Key events this week – FOMC, BoE, and SNB monetary policy decisions, RBA minutes, prelim global PMIs for March
Recap from last week
Markets remained on tenterhooks last week, processing the fallout from bank failures. Global central bankers worked to contain contagion risk and ensure the smooth functioning of markets. This included the SNB stepping in to broker the sale of the beleaguered Credit Suisse. Global central banks later announced a coordinated response to “enhance the provision of USD liquidity” (announcement).
Last week, the ECB raised rates by 50bps as it previously signaled it would do. The policy decision acknowledged the context of an ‘elevated level of uncertainty’ and reiterated the importance of data dependence going forward (halting forward guidance). The ECB signaled it would address both price and financial stability, noting “the ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy”. This decision sets the stage for the FOMC this week.
Markets are broadly expecting the FOMC to hike by 25bps as US CPI for Feb showed underlying inflation remained persistent. But some consider that a pause by the FOMC is not out of the question amid financial stability risks. Beyond this meeting, the uncertainty for the path of rates and economic projections has increased substantially and the FOMC is likely to acknowledge the high degree of uncertainty around its quarterly forecast update (SEPs). The summary of projections for rates will show any shift by the FOMC from its ‘higher for longer’ outlook on rates.
US data last week was mixed. US headline inflation continued to ease as energy and used car prices fell. This helped to offset the effect of accelerating shelter price inflation. The trends in underlying core and ‘super core’ measures showed that inflation momentum remained persistent.
As expected, US retail sales fell slightly in Feb after the much stronger growth in Jan. In real terms, retail sales growth continues to stall but the level remains above the pre-pandemic trajectory.
The first two US regional manufacturing surveys for Mar disappointed as activity continued to slow amid weakening orders. This month, stalling growth in employment and hours became more widespread. Employment declines are not yet at a point where they are widespread but it has begun to increase.
US housing indicators were again solid. Mortgage applications increased for a second week, housing starts and permits in Feb increased more than expected, and the NAHB homebuilder sentiment index increased again in Mar. It’s unclear whether this is a turning point for housing construction but at the very least, the fall seems to have slowed for now.
Outlook for the week ahead
It is likely to be another turbulent week with markets on edge. The main events this week will be the FOMC, BoE, and SNB policy meetings. The BoE is expected to increase rates by 25bps. The Feb UK CPI is out before the meeting and inflation is expected to remain elevated at +9.8%. The SNB was expected to increase rates at this meeting by 25bps.
The RBA minutes will be released this week. This should provide some background to the shift in guidance at the last meeting.
Finally, the Mar prelim S&P PMIs for the larger G4 economies will be released. Momentum is expected to be little changed across the manufacturing and services sectors of these economies.
This week, the US Treasury will auction and settle approx. $285bn in ST Bills, with a paydown of $13bn.
The US Treasury will auction the 20-year Bond and 10-year TIPS this week – both will settle next week.
QT: Approx $0.55bn in ST Bills will mature and roll off the Fed balance sheet this week. Approx $7.4bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
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
