There has been a considerable build-up to what is a historic moment this week. The Federal Reserve will formally start to tighten monetary policy and confirm the next step in moving away from its ultra-loose monetary policy stance in the post-pandemic era. However, there are also two other major central banks updating on monetary policy this week, with a rate hike also expected from the Bank of England. There is also an array of inflation data for traders to wade through. It is set to be another important week for major markets.
Watch for:
- North America – A Fed rate hike, US Industrial Production and Retail Sales in addition to Canadian inflation
- Europe & Asia – A potential Bank of England rate hike and the Bank of Japan, in addition to Chinese data and Australian unemployment
- LatAm – A rate hike from the Brazilian Central Bank
North American data:
- US PPI (Tuesday 15th March, 1230GMT) Factory-gate inflation pressures are expected to increase, with headline PPI forecast to be 10.0% in February (up from 9.7% in January), whilst core PPI is expected to increase to 8.5% (from 8.3%).
- Canada CPI (Wednesday 16th March, 1230GMT) Core CPI is expected to increase to 4.5% in February (from 4.3% in January).
- US Retail Sales (Wednesday 16th March, 1230GMT) Core sales (ex-autos) are expected to be +0.9% in February (after very strong growth of +3.3% in January)
- Federal Reserve monetary policy (Wednesday 16th March, 1800GMT) The Fed is expected to hike by +25bps to 0.50% (from 0.25% previously)
- US Industrial Production (Thursday 17th March, 1315GMT) - Production is expected to grow by +0.3% in February meaning the YoY level improves to 4.3% (from 4.1% in January).
- US Existing Home Sales (Friday 18th March, 1400GMT) Sale sare expected to reduce to 6.15m in February (from 6.5m in January).
Soaring inflation and a strong economic recovery in the US has driven significant expectation for rate hikes by the Federal Reserve. This week there is an overwhelming expectation that the Fed will start to tighten monetary policy. A month ago all the talk had been of a potential +50 basis points hike, but the uncertainty and economic shock to the global economy from the Russian invasion of Ukraine has quelled that idea. A +25bps hike will be seen and markets will be interested to see the dot plots of future rate hikes along with inflation and growth projections.
US Retail Sales are expected to be very strong once more, forecast to add +0.8% on the month in February. Given the favorable base effects (there was a decline of -3.2% in February 2021 which now drops out of the data) this would be very positive for 12-month growth in retail sales. Industrial Production is also expected to be positive in February and will further improve strong year-on-year growth. Capacity Utilization continues to improve and is expected to increase to 77.8% (from 77.6% in January) which would be the highest since May 2019.
Market Reaction:
- The Fed’s projected path of rate hikes (dot plots) will be crucial for USD.
- USD will also be positive to any better than expected Retail Sales and Industrial Production.
- CAD will be positive on any upside surprise to Canadian inflation.
Europe & Asia:
- China Industrial Production and Retail Sales (Tuesday 15th March, 0200GMT) YoY production are expected to fall to 3.8% in February (from 4.3% in January), with sales expected to improve to 3.5% (from 1.7%).
- UK Unemployment and Weekly Earnings Growth (Tuesday 15th March, 0700GMT) The jobless rate is expected to stay at 4.1% in January, with earnings (including bonuses) falling slightly to 4.0% (from 4.3%).
- German ZEW Economic Sentiment (Tuesday 15th March, 1000GMT) Sentiment is expected to fall sharply to 16.8 in March (from 54.3 in February)
- Australian unemployment (Thursday 17th March, 0030GMT) The jobless rate is expected to remain steady at 4.2% in February (4.2% in January).
- Eurozone inflation - final (Thursday 17th March, 1000GMT) Inflation levels are expected to be unrevised at 5.8% headline HICP and 2.7% on core HICP.
- Bank of England monetary policy (Thursday 17th March, 1200GMT) The Bank of England is expected to hike by another +25bps to 0.75% (from 0.50% in February)
- Japan core CPI (Thursday 17th March, 2330GMT) Core inflation is expected to drop slightly to +0.2% in February (from +0.3% in January)
- Bank of Japan monetary policy (Friday 18h March, 0300GMT) The interest rate is expected to be kept steady at -0.10%.
The Bank of England is expected to hike by +25 basis points on Thursday. The key issue will be how unanimous the decision is. There were two hawkish dissenters voting for a 50bps hike last month. There are no updates to the economic outlook at this meeting, but the depth of concern over rising inflation and hit to growth in the meeting minutes will be driving GBP performance. With the UK Gilt yield curve already inverted between 2 years and 6 years, bond markets are priced for a policy mistake. The need to reverse strategy once these knee jerk rate hikes have gone through is a clear expectation now.
Japanese core inflation is expected to slip back again this month, with a drop to +0.2% from +0.3% expected. This will do little to persuade the Bank of Japan to make any notable changes to monetary policy. However, in recent weeks the 10-year JGB yield has come close to the 0.25% cap set for the 0% target and it will be interesting to see if this induces a reaction.
Market Reaction:
- GBP volatility on Tuesday’s unemployment and Thursday’s BoE decision
- EUR under pressure with any negative surprise to the German ZEW. Revised inflation is unlikely to do much.
- AUD moves on any surprises to the Australian unemployment
Latin America:
- Colombia Industrial Production and Retail Sales (Tuesday 15th March, 1500GMT) – YoY production is expected to increase to 14.0% in January (from +13.1% in December), with sales falling back to 7.3% (from 15.9%)
- Brazilian Central Bank monetary policy (Wednesday 16th March, 2100GMT) – A +100bps hike to 11.75% is expected (from 10.75% previously)
- Chile GDP (Friday 18th March, 1130GMT) – QoQ growth is expected to be +3.5%
- Brazil unemployment (Friday 18th March, 1200GMT) – Unemployment is expected to rise slightly to 11.3% in January (from 11.1% in December)
The Brazilian central bank continues to fight against double-digit inflation with now double-digit interest rates. Another +100bps rate rise is expected this month, taking rates decisively above inflation (which is currently 10.38%). However, the Brazilian unemployment rate is also expected to move higher too, so there is an economic consequence to such high levels of interest rates.
Market Reaction
- COP reacting to Tuesday’s industrial production and retail sales
- BRL to move on the rates decision and unemployment
- CLP to move on any GDP surprises
