Week of FEBRUARY 24

Last week, the minutes from the FOMC meeting left the markets largely indifferent, while the RBA cut interest rates as expected, and UK inflation data surprised to the upside.

A quieter week lies ahead, with highlights such as US durable goods orders and European inflation figures before closing the week with Chinese PMI data.

Week in Review

Geopolitics seemed to have overshadowed the calendar to some extent last week. The main economic event was the FOMC meeting minutes, with the focus on technical aspects. Fed members expressed concerns about the runoff of the balance sheet amid the debt ceiling issue. Pausing the runoff could have an easing effect, with member consensus suggesting that the risk of inflation and labour market pressures were roughly in equilibrium.

Meanwhile, US January retail sales disappointed, coupled with poor earnings from retail giant Walmart. This undermined the narrative of American economic exceptionalism, with markets turning more risk-averse towards the end of the week.

UK inflation came in hotter than expected, with the fourth consecutive reading above target at 3% instead of the forecasted 2.8%. The unemployment rate remained steady at 4.4%, but average wages accelerated. Collectively, the report painted a picture of persistent inflationary pressure, although the core rate came in as expected at 3.7%, and futures continued to price in two rate cuts from the BOE. Cable eyes the 50-week moving average of 1.2740 next unless bulls lose the 1.26 handle.

Comments from ECB member Isabel Schnabel (Germany) gained traction midweek when she said that the direction of travel of rates is not clear anymore, and it is getting close to when the ECB should consider pausing or halting rate cuts. Above the 50-day moving average of 1.039 and facing resistance at 1.05, the EURUSD may consolidate. A move higher would, however, expose 1.06.

The RBA cut rates as expected, saying that inflation was coming closer to the mid-range of the bank's target. The accompanying statement also lowered the outlook for inflation, leaving open speculation that the next rate cut could happen sooner than previously expected. The Aussie tapped the 0.64 level but struggled to get past it, leaving the door open to 0.63. On the upside, 0.6450 appears as the next resistance.

Japan's GDP grew faster in the final quarter of last year, at 0.7% versus 0.5% expected, increasing the odds of a rate hike from the BOJ in July. The USDJPY tested the 150 handle, which brought the 148.60 support into focus.

Biggest Market Movers

• The S&P 500 hit an all-time record high early in the week as part of a global uplift in shares, with analysts pointing to generally positive earnings throughout the week.
• The Japanese yen hit its strongest point since December on bets that the BOJ would hike sooner, with yields in Japan reaching 2009 highs.
• European equities advanced through the week, with the DAX hitting another record high driven by outperformance in the tech sector.

Top Events in the Week Ahead

The coming week is relatively light on the economic front, leaving potential geopolitical events to occupy the markets, such as the expected protracted coalition negotiation in the German parliament and continuing negotiations over a peace deal for Ukraine. The scheduled economic events likely to move the market are concentrated at the end of the week.

Light Calendar with Few Movers

US durable goods orders will be in focus as investors have started to doubt America's economic strength amid persistently high interest rates and uncertainty over the impact of tariffs. With gold at all-time highs, a strong report could push the yellow metal towards $2900 per ounce. On the flip side, all eyes remain glued on the $3000 psychological mark.

At the end of the week, China will publish its official PMI surveys, with analysts expecting the manufacturing reading to return to expansion at 50, compared to 49.1 previously.

EU Inflation Diverging From the Economy

On Friday, the release of flash inflation figures from France and Germany for February is expected to show further easing in price pressures, which could set the tone for the Eurozone CPI data expected after the weekend. The US will also publish the Fed's preferred measure for inflation, the PCE price index, which is expected to see a monthly acceleration to 0.4% from 0.2%, but the annual core rate is forecast to continue its downward trajectory to 2.7% from 2.8% previously.

Other Events, Earnings

Monday sees the Eurozone trade balance. German ZEW economic conditions and sentiment indices will come out on Tuesday. Wednesday includes Japan's trade balance. Australia's unemployment rate is released on Thursday. Friday has flash PMIs from several key economies.

Earnings season reaches its unofficial end, with several large names expected to report this week, such as Home Depot, Intuit, Nvidia, Smith & Nephew, Salesforce, Lowe's, Man Group, Rolls Royce, Dell, Autodesk, International Consolidated Airlines, and Berkshire Hathaway.