The past week saw market volatility stabilize from previous weeks as both the US dollar and equity markets sought direction amid continuing concerns over the potential for a global trade war. These concerns, sparked by US President Trump’s heavily protectionist stance on international trade along with threats of retaliation by US trading partners, hit both the dollar and stock markets early in the week. By the latter part of the week and into Friday, however, the dollar had rebounded and equities were attempting to pare some of the week’s losses.
Aside from all the political and international trade concerns this past week, US markets were somewhat assured that inflation may not be overheating as previously suspected, at least for the time being, which allayed fears that the Federal Reserve might be compelled to raise interest rates at a faster pace than anticipated due to rapidly rising inflation measures. Though Wednesday's Producer Price Index reading for February came out slightly higher than expected at +0.2% against a +0.1% consensus expectation, it was significantly lower than January’s +0.4%. And the core PPI (excluding food and energy) was in-line with expectations at +0.2% after January’s +0.4%. Tuesday's Consumer Price Index data for February was in-line with consensus expectations – February headline CPI at +0.2% after January’s higher-than-expected +0.5%, and February core CPI also at +0.2% after January’s higher-than-expected +0.3%. Combined, the relatively tepid CPI and PPI readings along with weaker-than-expected wage growth numbers released with the previous week’s US jobs report pointed to softer inflation than feared, reducing concerns about the potential for more aggressive Fed rate hikes.
The Week Ahead: Fed, BoE, G20, and More
As markets struggle to find direction amid the push and pull of inflation, interest rates, economic growth, and the continuing specter of global trade wars, the busy week ahead will have many more potential volatility triggers that are poised to move currency prices. Foremost of these triggers will likely be the Fed’s highly anticipated FOMC rate decision, policy statement, economic projections, and press conference on Wednesday, presided over for the first time by new Fed Chair Jerome Powell. A rate hike of 25 basis points on Wednesday is almost a foregone conclusion. Markets are currently pricing-in nearly a 95% chance of such a hike. Since there are such high expectations for a 0.25% rate hike, the main market focus will be on the Fed's outlook for further hikes into 2018 and beyond. Therefore, both the Fed's economic projections and press conference will take center stage on Wednesday. Especially with the new Fed Chair in place, there could very well be some market surprises in store. Since Powell has thus far shown himself to be somewhat more hawkish than his predecessor, those surprises could potentially skew to the upside.
For sterling traders, the Bank of England decision on Thursday will also be a major focus in the week ahead. This policy decision will occur around the same time as the March EU leaders summit is scheduled to begin, which will center around a potential Brexit transition deal. In addition, prior to the BoE decision, UK jobs and wage growth data will be reported on Wednesday as well as UK CPI inflation data on Tuesday, all of which could have an impact on the central bank’s decision. Though the BoE is not expected to raise interest rates on Thursday, a hawkish stance combined with any UK-positive news from the EU leaders summit could provide a boost for the pound.
Other main events in the week ahead will include the G20 meetings of key finance, treasury, and central bank officials in Argentina early in the week. The Reserve Bank of New Zealand also issues its policy statement and rate decision on Thursday. In addition, the UK and Australia will release jobs data, Canada and the UK will release CPI inflation readings, and a slew of manufacturing and services PMI data will be released in the euro area.
- Monday, March 19th:
- G20 Meetings Begin
- Tuesday, March 20th:
- Reserve Bank of Australia Monetary Policy Meeting Minutes
- UK Consumer Price Index (Y/Y)
- Wednesday, March 21st:
- UK Average Earnings Index (3M/Y), Claimant Count Change, Unemployment Rate
- US Current Account
- US FOMC Rate Decision, Statement, Economic Projections, Press Conference
- Thursday, March 22nd:
- Reserve Bank of New Zealand Official Cash Rate and Rate Statement
- Australia Employment Change and Unemployment Rate
- French Flash Manufacturing and Services PMI
- German Flash Manufacturing and Services PMI
- Eurozone Manufacturing and Services PMI
- UK Retail Sales (M/M)
- Bank of England Official Bank Rate, Monetary Policy Summary, MPC Official Bank Rate Votes
- Friday, March 23rd:
- Canada Consumer Price Index (M/M)
- Canada Retail Sales and Core Retail Sales (M/M)
- US Durable Goods Orders and Core Durable Goods Orders (M/M)