Key events for the week ahead – Geopolitical risks, central bank meetings – FOMC, BoE, and BoJ, RBA minutes, US retail sales
Recap from last week
The invasion of Ukraine continues to exact an enormous humanitarian toll. We hope for a swift end to this violence, but initial sanctions are yet to change the course of this tragedy. Markets have been focused on headline risks as sanctions led to further surges in commodity and energy prices.
The ECB meeting last week remained focused on the rising risk of inflation. The ECB announced a faster taper of its core QE program (APP). The end of the program will be determined around the end of Q2, dependent on ‘strengthening inflation’ through Q2. The potentially earlier ending of the APP provides the ECB with the optionality to act earlier on rates. The ECB increased its inflation forecast notably for 2022.
US CPI came in as expected at +7.9% for Feb, accelerating from +7.5% growth in Jan. The contributors to the acceleration remained broad. Inflation is likely to remain a risk considering higher ag/commodity and energy prices. Add also the possibility of further supply chain disruptions as China locks down an important industrial center amid a another covid outbreak.
The week ahead
Central bank communications will be an important theme. The geopolitical situation has added greater uncertainty for the tightening path and central banks will need to balance the risks to growth from the invasion and sanctions with rising/elevated inflation and price stability mandates.
The FOMC is expected to increase the FFR target by 25bps this week. On QT, Chair Powell recently testified that “the plan to shrink the balance sheet will not be finalized at this meeting”. The new SEP will be of interest to understand changes to the path of rates since the Dec meeting. Chair Powell has already noted in testimony that the Fed will “proceed but will proceed carefully” given heightened uncertainty. Commentary on inflation will be important.
The BoE will meet this week. Another 25bps increase in the Bank Rate is expected as inflation remains elevated. The BoJ will also meet this week – and no change to policy is expected. The National CPI for Japan will be released this week and higher energy prices are expected to impact the headline number.
US retail sales growth for Feb is expected to ease to +0.4% for the month after increasing by +3.8% in Jan.
The RBA minutes of the Mar meeting will be released this week. Minutes are likely to reflect that the RBA can be patient on rate increases despite inflation risks moving to the upside. Key points: persistence of supply shocks, including from Ukraine invasion, and wages growth. The Aus labour market and employment survey for Feb will be released this week. Employment is expected to increase by +40k, the participation rate to increase to 66.3%, and the unemployment rate to fall to 4.1%.
This week, the US Treasury will auction and settle approx. $328bn in ST Bills, Notes, and Bonds, raising approx. $75bn in new money.
Approx. $34bn in ST Bills, Notes, and Bonds 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
