This week was all about a further jump in expectations of higher US interest rates. However, the drop in the US ISM Manufacturing print was a firm reminder that the peak for US rates may not be too far away now. Furthermore, the drop in US confidence is a sign that the US consumer is growing more cautious in its future expectations, but the main mood of the market this week was that a higher peak may be needed from the Fed in the near term. This was compounded by hotter Eurozone inflation which may keep central banks around the world higher for longer. The week will be rounded off on Friday by the anticipated US ISM Non-Manufacturing PMI print and a host of Fed speakers.

Other key events from the past week

  • USD: US confidence drop, Feb 28: The drop in US consumer confidence to 102.9 from 106 prior is one of the first US consumer signs that confidence is failing. Will this give the Fed reasons to pause rates shortly?
  • USD: US ISM Manufacturing drop, Mar 1: Manufacturing contracts, alongside, new orders and employment too. So, with the latest miss in US Manufacturing ISM is this now just a question of when the Fed announces a pause in hiking rates? We are not there yet, but is the peak for US rates ahead?
  • EUR: Inflation’s sticky. Mar 2: After the moves higher in Spanish, French, and German inflation it was not a surprise to see Thursday’s inflation print come in hot for the Eurozone. The core reading continues to grow coming in at 5.6% up from the 5.3% forecast and at the higher end of economists’ projections.

Key events for the coming week

  • AUD: Interest Rate Decision! Mar 7: The RBA will make its interest rate decision next week. STIR markets see an 87% chance of a 25bps hike. So, if the RBA doesn’t hike next week, and revises forward guidance lower, watch out for potential AUDNZD selling.
  • Coke ready to fizz higher? Time to buy into Coca-Cola on recession fears? 
  • CAD: Interest Rate Decision, Mar 8: The BoC is expected to keep rates unchanged next week with STIR markets seeing a 96% chance of rates staying the same. With recent inflation and GDP metrics falling will the BoC consider cuts towards the end of the year?

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