The risk was rattled this week as geopolitical uncertainty loomed in the form of Russia and the threat of an incursion into Ukraine. Volatility soared sinking stocks and lifting gold. At the time of writing the picture is still not entirely clear what the situation is. However, for the most part, markets are accepting claims of a Russian withdrawal from Crimea despite the West still asking to see concrete evidence of that action. UK inflation hit a record high, but the Bank of England is expecting a rise in inflation above 7% in April anyway. Inflation prints around the world will continue to grab headlines as records are smashed.
Other key events from the past week
- UK inflation: 50bps rate hike coming? Feb 16: Inflation is at its highest level in 30 years for the UK and this adds pressure for more rate hikes, but that pressure should be limited as UK inflation is meant to peak around 7%+ in April.
- China: JP Morgan are bullish, Feb 17: With Russian risk shaking the US and European stocks it is timely that JPMorgan is bullish on China’s A shares. It projects China to have the highest return over the next decade. If Russia/Ukrainian tensions continue to fade, is this still a great time to invest in China’s shares?
- AUD: Employment data, Feb 17: At the last RBA meeting, they were pleased with the progress made in the labour market. This week’s employment data should not ring any alarm bells. The headline gain of 12.9K was mainly driven by part-time jobs but did take place when the Omicron was at its worst.
Key events for the coming week
- NZD: Interest rate statement, Feb 23: With NZD inflation at a 30+ year high and a red hot housing market will the RBNZ make a hawkish tilt and boost the NZDJPY pair next week? This is a ‘can’t miss’ calendar event of the week.
- Seasonal trades: American Express: We are now heading into a strong period of seasonal strength for American Express. Financials tend to do well in a hiking cycle.
- USD: Core PCE, Feb 25: Soaring US inflation is what has been driving the case for a series of aggressive Fed rate hikes. If we see any signs of a miss in core PCE data that should really weaken the USD. It should have a similar outlook to US CPI data at the start of February.