Three major central banks, ECB, RBNZ and BOC, will hold their April meetings this week with latter two expected to deliver rate hikes. That would be coupled with inflation data from the US, the UK and China as well as employment data from the UK and Australia.
USD
ISM Non-manufacturing PMI in March rebounded to 58.3 from 56.4 in February. New orders made a huge positive jump along with the employment index which returned back to expansion after it showed contraction the previous month. Business activity continues to improve as well, however prices paid component also rises on the back of higher energy and commodity prices thus bringing more inflationary pressures.
Yield on the 10y started the week at around 2.4% while FedWatchTool saw the probability of a 50bp rate hike at the May meeting at around 70% when the week started. Fed Governor Brainard, a known dove, came out with hawkish comments stating “Currently, inflation is much too high and is subject to upside risks. The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.” When a well known dove agrees with a typical hawkish stance the markets pay close attention and more weight is added to her words. She also added that talks about rapid BSR will likely be held at the May meeting. The dollar has gained around 100 pips across the markets on the back of her comments with yields on a 10 rising to 2.66%. FedWatchTool saw an increase in the probability of a 50bp rate hike at the May meeting to 76.6%.
FOMC minutes showed that many members would preferred a 50bp rate hike at March meeting. Additionally, minutes showed that members announced “commencement of balance sheet runoff at a coming meeting”. Regarding the amount of BSR “Participants generally agreed that monthly caps of about $60 billion for Treasury securities and about $35 billion for agency MBS would likely be appropriate”. Minutes resulted in lower yields on a 10y note, however the 2-10y spread improved to 15.2bp. FedWatchTool saw additional increase in the probability of a 50bp rate hike at the May meeting to 81%.
This week we will have inflation data expected to rise above 8% as well as consumption data.
Important news for USD:
Tuesday:
CPI
Thursday:
Retail Sales
EUR
Final services PMI for the month of March showed improvement in Eurozone reading to 55.6 from 54.8 as preliminary reported on the back of improvement in German reading. Composite was also improved to 54.9 from 54.5 as preliminary reported. Services reading improved thanks to the loosening of covid restrictions, however it will have a rocky path ahead. Rising input costs coupled with worsening of supply issues and uncertainty around Russia-Ukraine conflict will weigh heavily on the business activity in the coming months.
This week we will have ECB meeting. We expect to see announcement of ending APP purchases in Q3. March minutes showed members’ view that APP had fulfilled its stated objective. Additionally, we expect more clarity to forward guidance on policy normalisation (raising rates toward 0%). It seems that both hawks and doves found common ground and are willing to proceed with policy normalisation so we may see September emerging as a target for the first rate hike.
Important news for EUR:
Thursday:
ECB Interest Rate Decision
GBP
Removal of covid restrictions and as Markit notes “stronger demand arising from the return to offices, alongside a resurgence in the travel, leisure and entertainment sectors.” led to final services PMI reading in March print 62 and pulls up with it composite reading to 60.9. There are, however, dark clouds over the services sector as optimism fell to the lowest level in 17 months.
This week we will have February GDP data, employment data as well as inflation and consumption data.
Important news for GBP:
Monday:
GDP
Tuesday:
Claimant Count Change
Unemployment Rate
Wednesday:
CPI
Friday:
Retail Sales
AUD
RBA has left the cash rate unchanged at 0.10% as was widely expected, however there were some changes in the wording that investors interpreted as a gradual shift toward a tighter monetary policy. Guidance on cash rate was changed to “The Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates.” The talk about patiently waiting has been omitted. Additionally, they have stated that they will closely monitor incoming employment and inflation data and make decisions based on that. AUDUSD shot past the 0.76 level after the announcement. We will have an employment report next week, inflation data at the end of the month while wage growth data will be published in mid-May. We believe that RBA will wait for the wages report before deciding to act, so that excludes May meeting and puts emphasis on the June 7 meeting. Australian elections will be held in late May so that is additional factor to exclude May meeting and set June meeting as the first possible for a rate hike.
Effects of China’s zero-covid policy are clearly seen in Caxin’s PM data for March. Services reading plunged to 42.2 from 50.2 in February and dragged down with it composite reading to 43.9 vs 50.1 the previous month. Asian Development Banks has already downgraded projections for Chinese 2022 GDP to 5%. The data raises probability of additional monetary easing by the PBOC.
This week we will have employment data from Australia as well as inflation and trade balance data from China.
Important news for AUD:
Monday:
CPI (China)
Wednesday:
Trade Balance (China)
Thursday:
Employment Change
Unemployment Rate
NZD
Kiwi had a strong start to the week with NZDUSD rising around 130 pips before reversing on Tuesday and giving it all back. Fed minutes pushed the pair even lower and it finished the week down some 70 pips from where it started. However, with RBNZ firmly on the rate hike path this could be case for buying the dips when price on charts presents the opportunity.
This week we will have RBNZ meeting. We will see continuation of rate hikes. Majority expects a 25bp rate hike, but a 50bp rate hike cannot be ruled out.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
Canada produced another very strong employment report. Employment change in March came in at 72.5k, after a staggering 336.6k in February. The unemployment rate dropped to 5.3% from 5.5% thus making it the lowest unemployment rate in history of the reading which started in 1976. The rate was shaved while the participation rate stayed consistent at 65.4%. Wages were up 3.7% while full-time employment came in at 92.7 k and part-time employment at -20.3k. This will just give credence to the 50bp rate hike next week while also open the door for additional 50bp rate hikes in the future. Canada is set to announce a ban on foreign purchases of real estate in order to cool off the bubble building in the housing sector. The ban will refer to the period of two years.
This week we will have BOC meeting. A 50bp rate hike seems to be fully discounted by the markets as output gap is closed and employment is above pre-pandemic levels. There will be talks about QT as Canada had the biggest QE response after pandemic struck.
Important news for CAD:
Wednesday:
BOC Interest Rate Decision
JPY
Nominal wages in the month of February rose 1.2% y/y but were eaten away by inflation and were flat in real terms. Still, they were much stronger than expected and thus represent positives for the economy. Household spending improved only 1.1% y/y vs 2.7% y/y as expected. BOJ Governor Kuroda characterised JPY’s fall as rapid which could indicate that recently reached USDJPY level of 125 represents top for the pair and bottom for the JPY.
CHF
SNB total sight deposits for the week ending April 1 showed a much bigger jump in deposits than in the previous months. The reading came in at CHF737.2bn vs CHF731.5bn the previous week. It is interesting that such a jump is seen when EURCHF moved away from parity. However, it seems that SNB deems the current level as too close to parity and finds it necessary to ramp up the intervention. Seasonally adjusted unemployment rate in March stayed unchanged at 2.2%.
You can follow all economic events on the Economic Calendar page on our Website. MT server time is set to GMT+3 and if you need assistance converting MT server time to your local time you can use some of the online time converters such as WorldTimeBuddy.
Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.
