Q1 ended with calm as banking fears faded from a fever pitch. Fears still remain, but it is the pace of US rates which continues to dominate investors’ minds. The Fed still sees no interest rate cuts this year, but interest rate markets see two cuts ahead, so that disjointed narrative remains in place. President Biden was reported wanting to push new banking rules for midsize banks this week and the US Core PCE on Friday will close out Q1 giving a fresh perspective on how sticky or otherwise US inflation is. Does the Fed still have more work to do?
Other key events from the past week
- Fed vs the market: Banking fears vs inflation fears, Mar 27: The worst banking fears faded, but interest rate markets price in a year-end rate of 4.26% and are expecting two rate cuts from the Fed this year. Is this outlook too optimistic?
- China tech news: Alibaba soars, Mar 29: Alibaba shares raced higher more than 10% midweek on the news of the e-commerce giant splitting into 6 units fuelling hopes of China’s positive attitude towards Chinese tech companies.
- AUD: AUS inflation falls, Mar 29: Australian inflation fell for February for the second month of falling inflation in a row. This lower inflation reading will increase the calls for an RBA rate pause next week.
Key events for the coming week
- RBA rate decision: On hold? April 4: After the drop in monthly inflation data from 6.8% to 7.1% expected there is less pressure on the RBA to hike rates. Interest rate markets currently price an 87% chance of no rate change next week.
- Seasonal insights: Can Kellogg’s beat a coming US recession?
- NFP: US Labour focus, April 07: US Labour data is a key focus for the Fed. See here for how the Phillips curve impacts US rate policy and why employment is so important right. Will the jobs market show US jobs slowing?