Market news

Market attention will obviously remain on the Russian invasion in Ukraine and the geopolitical fallout. Much depends on any further sanctions, with tougher restrictions potentially to come. This means upside risks for both oil and gas prices as well as some commodities. There are two major central bank meetings this week, and any comments or caution around geopolitics will be key.

Volatility will continue to remain high with the situation still uncertain and tough to predict. In this kind of environment, the dollar and other safe havens should remain supported. Inflationary issues and the potential for stagflation are emerging. The conflict constitutes a negative supply shock and also a major demand shock for the Eurozone.

Testimony from Fed Chair Powell on Wednesday will be informative after his hawkish commentary after the January FOMC saw rate hike expectations jump. The US economy is currently firing on all cylinders with broad based price pressures and job creation. The latter will be seen in the monthly non-farm payrolls report released on Friday.

Global inflation could hit new highs with US headline CPI touching 8% in the next few months. In the near-term, the February Eurozone inflation release will be key for the next ECB meeting. The market has cut in half its forecast of two rates hikes by the bank this year. But energy inflation may well reverse this situation going forward.

Major risk events of the week

01 March 2022, Tuesday:

–RBA Meeting: The bank is expected to hold rates at 0.1%. The latest wage growth came in at 2.3% during the last quarter. This is lower than the 3% rate which would be consistent with sustained inflation in the RBA’s target of 2-3%. Markets will focus on any change in language, with a patient approach and policy tightening expected in August. The aussie may continue to be whipsawed on the changing geopolitical landscape.

02 March 2022, Wednesday:

–Eurozone CPI: Consensus sees the flash CPI increasing to 5.3% from the record high 5.1% in January. This far outpaced the estimate of 4.4%. The core reading slowed to 2.5% from 2.7%. Underlying price pressures remain high with soaring energy and unprocessed food costs. Last week’s spike low in EURUSD at 1.1106 is key support and a line in the sand.

–Bank of Canada Meeting: Markets expect a 25bp hike and continue to price this meeting a little more aggressively than the Fed. But analysts are not considering a 50bp point move, due to geopolitical tensions. Recent data has generally been positive. CPI came in above expectations at 30-year highs and house price data has been strong. Around six rate hikes are forecast in total this year.

–Fed Chair Powell Testimony: Focus will centre on any guidance around the FOMC’s outlook regarding monetary policy tightening. Traders are pricing in six 25bp hikes for this year and a small chance of a 50bp move at its March meeting. Financial market nervousness around the Ukrainian crisis may make Powell slightly more cautious. But he is expected to cement expectations for a 25bp rate rise at the Fed’s March meeting. The DXY fell back into its range after spiking higher at 97.73 last week. Support sits at 95.51.

04 March 2022, Friday:

–US Non-Farm Payrolls: Analysts expect healthy job gains with a median forecast of 400k for the headline print. This comes after a large beat in January as well as hefty revisions to past data. The unemployment rate is estimated to fall to 3.9% and support solid wage growth which is forecast at 0.5%.