GEMFOREX - weekly analysis

As we enter the fourth week of March, here are 5 things to look out for this week:

1.Federal Reserve Rate Decision – 22.03

Before the recent events surrounding Silicon Valley Bank, and the rescue package that followed, the debate around this weeks Federal Reserve rate decision had been whether to raise rates by 25bps or 50bps. The subsequent volatility in the last few days appears to have eclipsed inflation concerns, even with the recent payroll report, which was another solid number.

 These concerns about the effects of rising rates on the banking sector and the wider economy have even seen some suggest we might see a pause or even a rate cut this week. This seems somewhat of an overreaction, even with the recent volatility.

Powells recent comments to US lawmakers have shown the Fed is becoming increasingly concerned about rising prices, and despite recent events, this is unlikely to have changed. The wider question will be how much the FOMC sees fit to raise its dot plot guidance when it comes to the number of rate hikes to expect over the rest of this year in light of recent economic data. 

How Powell manages market expectations this week, especially with respect to how recent events have affected this weeks decision, will be as equally important as the decision itself. A rate hike of 25 bps still seemsthe most probable outcome. Inflation is now starting to fall back, even as core prices remain sticky. The recent volatility has seen markets start to price in rate cuts later this year, although this could change if things start to calm down. 

2.UK CPI (Feb) – 22.03

Falling energy prices have offered some relief to consumers in recent months, most notably at the petrol pumps. Spring and warmer weather could offer some additional relief, however, at the last set of CPI numbers in January, headline inflation fell to 10.1%, while core prices also fell back from 6.3% to 5.8%. 

This is little comfort given that food prices have continued to rise sharply, rising 16.7% in January. One other thing that we also know about inflation in the UK is that it goes up quickly and comes down slowly, and with wage inflation also rising it is likely to remain sticky. 

Expectations are for headline inflation to fall to 9.8% and core prices to 5.7%. 

3.Bank Of England Rate Decision – 23.03

The big question facing UK markets right now is how close the Bank of England is to its terminal rate, with a base rate currently at 4%, and whether recent events across the banking sector will temper its decision to raise rates this week. Over the past few days, weve seen market estimates of the terminal rate fall from 4.8%, closer to 4.25%, due to concerns over the stability of the banking sector, as a result of the Credit Suisse and SVB-inspired volatility of the last few days. 

Governor Andrew Bailey said that nothing had been decided when it came to further hikes in rates. Bailey did go on to say that more rate rises would likely be needed and that the lessons of the 1970s ought not to be forgotten. 

Markets are currently looking for 25 bps this week, however, it wouldn‘t be beyond the realms of possibility if we got no change at all given the recent volatility inspired by events in the US, around the collapse of Silicon Valley Bank, and the events surrounding Swiss bank Credit Suisse, which is creating huge ripples through the European banking sector.What we do know is it’s likely to be another split decision.

4.U.K. Retail Sales (Feb) – 24.03

January retail sales provided a welcome tonic, having expected to see another decline, we saw a 0.5% gain. Nonetheless, it was a welcome relief after a pessimistic end to 2022, as falling energy prices helped to see a modest improvement in consumer confidence. Weve also started to see a rebound in some key sectors of the UK economy, especially services which saw a strong rebound in February, having been in contraction since September last year.

5.NIKE Q3 Report – 21.03

When Nike reported back in Q2 at the end of last year, its shares eventually rose to a 10-month high back in February, after posting Q2 revenues of $13.32bn, which were well above expectations of $12.57bn. 

Sales in China fell by 3%, which was a vast improvement on the 16% drop in Q1, and with the Chinese economy starting its reopening process back at the end of last year, we could well see a big rebound in Q3 in the Greater China region which could benefit Nike strongly. Profits are expected to come in at $0.53c a share.

Trade Different With GEMFOREX