Central banks are catching up
The global economy is facing an incredible amount of uncertainty right now, which continues to fuel the volatility we are seeing in financial markets.
Whether it’s the uncertainty around inflation, interest rates, commodity prices, Covid or Ukraine, the outlook for growth has become extremely hazy and is constantly under scrutiny. major revisions.
This has been clearly evident in recent months as central banks have been forced to dramatically accelerate their tightening plans despite the prospect of slowing growth and even recession risks. As things stand, investors seem relatively calm about the situation, but given the way things are developing, it might not take much to turn them around.
Now that the Fed has raised interest rates for the first time since 2018 and signaled that it is ready to do a lot more, investors are looking for clues if some of the upcoming hikes will be oversized. It could be a turbulent time for US equities as investors assess whether the current inflationary environment will ultimately lead to a much faster economic downturn.
The coming week will focus primarily on all developments in Ukraine, President Biden’s attendance at the emergency NATO summit in Brussels on Thursday and Fed Chairman Powell’s speech at Monday’s NABE conference and panel attendance. from the BIS on “challenges for central bank governors in a digital world” on Wednesday. Powell made it clear that he was very confident in the economy and the path of the committee’s planned rate hikes.
The week is packed with plenty of economic data, including new home sales, durable goods orders, flash PMI readings, and final consumer sentiment readings for March. Widespread pricing pressures will likely weigh on consumer confidence, manufacturing and services activity. The housing market is still hot, but soaring mortgage rates will soon slow this economy.
Next week, the focus will naturally remain on Ukraine and progress, if any, in the talks with Russia. Both sides have spoken of progress at times recently, but there still seems to be a significant chasm. Russia is also continuing its assault on various cities, despite the talks, which may indicate how seriously it takes the negotiations. Markets are pricing in a lot of optimism at this point, leaving them vulnerable to any disappointment. Complacency could prove costly.
Next week features a selection of economic data including flash PMIs as well as appearances from ECB policymakers including President Christine Lagarde.
Next week, some key data will be released in the UK, including CPI inflation on Wednesday. The BoE is ahead of the curve compared to most, but has signaled that it may be preparing to ease off the accelerator after raising rates in March. Inflation should continue to rise, however, and a faster pace could see it postpone potential plans to slow the upside cycle. Also in focus are Thursday’s PMIs and Friday’s retail sales.
Putin shows no signs of letting up on Russia’s assault on Ukraine, which means more sanctions will come soon enough. The crippling impact on the economy was acknowledged in heated statements this week, but he is undeterred.
The CBR also acknowledged the economic impact of holding rates at 20% on Friday. New forecasts will be presented in April.
Inflation hit 5.8% in February, data is due out on Wednesday, which will likely push the SARB to raise rates a day later another 25 basis points to 4.25%. This will be the third rate hike in a row and the focus will be on how many more are expected to follow. With inflation just at the upper end of the 3-6% target, further hikes will likely be warranted.
Only level three data will be released next week. The CBRT left interest rates unchanged on Thursday and continues its monetary policy review. No sign of a change of course despite inflation exceeding 54% and likely to increase further.
Chinese stocks staged a huge reversal last week, rallying aggressively after the government announced a number of stock market support measures. The rally has faded and the markets seem to be waiting for concrete actions instead of talking now. The first occasion will be on Monday when China announces its decisions on prime rates for 1- and 5-year loans. A drop in the 1-year LPR is more likely and will reinvigorate the rally.
The conflict in Ukraine and the threat of sanctions for supporting Russia militarily still weigh on Chinese markets. Negative developments on this front or the meeting between the United States and China could have a negative impact on equities.
Covid restrictions eased in Shenzhen but increased in Shanghai. Greater restrictions announced over the weekend could be negative for Chinese equities.
India has no meaningful data this week except for bank lending growth on Friday. A low figure could be negative for stocks.
The rupiah and local equities continue to be shaken by rapid money flows related to developments in Ukraine.
Russia and India are exploring a ruble/rupee structure to circumvent international sanctions. The United States and Europe have been silent so far, but if they decide they can violate sanctions and threaten direct sanctions, local stocks could suffer.
Australian markets and equities rebounded on better international investor sentiment and very strong jobs data over the past week. Markets continue to price a change in direction from the RBA because of this. RBA Governor Lowe speaks on Tuesday, and if he hints that a change is coming, it could boost the AUD, but be negative for equities.
The New Zealand dollar has also rebounded on improving international sentiment, but like the AUD, it remains extremely vulnerable to negative swings in sentiment. With rumors growing about the cost of living in the country, the RBNZ has found itself in a very bad place of its own making. A poor trade balance number on Monday will further narrow its monetary canyon and be a potential headwind for the currency and local equities.
USD/JPY jumped above 118.00 as markets assess Japan’s imported energy bill and the widening interest rate differential between the US and Japan. With the BoJ unchanged, a strengthening in US yields could be enough to send USD/JPY above 120.00.
Japan releases Tokyo CPI on Friday, but given the BoJ has remained ultra-dovish, its effect will be minimal.
Japanese equities continue to follow fluctuations in international investor sentiment regarding the Ukrainian situation.
Singapore publishes core and headline inflation on Wednesday. High drawdowns could lock and load an expected MAS crunch in April and this could weigh heavily on local stocks from the middle of the week.
Saturday March 19
- Prime Minister Johnson will speak at the two-day UK Conservative Party Spring Conference
- Visit of Japanese Prime Minister Kishida to India
Sunday March 20
- No major events planned
Monday March 21
- NABE conference with speeches by Fed Chairman Powell and Bostic.
- Prime rates for Chinese loans
- New Zealand trade, card spending
- RBI Governor Das speaks at an Indian industry event
tuesday march 22
- Fed’s Daly to speak at Bloomberg Equality Summit
- ECB President Lagarde to speak at BIS Innovation Summit
- RBA Governor Lowe attends the annual Meet the Regulators ASIC 2022 forum.
- The ECB’s Fabio Panetta will speak at the fourth annual joint conference of the Bundesbank, the ECB and the Federal Reserve Bank of Chicago
- New Zealand consumer confidence
- Australian consumer confidence
Wednesday March 23
- Fed Chairman Powell and BOE Governor Bailey will speak at a BIS panel on challenges for central bankers in a digital world
- UK Chancellor Sunak’s spring statement
- Sales of new homes in the United States
- UK CPI
- IPC South Africa
- Singapore CPI
- Russian industrial production
- Eurozone consumer confidence
- Mexico’s international reserves
- Trade of Thailand
- Japan leading index, machine tool orders
- EIA Crude Oil Inventory Report
Thursday March 24
- President Biden attends emergency NATO summit in Brussels
- US initial jobless claims, durable goods
- European Flash PMI Readings: Eurozone, France, Germany, UK
- Mexico Rate Decision: Expected to Raise Rates 50bps to 6.50%
- Central Bank of Norway (Norges) Rate Decision: Expected 25bp Rate Hike to 0.75%
- South African Central Bank (SARB) Rate Decision: Anticipated 25bp Rate Increase to 4.25%
- Swiss Central Bank (SNB) Rate Decision: No Change Expected with Policy Rate
- Markit Eurozone Services PMI
- PMI Australia
- Japan PMI, department store sales
- SWIFT payments in China CNY
Friday March 25
- American University of Michigan Consumer Sentiment
- BoP current account balance in China
- Second day of the emergency meeting of NATO leaders
- Spain GDP Spain
- IFO business climate in Germany
- Japan Tokyo CPI, PPI services
- Singapore Industrial Production
- Thailand’s foreign reserves, manufacturing production index, capacity utilization
Sovereign Ratings Updates
- Netherlands (Fitch)
- Germany (S&P)
- Saudi Arabia (S&P)
- Hungary (Moody’s)
- Sweden (Moody’s)
- European Union (DBRS)