This week saw Jerome Powell affirm what markets knew; namely that the recent strong US data indicates the Fed may well need to speed up the pace of rate hikes. However, Jerome Powell also stressed that incoming data between now and the March meeting on the 22nd will be crucial. This should make some strong reactions to the incoming US labour data this Friday as well as the Inflation print next Tuesday. Expect volatility in stocks, precious metals, and the USD ahead as incoming US data will heavily influence expectations surrounding US rates. The Bank of Canada kept rates unchanged this week and it, like the Fed, remains data-dependent for its rate path.
Other key events from the past week:
- USD: Semi-annual testimony, Mar 7-8: The Humphrey Hawkins testimony saw Powell stating the need for a higher US terminal rate than previously expected. The USD surged higher, but bond yields were muted in their response as much of the more hawkish expectations were already priced into bond markets.
- CAD: BoC holds rates steady, Mar 8: The Bank of Canada held rates at 4.5% as expected and expects to maintain rates at this level as long as economic conditions develop in line with the BoC’s expectations.
- USD: US Labour Focus, Mar 10: The Fed is largely data-dependent now as it decides its peak rate, so Friday’s NFP print will be crucial for markets. If there is a big miss in the data watch out for a strong rally in US stocks, gold, and the EURUSD. It’s hard to underestimate the importance of this Friday’s NFP.
Key events for the coming week
- USD: Inflation focus, Mar 14: The Fed is data dependent now, so hot inflation data next week will increase calls for a US terminal rate moving up towards 6%. Watch for USD, gold, silver & stock volatility next week.
- Is McDonald’s a recession play? Check out Mcdonald’s strong seasonals.
- USD: US Retail Sales, Mar 15: Will US retail sales show more confidence from the US consumer? January’s print came in at 6.4%, but a weak print next week will show signs of a cooling US economy which should lead to a lower terminal rate. However, the US inflation data on Tuesday should be more influential.