Week of 18 MARCH

Financial markets took the hotter CPI report in stride as speculation grew that the BOJ may finally raise interest rates either at its upcoming meeting or the following one. The coming week will be dominated by central bank policy meetings, with the Fed, ECB, BOE and BOJ all scheduled to set monetary policy.

Week in Review

The main event of the previous week was the US CPI report showing inflation remained elevated. The headline CPI accelerated, driven by higher gasoline prices and shelter costs. However, the core rate remaining unchanged compared to the prior month left investors concerned that the Fed might keep interest rates higher for longer. Nonetheless, futures markets priced in the same trajectory as before the release, allowing US stock indices to move higher. The S&P 500, in particular, hit a new record high, with the 5K floor as crucial support.

A series of ECB officials, ahead of the blackout period of next week's policy meeting, suggested that the central bank had time to decide when to begin cutting, downplaying potential moves in the near future.

Considerable focus was placed on recent wage negotiation talks in Japan as the BOJ is poised to end the negative interest rate policy soon if wage growth is deemed sufficient. Japan's Prime Minister Fumio Kishida led a round of discussions aimed at pushing for higher wage adjustments. Reportedly, BOJ policymakers are evenly divided on whether to raise rates in March or April.

UK labour data came in softer than anticipated, with the unemployment rate rising above forecasts.

RBA Assistant Governor Sarah Hunter said GDP and inflation were largely in line with expectations ahead of next week's policy meeting.

Biggest Market Movers

• Gold retreated with higher bond yields after scoring record-high prices nearly 5% higher in the prior week, leaving behind support at $2150 per ounce.
• The Nikkei 225 fell at the start of the week and remained down as the market became more convinced the BOJ would raise rates.
• Bitcoin rose to a record high of $74K before retracing all weekly gains on Friday.
• Crude oil prices rose substantially following a surprise drawdown in inventories and as the IEA raised its demand forecast for this year.
• Germany's DAX and Europe's Stoxx 600 stock indices notched new record highs midweek on consolidating expectations that the ECB will cut interest rates in June.​

Key Central Bank Decisions to Shape Markets

Central bank interest rate decisions will be a major focus this week as some monetary authorities consider further easing measures. However, rate changes have not yet been anticipated at all meetings.

The BOJ will lead the way on Tuesday, with the market increasingly expecting Governor Kazuo Ueda to lay the groundwork for a potential rate hike in the near future. With USDJPY higher than 1%, 150 might be a focus as prices increase unless  BOJ is more hawkish and reverses the pair towards 147.

On Wednesday, attention will turn to the Fed's policy decision. While CPI and employment data were mixed, most analysts expect the Fed to keep rates unchanged for now but acknowledge policymakers could open the door to a rate cut soon depending on incoming economic indicators. A hawkish Feds could pressure gold prices further, opening the door to $2100 per ounce. Both Fed and the ECB are forecast to ease at their June meetings.

The ECB meets on Thursday and is largely projected to maintain its stance that more information is needed before deciding whether to ease. ECB President Christine Lagarde has stated that the availability of Q1 economic data in May will influence the outlook. As EURUSD failed to recapture 1.10, losing the 1.09 support could see prices back to 1.084.

Investors have raised expectations for when the BOE may start lowering rates, given stubbornly high inflation, though voting will also be closely watched. Levels to watch for the pound lie at 1.2650 and 1.2850.

The Swiss National Bank (SNB) and RBA rate decisions on Thursday and Tuesday will also be analysed for any signals on future policy stances.​ Below 0.66, AUDUSD could slide as low as 0.65, but likely to bounce there. On the flip side, resistance can be seen at 0.6625.

Inflation Figures to Guide Outlook

The BOC is also in a holding pattern. Still, given that recent data from Canada has been worse than in the US, there is an expectation that the BOC might lead the way in easing policy. Canadian inflation is set to be released on Tuesday and is forecast to continue its downward trend but remain above the 2% target rate. With Loonie in consolidation, traders may focus on a potential break outside 1.3450 and 1.3550.

UK inflation will be published mid-week. The consensus is that inflation will remain too high to consider an interest rate cut in the coming months but will continue its slow decline. Footsie breaking past 7800 could lead to 7865 next. On the flip side, support may be seen at around 7690.

The week concludes with Japan's inflation figures, and projections indicate that the CPI will accelerate substantially, which could influence expectations for a BOJ interest rate hike.

The EU will also provide a final reading of its CPI figures just a few days before the meeting.

Other Economic Data and Earnings Announcements

China's industrial production data will be released on Monday. The US building permits and housing starts will be released on Tuesday. New Zealand's GDP figures will be reported on Wednesday. Preliminary PMI readings from the UK and Eurozone will be released on Thursday. UK and Canadian retail sales are anticipated for Friday.

Earnings expected during the week include Tencent, Micron, General Mills, Accenture, Nike, FedEx, and Lululemon.​