Weekly Market Outlook – This week will see the release of flash PMIs for the first time since the outbreak of the Ukraine conflict. This week’s focus is also on UK inflation data and US durable goods data, while geopolitical developments concerning eastern Europe will be closely followed. FOMC member chatter will also need to be monitored after last week’s rate hike and projection.
March flash PMIs from developed economies in focus
This week will see the March flash PMIs for the U.S., UK, Eurozone, Australia and Japan. PMIs in February indicated a rebound in economic growth as the Omicron wave faded and business optimism rebounded. But since then, Russia’s invasion of Ukraine has caused commodity prices to skyrocket and further supply chain issues to crop up.
Flash PMI data are based on 85% to 90% of all monthly PMI responses, allowing for a more detailed analysis of demand, output, prices, and sentiment.
USD | Q4 GDP final estimate & Fed member appearances
Fed’s meeting last week concluded with a 25 basis-point increase in rates and the announcement that its bond portfolio will shrink by $8.4 trillion. The Fed members’ appearances in the coming week suggest they are ready to do much more, and investors will be looking for clues as to whether there will be further hikes.
The GDP growth in the first quarter is expected to be impacted by recent developments such as the invasion of Ukraine. There is a possibility that US stocks will weather a choppy period as investors assess whether inflation will ultimately lead to a much sooner economic slowdown.
This week, we’ll be keeping our eyes on all developments in Ukraine, Vice President Biden’s participation in NATO‘s emergency summit on Thursday, Fed Chair Powell’s appearance at the NABE conference on Monday and the BIS panel on “challenges for central bank governors in a digital world” on Wednesday. Powell has expressed confidence in the economy and the path of rate hikes the committee has forecasted.
There will be a lot of economic data released this week, including new home sales, durable goods orders, flash PMI readings, and the final consumer sentiment reading for March. Consumer sentiment, manufacturing, and service activity will likely be impacted by widespread pricing pressures. Surging mortgage rates are expected to cool the housing market shortly.
GBP | UK Inflation data due this week
UK inflation data will be released this week, with PMI suggesting yet another rise in consumer price inflation from its current 30-year high of 5.5%. While sanctions against Russia are likely to have a smaller impact in Britain than they will in the Eurozone, investors are worried about how rising inflation and energy bills will affect household spending.
Because of those concerns, the Bank of England’s tax increases didn’t benefit the pound much. Last week, the Bank of England raised its interest rate for the third time in a row as inflation continued to rise. The British consumer price index is expected to have risen 5.9% year-over-year in February according to data released on Wednesday.
However, despite spiralling prices, it appears some policymakers are beginning to ease off on further tensions amid the Ukraine crisis, as there was a surprising disagreement in the BoE vote. Retail sales data due on Friday will also be closely watched.
EUR | PMIs headed for a slowdown?
The fallout from the Ukraine conflict has had a significant impact on global markets and the economic outlook, as the world has gone into another crisis as it emerges from a previous one. Yet the most unexpected impact was on inflation, as sanctions against wealthy Russia fanned already boiling prices. While both sides have talked up progress recently, the gap still appears significant.
Due to the rise in energy, agricultural, and metal commodities since Russia invaded the Ukraine, business and consumer pressure has tightened even further, sparking fears of a recession. Over the years, Europe has become too dependent on Russian oil and gas to meet its energy needs, which places it at greater risk of suffering another downturn.
The severe Western sanctions will also impact European exporters, and coupled with rising input costs, trade confidence has already begun to decline. In light of Thursday’s lightning PMI numbers for the eurozone for March, investors will be eager to see if the geopolitical turmoil at the EU’s doorstep is impacting economic activity.
ECB has announced that it will stop its asset-purchase program sometime this summer but has not specified when the interest rate will be raised. The euro, which has recently recovered from 22-month lows against the dollar, may slip again if the PMI data falls below expectations.
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