Monetary policy uncertainty looms heavily over the financial markets heading into decisions by the FOMC, SNB and BoE next week. What is certain is that more tightening is in store, but how high and for how long are the major unknowns. The ECB’s 50 bp hike, the strong UK data and as President Lagarde said there is “a lot more ground to cover” are reminders of the FOMC and BOE likely tightening path next week, but it is unclear how much more work there is to be done. Fighting inflation remains the prime directive for core policymakers.
Have a look at the most important events of the coming days in our usual weekly publication.
PBoC Loan Prime Rate (CNY, GMT 01:15) – The People’s Bank of China could keep the loan prime rate unchanged at 3.65%, as it also held the one-year MLF unchanged. China’s central bank cut reserve requirement ratio. The PBOC repeated its pledge not to flood the market with liquidity, but still announced that the reserve requirement ratio for almost all banks will be reduced by 0.25 percentage points, effective from March 27.
Tuesday – 21 March 2023
German ZEW (EUR, GMT 10:00) – The key topic for the Eurozone’s biggest and most important economy. Data is expected to show March’s ZEW economic sentiment contracting further at 20 from 28.1.
Consumer Price Index and Retail Sales (CAD, GMT 12:30) – Canadian inflation is expected to grow for February on a monthly basis to 0.7% m/m from 0.5% m/m. Core Retail Sales are anticipated to contract to -0.1% m/m for January.
ECB President Lagarde Speech (EUR, GMT 12:30)
Existing Home Sales (USD, GMT 14:00) – Existing home sales to rise 0.5% in February to 4.02 mln. In Q1, we expect an average sales pace of 4.000 mln, after a 4.197 mln rate in Q4. The months’ supply of homes should remain near the lean 2.9 figures in December and January, versus a deep all-time low of 1.6 in January of 2022.
Crude Oil Inventories (USOIL, GMT 14:30)
Wednesday – 22 March 2023
UK inflation expectations are dropping fast. The latest BoE/Ipsos inflation attitude survey showed that the assessment of current inflation remains extremely high at 9.2%. However, expectations for the next 12 months have dropped sharply – to 3.9% from 4.8% expected previously. That is still far above the BoE’s target, but the lowest since November last year and the second drop in a row. More arguments for the dovish camp at the BoE. Another split vote could be seen for next week and a 25 bp hike, with a dovish twist. Consumer Price Index and Core (GBP, GMT 07:00) –
ECB President Lagarde Speech (EUR, GMT 08:45)
It’s an unhappy 1-year anniversary to Fed rate hikes from many perspectives, as the recent turmoil in the financial markets, and especially the banks, is traced back to the FOMC’s shift into a very accelerated tightening cycle. The Fed has gone from a 0.125% mid-rate to 4.625% correctly, the fastest pace since the Volcker era in the early 1980s. And not just that, but rates have been historically low for decades, with the funds rate at or below 3% since 2008, versus an average of 4.3% since 1980. Some of the fallout from the aggressive front loading is starting to emerge now. And interest rates are poised to move higher with a 25 bp hike to 4.875% anticipated for next week and the potential for another 25 bps in May. While rate hikes are still on the table, the likelihood of a 50 bp boost has dropped, as has the forecast for a 5.4% peak rate in July or September. And rate cuts are being priced back in for later in the year. This could change again, however, as the dot plot is expected to be revised up versus December’s figures, with the 2023 median rate likely to be bumped up to 5.4% as all of the low-end estimates are pushed up. Event of the Week – Interest Rate Decision & Statement & Press Conference (USD, GMT 18:00) –
Thursday – 23 March 2023
– The Swiss inflation unexpectedly accelerated in February and SNB’s Jordan suggested last week that the country’s policy settings are still “too loose”. The SNB boosted the rate 50 bps in December to 1.0% and is up from a record low of -0.75%. Further rate hikes are underway. Rate Statement & Interest Rate Decision (CHF, GMT 08:30)
– The medium-term outlook remains difficult, and the budget makes it more likely that the BoE will deliver another rate hike next week, although like the ECB, the BoE will have to take wider financial conditions into account. With the Rate Statement & Interest Rate Decision (GBP, GMT 12:00) UK data showed a deceleration in wage growth, the chances that the BoE will slow tightening moves and deliver a 25 bp hike rose. The data doesn’t leave the BoE off the hook, but with the number of vacancies declining 51K in the three months to February, there are some signs that the labour market is cooling. Wage growth also seems to be slowing, although of course it remains very high. Coupled with the current turbulence in markets, the numbers will add to the arguments of the doves at the BoE, especially as the MPC already signalled that it is nearing peak rates at the last meeting. We will think the labour market is hot enough to leave the BoE on course for one more hike, although a slowdown to a 25 bp move and a cautious statement are likely to signal a pause at the very least, with peak rates now in sight. If inflation report comes in weaker than anticipated, BOE’s hike could still be cancelled.
New Home Sales (USD, GMT 14:00) – New home sales expected to fall to a 640k pace from 670k in January and 625k in December, versus a 6-year low pace of 543k in July. The home sales metrics have fallen since Q1 of 2022 due to the steep mortgage rate climb and recession fears, though elevated prices have left upside pressure on builders to bring product to market despite price cuts and ongoing shortages of labor, materials, and buildable land.
Friday – 24 March 2023
Retail Sales (GBP, GMT 09:00) – UK retail sales for February is expected to have declined to -4.3% y/y from -5.1% y/y.
Markit PMIs (EUR, GMT 08:30-09:30) – The preliminary Eurozone Composite March PMI is forecasted unchanged to 50.2. In UK, the preliminary March Manufacturing PMI is expected to contract slightly at 49.2 from 49.3.
Durable goods orders I (USD, GMT 14:45) –Durable goods orders are expected to rebound 3.0% in February with an 8.1% transportation orders rise, after a -4.5% headline drop in January that included a -13.3% transportation orders drop.
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