The Week Ahead – Inflation and Central Banks to Test the Markets
On the Macro
It’s another busy week ahead on the economic calendar, with economic indicators likely to test investor sentiment following the Fed forward guidance from last Wednesday.
For the Dollar:
On Tuesday, consumer confidence figures kick start the week. Rising interest rates and sticky inflation have continued to pin back a sharp pickup in consumer confidence. The banking crisis could materially impact confidence and spending plans, however. On Wednesday, Fed Chair Powell warned of a likely credit crunch that could affect the US economy.
After a quiet Wednesday session, investors will turn to the jobless claims and Q4 GDP numbers on Thursday.
The Fed’s preferred core PCE Price Index, personal income, and spending numbers on Friday will wrap up the week.
Initial jobless claims at sub-200k, a pickup in the core PCE Price Index, and hotter-than-expected personal spending would be a hawkish scenario for the Fed.
However, we may see less sensitivity than usual, with investors expecting a pause to assess the impact of interest rate hikes on the banking sector.
For the EUR:
It’s a busy week for the EUR.
In the first half of the week, business and consumer sentiment figures from Germany will influence investor sentiment.
On Monday, the German Ifo Business Climate Index survey will be in focus ahead of the German GfK Consumer Climate Index on Wednesday. Following the latest ECB rate hike and hawkish forward guidance, rising costs could test sentiment and raise concerns over business investment and consumer spending.
Prelim German inflation numbers will draw interest on Thursday. A pickup in German inflation would signal another hawkish ECB monetary policy move.
German retail sales and German and Eurozone unemployment figures will provide direction on Friday along with the prelim euro area inflation report. Solid numbers would support another 50-basis point interest rate hike.
From the ECB, the Economic Bulletin also needs consideration on Thursday.
For the Pound:
It is a quieter week ahead for the Pound. Q4 GDP numbers will draw interest on Friday. However, these are second-estimate numbers, leaving the Pound sensitive to revisions.
With economic data on the lighter side, investors should monitor Bank of England MPC member commentary. BoE Governor Bailey will speak on Monday, with Bailey and MPC member Ramsden giving testimony to the Treasury Select Committee hearing on Silicon Valley Bank the following day. On Wednesday, MPC member Catherine Mann will also speak.
For the Loonie:
It is a quiet week ahead on the economic calendar for the Loonie. GDP numbers for January will be in focus on Friday.
With little else to consider, crude oil prices and market risk sentiment will influence.
Out of Asia
For the Aussie Dollar:
It is a quiet week ahead for the Aussie Dollar.
On Tuesday, retail sales figures will draw plenty of interest ahead of inflation numbers on Wednesday. The stats will influence the RBA and near-term monetary policy goals.
An unexpected fall in retail sales and softer inflation figures could allow the RBA to hit a pause at the next meeting.
On Friday, private sector credit numbers will also draw interest but are unlikely to influence the RBA.
For the Kiwi Dollar:
For the Kiwi Dollar, building consent and business confidence figures need consideration on Thursday. With no other stats to consider, the ANZ Business Confidence survey for March will have more influence.
From elsewhere, private sector PMI numbers from China will also move the dial.
For the Japanese Yen:
It is a busier week for the Japanese Yen, though there are no meaningful stats until Friday.
Tokyo inflation, industrial production, and retail sales figures will draw interest. However, the numbers will unlikely force the Bank of Japan to rethink its ultra loose near-term policy intentions.
Out of China
On Friday, private sector PMI numbers for March will influence market risk sentiment. With the markets expecting the Chinese economy to rebound strongly following the shift from the zero-COVID policy, weak numbers would weigh on riskier assets.
The war in Ukraine and China-Russia relations will remain the focal point.