Forex » The Week Ahead March 20-24, 2024
The past week has been volatile and seemingly emotional for many stock and forex investors and traders with the implosion of Silicon Valley Bank, Credit Suisse on the ropes and the powers that be coming to the rescue. With all of this comes big swings in expectations for Fed hikes, pauses and cuts, driving market sentiment back and forth along the way. Touch wood, the dust seems to have settled, and now the focus turns to what the Fed will actually do on Wednesday. Add to that the potentially live central bank meetings for the BOE and SNB, and we have another interesting week.
- Throwback to the past week
- The week ahead (in brief)
- The week ahead (in detail)
Throwback to the past week
- Volatile and choppy trading in the first half of the week prevented the implosion of Silicon Valley Bank (SVB).
- The Fed, the US Treasury and the FDIC came to the rescue around the market open to make sure the failed Silicon Valley Bank’s deposits were secured.
- Expectations of a 50 basis point hike by the Federal Reserve fell in one week from more than 70% to zero.
- Credit Suisse has confessed to its own financial reporting mishaps, causing its biggest backer (Saudi National Bank) to refuse to provide regulatory liquidity benefits, forcing the SNB to step in with a $54 cash pump .
- The ECB posted the rate 50 basis points to 3.5%, warning that inflation must remain high for a very long time, but provided no forward guidance on rates.
- The CPI, PPI and retail sales in the US were all weaker, which ties in with the theme of a less aggressive Federal Reserve than what Jerome Powell implied in his testimony the previous week.
- However, with core CPI m/m momentum increasing, this suggests that inflation may remain entrenched (or rise in the coming months).
- Australian employment remains resilient to rate hikes, with job growth hitting an 8-month high, unemployment back to 3.5% and the participation rate rising.
- RBA cash rate futures imply a 75% chance of breaking a rate hike in April, down from 100% the day before the jobs report.
- New Zealand’s Q4 GDP contracted -0.6% in Q4, after the RBNZ forecast of 0.7%, and the current account balance to GDP fell to -8, 9%, prompting a warning from global ratings agency S&P that New Zealand could lose its AA+ rating status.
- China’s investment, retail sales and industrial production rose, suggesting January’s record level of lending is seeping into the economy.
Market drivers
- The MOVE index (implicit US Treasuries) reached its highest level after 2007.
- The VIX (volatility index) spent the week in four days aggressively between 22 and 30.
- Gold peaked near 7% throughout the SVB debacle and held its gains despite improving sentiment.
- The ASX 200 index is near 7,000 for the first after Jan. 3.
- Oil prices fell to their lowest level in 15 months in risky trading, although the news that Saudi Arabia and Russia met to discuss market stabilization may have placed a floor for the price of around $65.
The week ahead (in brief)
Sunday – March 19, 2023
Australia: Speech by Christopher Kent, Deputy Governor of the RBA
China: PBoC Prime Lending Rate
Monday – March 20, 2023
Canada: Sales of new motor vehicles (MoM),
EU: International dealer trade, job vacancies, German IPP
Switzerland: Employment statistics in the fourth quarter
Australia: March 2023 Monetary Policy Meeting Minutes
New Zealand: Trade Balance, Credit Card Allowances, World Dairy Trade Price Index
Tuesday – March 21, 2023
United States: State job openings and labor turnover
Canada: Inflation Report
EU: ZEW Economic Sentiment (EU, Germany), Construction Production, Conference Board Leading Indicator (France)
Switzerland: Money supply M3
Australia: Leading MI Indicator
New Zealand Chief Economist Paul Conway delivers speech on inflation, Westpac Consumer Sentiment
Wednesday – March 22, 2023
United States: FOMC Meeting and Press Conference, Existing Home Sales, Building Permits, Unemployment Insurance Claims, New Home Sales
Canada: Monetary Policy Minutes, New Housing Price Index
EU: Balance of payments
UK: Consumer Price Inflation, Producer Price Inflation, UK House Price Index,
Switzerland: Balance of payments
Japan: Reuters Tankan
Thursday – March 23, 2023
UK: BOE monetary policy meeting, business outlook and impact on UK economy
Switzerland: SNB monetary policy decision
Australia: Labor Force (detailed), Judo Bank Flash Australia Composite PMI, Conference Board Leading Index
Japan: Jibun Bank Flash Japan Composite PMI, CPI
Friday – March 24, 2023
United States: S&P Global Composite PMI, State of Employment and Unemployment
Canada: Monthly Survey of Manufacturing (flash estimate), retail trade, wholesale trade, real-time local economic conditions, mortgages
EU: S&P Global Composite PMI (France, Germany EU)
UK: S&P Global Composite PMI, Retail Sales
See » Economic Calendar
The week ahead (in detail)
FOMC meeting Wednesday in the US (early Thursday morning in Asia)
FOMC meetings are always highly anticipated events, but what makes this one different is that we haven’t seen such volatile swings in fed funds (which imply the likelihood of a rise and how much ) these days ahead of a Fed meeting. Before the SVB implosion, the Federal Reserve is certain to increase its base by 50 points following a series of strong savings and three-year warmongering testimony in the House and Senate of Jerome Powell .
As of Thursday’s close, federal funds futures (FFF) now implied an 89.3% chance of a 25 basis point house and another 10.7% of a break. This is generally a no-brainer, but if we were to verify that systematic risks are actually spreading through the financial system before Wednesday’s meeting, then a pause (or at the same time a reduction) will be more likely. Basically, don’t take anything for granted right now.
FFF implied by Thursday’s close:
- 89.3% chance of a 25 base Wednesday house at 5%
- 69.7% chance of a 25bp better house at 5.25% in May
- First 25 basis point cut to arrive in June (52.3% chance)
- Another 25bp low in July to bring rates back to 4.75% (51.2% chance)
- Rates will remain at 4.5% for the rest of 2023
UK inflation and Bank of England meeting
I may be on my own on this one, but after reading Bank of England Governor Baileys’ recent speech, I’m pretty sure he said it was a knife edge. to know if the BOE was interrupted or not.
It depends on women entering, which makes Wednesday’s inflation report a likely indicator of such a rise (or not).
Last week’s jobs data showed fewer jobless claims, unemployment remained at 3.7% (not bad and better than expected 3.8%) and lower incomes, but still decent, at 6.5%. GDP m/m is also better than expected at 0.3% m/m, up from -0.5% and better than 0.1% expected. Industrial production and manufacturing at this rate is raw, but the overall data isn’t too bad.
So maybe Wednesday’s inflation report will decide between a 25 basis point hike or a pause. And with core CPI expected to rise to 6.2% (5.8% before) y/y, and CPI at 10.3% y/y (10.1% before), I’m leaning towards an increase of 25 basic points.
Meeting of the Swiss National Bank
The Swiss National Bank fell from 50 basis points in December to 1% (relatively low) in December, hence its reduction cycle at 175 basis points against -0.5%. They hinted at further tightening in December, and Chairman Jordan has continued to hear further increases ever since. Also, inflation is well off target, so I would be very surprised not to see another 50 basis point hike on Wednesday.
The week ahead for the region Asia Pacific
- Thursday’s Japan National Inflation Report piques my interest, to see if it suits Tokyo’s annual inflation rate of about 1 point lower. Not that it makes a difference for the Bank of Japan, which has been ultra-dovish through higher inflation rates, but it would be a big win for global deflation.
- RBA Deputy Governor Christopher Kent speaks on Sunday evening, in a speech titled “Long and Variable Monetary Policy Delays.” While the title might indicate there is a rescue session from the front, it will be interesting to see what it says – houses are being blown – by the recent turmoil in the march and if it still plays out in a political break in April.
- Apart from Sunday’s prime lending rate, it’s been a quiet week for China. While LPR is worth a look (just in case), they haven’t surprised the markets for some time.
- New Zealand’s trade balance data piqued my interest, given that fourth quarter GDP is contracting and at a much more reliable pace than expected. In addition, stock market and forex investors want to see commentary play out in the first quarter to see the impact of Hurricane Gabrielle on the had on the economy.
By Matt Simpson, FOREX.com » Official Site
Matt Simpson is a Certified Technical Analyst who combines charts and backgrounds for general trading themes. He has traded Forex and CFDs for over 10 years and more recently has traded in futures markets.
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