh lockdowns, but the lesson from 2021 so far is that economies have learned to cope with the virus as sentiment shifts towards reopening optimism. That was clearly the story in the Q1 Business Outlook survey from the BOC. It showed expectations for future sales at the highest since 2009 with investment intentions also surging. The overall survey was the third highest since it began in 2000.

A worrisome sign was in the input and output pricing numbers, which both hit records. The commentary citing raw materials as the main source of rising costs but also highlighted wage pressures.

All central banks are united in the view that prices rises will be temporary but with investment jumping, wages on the rise and house prices out of control, Canada is a good bet to be the first to break that wall. Add in that the BOC overdid it on QE and they're already on the brink of a taper.

In the day ahead, the market will be dialed into inflation in the US with the CPI report due at 1230 GMT. The consensus is for a 2.5% y/y rise and 1.5% ex-food and energy. The first metric might get the headlines but the Fed will be watching the second one more closely and the component breakdown will matter.

 CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR +68K vs +74K prior

GBP +20K vs +25K prior

JPY -58K vs -59K prior

CHF +3K vs +4K prior

CAD +3K vs +7K prior

AUD +4K vs +12K prior

NZD +3K vs +4K prior

Euro longs have been scaled back over a number of weeks but the currency has found a footing since the start of the month. The latest numbers suggest a swift vaccine rollout from May through July so some optimism could begin to creep back into the euro.

UK Offers a Glimpse Into Herd Immunity

The sharp decline in UK covid cases and deaths is a reminder of how primed economies are. The pound is the best performer to start the week while the loonie is the laggard. Bonds are in focus this week as the US sells 10-year notes.

Vaccines work and people are eager to get them. The UK announced Monday that it will open up vaccines to people over-40.

At the same time, the rollout so far is showing a remarkable effect on cases and deaths, particularly in contrast to its European neighbours. Cases have dropped dramatically while deaths fell to just 7 on Sunday with none in Scotland and Wales.

Cable struggled late last week and remains below 1.38 but is holding the March lows so far. That will be a key support area for bulls in the week ahead. This week we get industrial production, trade balance and GDP – all for February. That's data at this point so we will wait for April numbers. On the speaker front we hear from Haskel and Cunliffe. The market would welcome hints of optimism.