Week of Mar 6

The markets were surprised by Fed Chair Jerome Powell's comments on Capitol Hill that opened the door to a 50bps rate hike at the next FOMC meeting. Now attention turns to inflation figures from the US to see if the macroeconomic data keeps pointing towards higher rates while the ECB meets and is expected to hike by 50bps.

Top Events in Review

The event that shook up the markets last week came on Tuesday, the first day on which Fed Chair Jerome Powell was giving testimony before Congress. In prepared remarks before the Senate Banking Committee, he said the economy was doing better than expected, and inflation remained high. Given the data, he also suggested that the Fed was open to accelerating rate hikes if necessary. Expectations of a rate hike jumped, with the terminal rate now as high as 5.7%. Meanwhile, the 2-year treasury yield moved above 5.0%, and the inversion in the yield curve widened to triple digits. 

In other central bank events, the RBA hiked by a quarter point, and the BOC paused for the first time in the cycle, both as expected. Aussie dropped more than 2% week-on-week, whereas the loonie broke to October highs above $1.38. 

As if news around banks weren't enough, Thursday saw a sell-off in the banking sector over liquidity concerns following SVB Financial selling assets to cover customer withdrawals, which coincided with Silvergate announcing it would wind down its banking arm.

Meanwhile, at the week-long National People's Congress in China, the government provided a 5.0% GDP target for this year, below analyst expectations. China also vowed to increase military spending.

Biggest Market Movers

Natural gas prices had their most significant drop in months after US meteorologists forecasted warmer weather for March. The commodity had risen above $3/cf the week prior and down near $2.50/cf last week.

Crude prices fluctuated widely on rumours of tensions between UEA and Saudi Arabia which were dismissed, the growth outlook from China, and reports that Saudi Aramco had raised prices to Asian customers. It ended up cratering more than 5% on risk reversal, despite having touched a Jan high of $80/bbl early in the week. $73.20/bbl is the next support.

Fed Chair Powell's comments before Congress pushed the dollar index higher, with stocks diving, but the trends reversed later in the week. Dow Jones lost nearly 4% at some point on Friday, falling from 33350 to the 32k handle.

Top Events in the Week Ahead

Cable Traders Focus on US CPI 

One of the main events related to monetary policy next week is the release of US inflation figures for February, expected to show headline CPI coming down marginally to 6.2% from 6.4% prior. The focus will likely be on the core figure since the Fed closely tracks the core. It is expected to remain at 5.6%, unchanged from the prior month. GBP/USD appears sensitive to the differentials lately, with $1.20 in focus. Breaking higher could see the price rise towards $1.2170 unless momentum reverses and the pair turns towers $1.1711.

CPI and ECB to Move EURUSD

Then attention swings to the ECB's monetary policy meeting on Thursday, where it's broadly expected that a hike of 50bps will be announced, with scrutiny on ECB President Christine Lagarde's commentary in the presser afterwards to see if there is any directionality for hikes in the coming meetings. Also, there is speculation that the ECB could announce an increase in its QT, currently at €15B monthly. EUR/USD might see increasing pressure towards $1.0360 both the CPI and ECB disappoint traders. But upwardly, it could also see momentum rising towards $1.0736.

China Data into Spotlight

Following the conclusion of the NPC in China, there could be extra interest in Chinese data expected to be released this week. Retail sales and industrial production figures were not released for January, so the February measure, scheduled for Wednesday, could gain additional weight as markets gauge the post-zero-covid policy reopening. Retail sales are expected to increase at 3.3% compared to -1.8% in December, while the unemployment rate is expected to remain steady at 5.5%. The hold could come under severe pressure if numbers come in upbeat, potentially falling under $1800/oz for a chance at $1785/oz. Otherwise, $1875/oz could be reached, although it's highly overoptimistic unless $1855/oz succumbs earlier in the week. 

Other Events and Earnings

Tuesday has NAB Business Confidence out of Australia and Claimant Count from the UK. On Wednesday, the US releases its PPI figures and retail sales. Thursday sees Japan's trade balance and US building permits. Friday has Michigan Consumer sentiment flash reading. Earnings season is unofficially over, but some big names still reporting include Lennar, Balfour Beatty, Gitlab, Adobe, FedEx, Jabil and Dollar General.