Market movers for the week ahead - Rabobank

Despite the barrage of political news, central banks will continue to demand market attention with several central banks including the ECB, the BoJ, the BoC and the RBA due to meet this week, points out the research team at Rabobank.

Key Quotes

“The BoC has already started its normalisation process.  In contrast, the RBA has made clear its cautious approach to reducing policy stimulus.  With rates at 1.5% the RBA is arguably feeling less pressure to restore its policy armoury.  In Japan, Kuroda finally conceded on Friday that the BoJ will start thinking about how to complete its huge QQE policy around the start of FY19. The market will be looking to this week’s meeting for any further clues on that front.  Although no change in policy is imminent from the Eurozone, the market will continue to watch the ECB for clues as to the pace of tapering at the end of this year and the timing of the first rate hike, potentially next year.”

“In the approach to the March 21 FOMC meeting, the market will be watching this week’s US February Labour market Report carefully. The average earnings number, which was closely linked with the plunge in stock markets a month ago, is expected to edge lower to 2.8% y/y from 2.9% y/y.  Fed speakers this week include Quarles, Brainard, Dudley, Rosengren and Evans.”

“The EM currencies ended last week on the back foot against the USD after hawkish remarks from Fed Chairman Powell increased the odds that US policy makers may seriously consider four instead of an initially anticipated three hikes this year. Additional pressure came from President Trump’s proposal to impose tariffs on imports of steel and aluminium. The South African rand weakened the most as investors decided to book profits following an impressive rally to the highest level in almost three years. While capital outflows from emerging markets are unlikely given that economic outlook is still positive and major central banks continue to provide substantial liquidity, the Goldilocks scenario of broad based recovery in the global economy has been dented by the prospects of faster pace of tightening by the Fed and the risk of full-scale trade wars.”

“In terms of upcoming events in the CEEMEA region, higher than expected Turkish inflation reported this morning at 10.26% y/y in February, only marginally lower than 10.35% in January, implies that the central bank will have to send a very hawkish message on Wednesday without raising interest rates. That said, a hike in the coming months is still our baseline scenario due to the risk that the lira may weaken to another record low against the euro and the US dollar. On the same day the National Bank of Poland is set to keep its main policy rate unchanged at the record low. Governor Glapinski is likely to repeat his dovish mantra that unless inflation significantly exceeded the official 2.5% target (+/- 1%), rates may remain on hold until next year.”