Key events for the week ahead – Geopolitical risks, US Fed Chair Powell speech, global prelim PMI’s for March
Recap from last week
The invasion of Ukraine continues unabated, and hopes are that a diplomatic resolution can be reached as soon as possible.
Commentary from central banks acknowledges that the invasion has added further uncertainty for growth while inflation risks are tilted to the upside (dependent on the path of sanctions and the invasion generally).
The US Federal Reserve has started its hiking cycle with a 25bps increase in the FFR. The assessment by the FOMC was that inflation is high and inflation risks are to the upside, the US economy is “very strong”, and the labour market is “extremely tight”. The SEP was important. The FOMC matched the market expectation for the number of rate hikes (increasing from three to six hikes for 2022) with the terminal FFR around 2.375% over the longer run – this is slightly lower than the Dec projection. The inflation forecast for 2022 was revised higher (than in Dec) and slows more notably in 2023 to 2.7% (still slightly higher than the Dec projection). Chair Powell noted that “inflation is likely to take longer to return to our price stability goal than previously expected”. Importantly, the higher inflation and ensuing hikes over 2022 resulted in a lower real GDP growth forecast for 2022 (from 4% forecast in Dec to 2.8% in the latest SEP). The growth forecast for 2023 is unchanged (from the Dec forecast) at 2.2%. The unemployment forecast was unchanged at 3.5% through 2022 and 2023. As previously mentioned, QT will be announced at an upcoming meeting. The US yield curve flattened sharply by the end of the week.
The BoE hiked its Bank Rate by another 25bps last week. UK CPI for Feb will be released this week and is expected to accelerate from 5.5% in Jan to 5.9% in Feb. Monthly CPI is expected to increase from -0.1% in Jan to +0.6% in Feb.
The BoJ left policy unchanged. The Japanese National CPI continued to edge higher with headline inflation reaching +0.9% in Feb (up from +0.5% in Jan) and core CPI (ex-fresh food) up +0.6% in Feb (from +0.2% in Jan).
A key point from the RBA minutes was that the Board now sees wages growth risks tilted to the upside – this could be a subtle but important shift. The Board has consistently said that it is too early to say that inflation is “sustainably in the range” – especially because wages growth had been lagging. This could be setting up for an official shift in the rates outlook (while markets are already pricing hikes to begin this year).
The week ahead
We are alert to headline risks related to the invasion of Ukraine. US President Biden will attend the emergency NATO summit on Thursday.
There will be many speeches by central bankers this week. Of note will be US Fed Chair Powell on Monday and Wednesday.
The prelim global PMIs will be released for Mar. These will give an early insight into any shifts in growth momentum. Of interest will be the Euro area economy. It may be too early to assess impacts from another round of lockdowns in China.
This week, the US Treasury will auction and settle approx. $276bn in ST Bills and FRN’s, raising approx. $7bn in new money. The US Treasury will auction the 10yr TIPS and 20yr Bond this week – both will settle next week.
Approx. $12bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
