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Week Ahead

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A monetary policymaker’s job is never easy. Not least in our current transparent world, where every speech and decision is scrutinised and then criticised with the benefit of hindsight. The task of containing inflation while avoiding a recession lies ahead, and inverting yield curves indicate that they may be on the verge of tipping the economy over the edge. 

As we enter the second quarter, it appears that the list of economic concerns is growing rather than shrinking, despite the fact that equity markets are in a very comfortable position. The recovery from the post-invasion lows has been impressive, to say the least, but whether it will be sustainable will be determined in the coming weeks.

Inflationary pressures, high commodity prices, aggressive monetary tightening, and inverted yield curves are just a few of the issues that investors are concerned about right now. But what about the businesses? We’ll hear from them soon enough, when they report on the first quarter, which will undoubtedly be interesting and could determine whether this recovery has legs.

US

A slew of economic reports will focus on how business activity is faring in the aftermath of the Ukraine conflict. The release of factory orders for the month of February on Monday is expected to show a sharp decline, while the final reading of durable goods confirms orders have weakened. Tuesday’s economic calendar includes trade data that could narrow and the ISM services index, which is expected to rise. Wednesday is all about the FOMC meeting minutes, which could contain more hawkish hints, confirming a half-point increase for some traders. On Thursday, jobless claims are due in the morning and consumer credit is due in the afternoon. Friday brings the week to a close with wholesale inventory data.

Many traders’ attention will be drawn to market expectations about how aggressive the Fed will be with the next round of rate hikes. Everyone on Wall Street will be watching Fed Brainard’s remarks on Tuesday with bated breath. Harker will speak on Tuesday morning, and the minutes will be released in the afternoon. Bullard, Bostic, and Evans are scheduled to appear on Thursday.

EU 

Positive steps are being taken in negotiations between Ukraine and Russia, but tensions between Russia and the West remain high, causing tremendous economic uncertainty. Putin’s demands last week for all gas purchases to be made in roubles appear to have been met, despite the G7’s initial rejection. It does, however, highlight Russia’s growing hostility and mistrust toward its major natural resource export markets, which should keep commodity volatility and prices high for the foreseeable future. This was reflected in the inflation data, which should increase pressure on the ECB to begin raising interest rates. The minutes, which were released on Thursday, may be of interest.

Next week’s economic data is diverse, though it mostly consists of tier two and three readings.

UK

The Bank of England softened its tone following the previous meeting, but markets are heavily pricing in a 25 basis point hike at each of the next five meetings, raising the base rate to 2% by the end of the year. Governor Bailey is scheduled to speak on Monday, and traders will be looking for clues about interest rates. Bailey may use the platform to respond, but it is unlikely to be effective given current inflationary pressures and more to come from commodity prices and the higher energy price cap beginning this month. Next week, we’ll also hear from a few other MPC members, while the data highlights will be final services and construction PMIs.

 

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