Weekly Market Outlook – The US inflation report and the European Central Bank’s policy meeting are expected to garner investors’ attention this week. This may overshadow other significant data, including Chinese industrial output, Australian employment, and New Zealand GDP estimates. Furthermore, it is budget time again in the UK, but it is not expected to generate as much volatility as the last budget event.
What to watch on the Economic Calendar this week
Monday, Mar 13:
- JPY: BSI Manufacturing Index
- NZD: BusinessNZ Services Index
- NZD: Food Price Index (FPI)
Tuesday, Mar 14:
- GBP: Claimant Count Change
- GBP: Average Earnings Index
- GBP: Unemployment Rate
- CHF: PPI
- USD: NFIB Small Business Index
- EUR: ECOFIN Meetings
- USD: Core CPI
- GBP: CB Leading Index
- JPY: Monetary Policy Meeting Minutes
- CNY: Industrial Production
- CNY: Unemployment Rate
Wednesday, Mar 15:
- EUR: German WPI
- EUR: French Final CPI
- EUR: Industrial Production
- GBP: Annual Budget Release
- USD: Core PPI
- USD: Core Retail Sales
- USD: Empire State Manufacturing Index
- USD: Retail Sales
- USD: Crude Oil Inventories
- NZD: GDP
- JPY: Trade Balance
- AUD: Unemployment Rate
Thursday, Mar 16:
- JPY: Revised Industrial Production
- USD: Philly Fed Manufacturing Index
- USD: Unemployment Claims
- EUR: Main Refinancing Rate
- EUR: Monetary Policy Statement
- EUR: ECB Press Conference
Friday, Mar 17:
- GBP: Consumer Inflation Expectations
- EUR: Final Core CPI
- CAD: PPI
- USD: Prelim UoM Consumer Sentiment
The Economic Calendar can provide you with a better understanding of the prevailing weekly conditions in the forex market as it displays all the significant events, announcements, and data releases that are expected to have an impact on the market.
USD: CPI report might make the case for a 50-bps hike
Despite strong labor market and price data, the Federal Reserve is still expected to maintain its stance of keeping interest rates “higher for longer.” As a result, the anticipated terminal rate has reached a new high of 5.65% in the current cycle. Fed Chair Powell has acknowledged the market’s expectation of higher rates and suggested that the pace of tightening may accelerate as early as the March meeting.
The significance of Tuesday’s CPI numbers cannot be overstated, as they may impact whether FOMC members vote for a 25- or 50-basis-point increase. In January, the CPI rate did not slow down as much as predicted, raising concerns that inflation may persist for longer than anticipated. For February, the projections indicate a similarly sluggish process, with both the headline and core CPIs expected to increase at a somewhat elevated pace of 0.4% month-on-month.
On Wednesday, the producer price index and retail sales figures for February will be released. After a surprisingly strong increase in consumption in January, investors will be monitoring to see if this trend continues or if it was just a temporary spike, given the rising interest rates.
Additionally, the New York and Philadelphia Feds will release their manufacturing gauges on Wednesday and Thursday, respectively, which will provide some insight into how the sector performed in early March. Building permits and housing starts data will also be published on Thursday. Lastly, industrial production figures and the University of Michigan’s preliminary survey results on consumer sentiment in March will be released on Friday.
The US dollar may experience a boost following a higher-than-expected CPI report, but the gains could be limited due to the upcoming Fed meeting on March 21-22.
EUR: All eyes on ECB’s future rate hike schedule
On Thursday, it is highly likely that the ECB will implement its third consecutive increase of 50 basis points, elevating the deposit rate to 3.0%, its highest level since 2008. Nevertheless, the situation ahead may become more intricate due to a developing division between the hawks and doves in the Governing Council.
The ultimate Eurozone inflation readings, scheduled for release on Friday, are anticipated to validate that the core CPI rate – which excludes food and energy prices – has skyrocketed to 7.4%, a figure that appears excessively high to ECB hawks. However, members who lean towards dovishness are concerned about the repercussions that escalating borrowing expenses could have on weaker members, such as Greece and Italy.
Similar to other countries, there is an ongoing discussion about the appropriate pace of rate increases as most major central banks have been tightening for a year. Moving too quickly could lead to a difficult economic situation while moving too slowly could be even riskier as it could allow for second-round effects.
Following the meeting, the ECB will release its latest quarterly staff projections, which will provide insight into how quickly inflation is expected to reach its 2% target. However, the bigger question is whether President Christine Lagarde will indicate another 50-bps hike in May, as not doing so would suggest that the doves may have the upper hand in the debate.
If this were to occur, it could have a slight negative impact on the euro, although rates could still reach as high as 4.0% by the end of the year.
GBP: How will the Spring Budget impact the pound?
In the UK, the upcoming week is expected to be relatively calm as the only significant release will be the January employment report on Tuesday. However, the Spring Budget Statement on Wednesday is likely to draw more attention, especially for the pound.
Investors are feeling more reassured under the leadership of Jeremy Hunt, compared to the previous budget in September which caused turmoil. Hunt has remained committed to fiscal discipline since taking on the role of cleaning up after Truss and her chancellor. Therefore, it is highly improbable that there will be any significant tax cuts during the event.
There are speculations that Hunt might unveil tax incentives for businesses, aimed at boosting investment, in response to the UK’s sluggish economic growth and mounting political discontent. Additionally, Hunt faces demands to extend the energy price guarantee, which may continue or be reduced from its current high levels. Overall, a budget that supports economic growth while exercising fiscal restraint would likely have a favorable impact on the pound.
Data alert for Aussies and Kiwis
China has indicated that it is moving away from pursuing ambitious GDP targets by setting a relatively modest growth goal of 5% for 2023. This implies that the country’s economic growth will primarily depend on the impact of reopening measures and the government does not intend to introduce significant new stimulus measures. According to expectations, the latest data to be released on Wednesday will reveal a further economic recovery in February.
Industrial production growth is anticipated to have increased to 2.6%, and retail sales are likely to have rebounded by 3.4% following a contraction in the preceding month.
In the event that the February figures fall short of expectations, concerns over a potential slowdown in recovery could cause the China-dependent Australian dollar to decline. Additionally, traders of the Australian dollar will closely monitor the upcoming domestic employment statistics which are scheduled to be released on Thursday. Given that the Australian economy lost 11.5k jobs in January, another weak report for February could lower expectations of the RBA increasing interest rates at its upcoming meeting.
On the other hand, New Zealand’s Q4 GDP figures are also set to be released on Thursday, but the impact on the RBNZ rate hike expectations may not be significant unless there is a notable deviation from expectations.
Despite not adopting the approach of some of its counterparts in reducing its hawkish stance, the RBNZ has already been one of the most assertive central banks in the last year, so there is little room for its terminal rate to increase substantially. Furthermore, the RBNZ is unlikely to suddenly shift to a dovish position, resulting in a little movement to be factored into money markets in either direction. As a result, the New Zealand dollar will mainly be influenced by the worldwide risk sentiment.
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