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Central banks are catching up
The global economy is currently facing an incredible level of uncertainty, which continues to drive the volatility we are seeing in financial markets.
Whether it is the uncertainty surrounding inflation, interest rates, commodity prices, Covid or Ukraine, the growth outlook has become extremely unclear and is constantly undergoing major corrections.
This has been evident in recent months, as central banks have been forced to sharply accelerate their tightening plans despite the prospect of slowing growth and even recessionary risks. On the face of it, investors appear relatively calm about the situation, but the way things are going, it might not take much to upset them.
US
Now that the Fed has hiked rates for the first time since 2018 and signaled it’s ready to do much more, investors are looking for clues as to whether some of the next rate hikes will be overblown. It could be a choppy time for US equities as investors weigh whether the current inflationary environment will eventually lead to a much faster economic slowdown.
The coming week will primarily focus on all developments in Ukraine, President Biden’s attendance at the NATO emergency summit in Brussels on Thursday and both Fed Chair Powell’s speech at the NABE conference on Monday and attendance at the BIS Panel on “Challenges for Central Bank Governors in a Digital World” on Wednesday. Powell has made it clear that he is very confident in the economy and the committee’s projected path of rate hikes.
The week is filled with plenty of economic data including new home sales, durable goods orders, the flash PMI reads and the final consumer sentiment reads for March. Widespread pricing pressures are likely to weigh on consumer sentiment, manufacturing and service activity. The housing market remains hot, but rising mortgage rates will cool this economy shortly.
I
The focus next week will, of course, remain on Ukraine and progress in talks with Russia. Both sides have intermittently talked about progress lately, but there still appears to be a significant rift. Russia, too, continues to attack various cities despite the talks, which could signal how seriously it takes the negotiations. Markets are pricing in a lot of optimism at this point, leaving them vulnerable to disappointment. Complacency could prove costly.
Next week features a selection of economic data, notably flash PMIs as well as appearances from ECB politicians including President Christine Lagarde.
United Kingdom
Next week features some important data releases from the UK, notably Wednesday’s CPI inflation. The BoE is ahead of the curve relative to most but signaled that it is preparing to ease the accelerator after March’s rate hike. However, inflation is expected to continue to rise and a faster rate could see potential plans to slow the growth cycle being postponed. PMIs on Thursday and retail sales on Friday are also in focus.
Russia
Putin is showing no sign of easing Russia’s onslaught on Ukraine, meaning more sanctions are on the horizon. The crippling impact on the economy was acknowledged in some fiery pronouncements this week, but he remains undeterred.
The CBR also acknowledged the economic impact when it left interest rates at 20% on Friday. New forecasts will be presented in April.
South Africa
Inflation rose to 5.8% in February, data is expected to be shown on Wednesday, likely prompting the SARB to hike rates another 25 basis points to 4.25% a day later. This will be the third rate hike in a row and the focus will be on how many more to follow. With inflation right at the top end of the 3-6% target, further hikes are probably warranted.
Turkey
Only Tier 3 data will be released next week. The CBRT left interest rates unchanged on Thursday and is still conducting its monetary policy review. Despite inflation of over 54% and inflation likely to continue to rise, no course change in sight.
China
Chinese stocks have seen a huge turnaround over the past week and rallied aggressively after the government announced a raft of support measures for the stock market. The rally has subsided and markets now appear to be waiting for concrete action rather than talking now. The first opportunity comes on Monday when China announces its 1-year and 5-year Loan Prime Rates decisions. A cut in the 1-year LPR is more likely and will add momentum to the rally.
The Ukraine conflict and the threat of sanctions for Russia’s military support continue to threaten Chinese markets. Any negative developments on this front or the US-China meeting could negatively impact equities.
Covid restrictions have been eased in Shenzhen but increased in Shanghai. Major Covid restrictions announced over the weekend could have a negative impact on Chinese equities.
India
India has no major data this week apart from bank lending growth on Friday. A low number could be negative for stocks.
The rupee and local stocks continue to be hit by swings in quick buck sentiment related to the unfolding situation in Ukraine.
Russia and India are exploring a ruble/rupee structure to circumvent international sanctions. The US and Europe have remained quiet so far, but if they decide they may breach sanctions and threaten direct sanctions, local stocks could suffer.
Australia
Australian markets and equities have rallied over the past week on improved global investor sentiment and very strong employment data. Because of this, markets continue to price in a change in direction from the RBA. RBA Gov. Lowe speaks on Tuesday and if he suggests a change is imminent it could boost AUD but be negative for stocks.
New Zealand
The New Zealand dollar has also rallied on improved international sentiment but, like the AUD, remains acutely vulnerable to downside moves. As noise mounts about the domestic cost of living, the RBNZ has found itself in a very bad place. A poor trade balance on Monday will further narrow the currency box gorge and be a potential headwind for the currency and local stocks.
Japan
USD/JPY is up above 118.00 as markets price in Japan’s rising imported energy bill and widening interest rate differential between the US and Japan. With BoJ unchanged, firming in US yields could be enough to send USD/JPY above 120.00.
Japan releases Tokyo CPI on Friday, but as the BoJ has remained ultra-dovish its impact will be minimal.
Japanese equities continue to follow fluctuations in international investor sentiment surrounding the situation in Ukraine.
Singapore
Singapore releases core and headline inflation on Wednesday. High prints could set and weigh on an expected MAS tightening in April, which could weigh heavily on local stocks from mid-week.
economic calendar
Saturday March 19th
Economic Data/Events
Prime Minister Johnson speaks at the UK Conservative Party’s two-day spring conference
Japanese Prime Minister Kishida visits India
Sunday March 20th
No major events planned
Monday, March 21st
Economic Data/Events
NABE conference with speeches from Fed Chairmen Powell and Bostic.
Interest rates for Chinese loans
New Zealand trade, card issues
RBI governor Das speaking at an Indian industry event
Tuesday, March 22nd
Economic Data/Events
The Fed’s Daly speaks at the Bloomberg Equality Summit
ECB President Lagarde speaks at the BIS Innovation Summit
RBA Governor Lowe attends Meet the Regulators ASIC Annual Forum 2022.
The ECB’s Fabio Panetta speaks at the fourth annual joint Bundesbank-ECB-Federal Reserve Bank of Chicago conference
Consumer Confidence in New Zealand
Consumer Confidence in Australia
Wednesday March 23rd
Economic Data/Events
Fed Chair Powell and BOE Governor Bailey address central banker challenges in a digital world at the BIS panel
Spring Statement by British Chancellor Sunak
Selling new homes in the USA
UK CPI
CPI South Africa
CPI Singapore
Industrial production in Russia
Consumer Confidence in the Eurozone
Mexico International Reserves
Thailand trade
Japan leading index, machine tool orders
EIA Crude Oil Inventory Report
Thursday, March 24th
Economic Data/Events
President Biden takes part in the NATO special summit in Brussels
US Initial Jobless Claims, Durables
European Flash PMIs: Eurozone, France, Germany, UK
Mexico interest rate decision: Rate hike expected by 50 basis points to 6.50%
Interest rate decision by the Norwegian Central Bank (Norges): Probable rate hike by 25 basis points to 0.75%
South African Central Bank (SARB) interest rate decision: Rate hike expected by 25 basis points to 4.25%
Interest rate decision by the Swiss Central Bank (SNB): No changes in the key interest rate expected
Eurozone Markit Services PMI
PMI Australia
Japan PMI, department store sales
China SWIFT payments CNY
Friday March 25th
Economic Data/Events
University of Michigan Consumer Sentiment
China BoP current account balance
Day 2 of the NATO leaders’ emergency meeting
Spain GDP Spain
Germany IFO business climate
Japan Tokyo CPI, PPI Services
Industrial production in Singapore
Thailand’s foreign exchange reserves, manufacturing production index, capacity utilization
Country rating updates
– Netherlands (Fitch)
– Germany (S&P)
– Saudi Arabia (S&P)
– Hungary (Moody’s)
– Sweden (Moody’s)
– European Union (DBRS)
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Publisher’s Note: The summary points for this article were selected by Seeking Alpha editors.
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