Russian/Ukraine risk faded midweek on a Financial Times report that a possible path to peace has been found. However, time will tell whether real progress has been made as initial enthusiasm for the report dropped off. The risk was further supported on Wednesday by the China State Council who promised to keep stock markets stable which should support Chinese shares from here. The main event of the week was the FOMC and they hiked rates as expected and projected 7 more 25bps rate hike this year. The Fed signalled that the risk of surging inflation was one they are prepared to take head on as the Fed embark on one of the most aggressive rate hiking stances of recent history. However, some are asking, is this a policy mistake?
Other key events from the past week
USD: FOMC meeting, Mar 16: The Fed hiked interest rates by 25bps as expected with Bullard alone favouring a 50bps rate hike. The question many are asking now is if the Fed’s hawkish stance is a policy mistake that will lead to stagflation.
GBP: Interest rate statement, Mar 17: Expectations going into the meeting was for the BoE to hike rate by 25 bps. The BoE opted for a dovish hike which sent the GBP lower as the BoE recognised it could slow growth by hiking too quickly.
Russia risk: Progress towards peace? Mar 16: Risk was supported on the FT report on a tentative 15 point peace plan being made between Russia & Ukraine if Kyiv announces neutrality and accepts military limits. Can peace be found?
Key events for the coming week
- CHF: Interest rate decision, Mar 24: The SNB have the lowest interest rates in the G8 currency group at -0.75%. Will they maintain an outlook of very low interest rates going forward? Will the SNB announce a step up in FX intervention?
- Seasonal trades: Hang Seng upside?: Hang Seng shares have a strong seasonal period ahead from now until May 01. Does this make Hang Seng shares good to buy after the China State Council vowed to support stocks?
- GBP: Inflation, Mar 23: Will inflationary pressures still be a major concern for the BoE? Any reduction in inflation pressure will give the Bank of England breathing room in not needing to be so aggressive with rate hikes.