March 19th Fundamental Facts
THIS Week at a glance :
This week, the global financial market is bracing for a series of significant economic events and central bank decisions. The Federal Reserve meeting is the main event, where the focus will be on the economic forecasts and interest rate projections. The meeting is happening at a time when inflation is a major concern and economic conditions are changing.
In the US, various indicators such as PMIs, building permits, housing starts, and home sales data will be released. These will give a glimpse into the health of the US economy and might influence future interest rate decisions.
Globally, investors will be keeping an eye on interest rate decisions from several central banks including those in Japan, the UK, Australia, Brazil, Turkey, Switzerland, and Norway. Inflation data from Canada, the UK, South Africa, and Japan will also be released. Additionally, flash PMIs from several countries will provide insights into global economic activity.
In China, updates on various economic indicators such as industrial production, retail sales, unemployment rate, fixed asset investment, and loan prime rates will be closely watched.
USA Facts:
In the Americas, the Federal Reserve is expected to keep interest rates unchanged due to confidence in the labor market despite inflationary pressures. In Brazil, the central bank is expected to cut rates for the sixth consecutive time, while Canada will release important inflation and retail trade data.
Also in the US, the housing sector will be under scrutiny. Trends in building permits and housing starts are seen as indicators of the health of the economy. An increase in housing starts could indicate a need for more building permits and suggest a positive outlook for the housing market. However, a prolonged period of high interest rates could impact borrowing costs and disposable income, potentially curbing consumer spending and inflation.
Forecasts suggest a slight decline in US building permits and a significant increase in housing starts. These mixed signals, along with the NAHB Housing Market Index numbers, could influence expectations for a Fed rate cut in the first half of 2024. The probability of a 25-basis point cut in June has decreased slightly according to the CME Fedwatch Tool.
USA Stocks facts :
The S&P 500 and the Dow Jones Industrial Average saw gains, while the Nasdaq composite also increased. The Federal Reserve’s meeting on interest rates is a key event this week, with the expectation that the main interest rate will remain steady. However, recent inflation reports have been worse than expected, which could lead to fewer rate cuts this year.
On Wall Street, Nvidia saw a rise in stock prices, and other Big Tech stocks also pushed the S&P 500 upward. Hertz Global Holdings saw a decline, with its chair and CEO set to resign at the end of March.
Trading was mixed on Wall Street, with smaller stocks in the Russell 2000 index slipping. Boeing also saw a decline due to concerns about its manufacturing quality.
In the bond market, the yield on the 10-year Treasury rose. In stock markets abroad, Japan’s Nikkei 225 saw a significant increase, while other markets saw more modest movements.
GOLD Facts :
Gold prices experienced a slight increase on Monday, with the market being cautious due to the upcoming Federal Open Market Committee’s (FOMC) announcement. The Federal Reserve is expected to maintain its current policy settings in its March meeting, but there could be changes in forward guidance and economic projections due to recent inflation trends.
Recent reports have shown a concerning trend of slowing or reversing disinflation progress. This could lead the Fed to adopt a more conservative stance, potentially resulting in only two quarter-point rate reductions in 2024, as opposed to the initially projected three.
If policymakers indicate a less accommodative approach and delay the easing cycle, it could lead to a surge in US Treasury yields and the US dollar. This could cause a recalibration of interest rate expectations by Wall Street and potentially undermine the ongoing rally in precious metals, placing gold in a potentially vulnerable position.
EUR & GBP Facts :
In Europe, the Bank of England is likely to keep rates steady, with inflation data playing a key role in future policy decisions. PMIs and consumer confidence data will provide insights into economic sentiment in the Eurozone. Central banks in Switzerland, Norway, and Turkey will also announce their interest rate decisions.
The Bank of Portugal’s Governor, Mário Centeno, recently expressed that the eurozone economy has been stagnant for about a year and a half. He suggested that a recession could be avoided if interest rates start to fall, but a tight financing environment could potentially trigger an unnecessary recession.
Bank of Spain Governor, Pablo Hernandez de Cos, stated that they have achieved their goal of reducing inflation to 2%, which aligns with the upcoming interest rate cuts. He anticipates the first interest rate cut to occur in June if inflation develops as expected.
Lithuania’s central bank governor, Gediminas Simkus, also supports a rate cut due to the eurozone’s slowing economic growth, declining inflation, and slowing wage growth. He is open to discussing rate cuts at the March meeting and possibly implementing a rate cut in June.
ECB Governing Council member, Boris Vujcic, claimed that if the eurozone economy experiences a significant downturn, the ECB rate cuts may be accelerated. However, the timing of the rate cuts will remain unaffected.
Another council member, Olli Rehn, suggested that interest rates could be cut around the summer. He prefers a meeting-by-meeting approach to decision-making and believes there are conditions for several rate cuts this year.
However, ECB President Christine Lagarde stated earlier this month that despite slowing consumer prices, she lacks the confidence to start easing monetary policy. In general, ECB governing council members are slightly divided on a June rate cut. While most officials believe that rate cuts will begin around June, Lagarde believes that conditions for rate cuts are not yet present.
ASIA Facts:
In Asia, the Bank of Japan might end its negative interest rate policy following strong labor results. Economic updates from China will provide insights into industrial production, retail sales, and fixed asset investment.
The Bank of Japan (BoJ) has increased interest rates for the first time since 2007, marking a global shift away from negative rates. The decision, supported by a 7-2 majority, aims to maintain the overnight interest rate between 0 and 0.1 percent, while continuing the current level of Japanese government bond purchases.
This move follows significant wage increases at some of Japan’s largest companies, boosting BoJ Governor Kazuo Ueda’s confidence in sustainable mild inflation. However, the BoJ’s commitment to purchasing government bonds highlights the ongoing fragility of the economy, with household consumption showing little improvement.
Inflation initially surged due to increased energy and food prices, but it has since peaked and is now declining. Core inflation, excluding volatile fresh food prices, has slowed for the third consecutive month. Despite the return to positive interest rates, economists expect rates to remain low in the foreseeable future.
Haruhiko Kuroda, Ueda’s predecessor, launched an ambitious stimulus package in 2013, aiming for 2% inflation within two years. Despite not meeting this target and implementing negative interest rates, Kuroda introduced the Yield Curve Control program in 2016. His focus then shifted to ensuring the sustainability of these monetary policies.
The prolonged period of monetary easing led to a significant expansion of the BoJ’s balance sheet, now valued at 127% of the annual economy. Despite this, inflation remained subdued until supply shocks induced by Covid-19 and geopolitical tensions. Japan’s primary inflation indicator has consistently met or exceeded the 2% target for 22 consecutive months, with forecasts indicating this trend will continue.
AUSTRALIA Facts:
In Australia, the Reserve Bank is expected to keep interest rates steady due to concerns of slowing growth. The Reserve Bank of Australia (RBA) is set to make a decision on interest rates, with the expectation being that the cash rate will remain at 4.35%. The RBA’s press conference will be closely watched for any indications of future rate hikes. Recent economic data has shown an improvement in retail sales and the service sector, but an increase in the unemployment rate could potentially slow wage growth and reduce inflationary pressures.
In February, RBA Governor Michele Bullock left a rate hike on the table.
As these critical events and data releases unfold, investors will be closely monitoring developments for indications on future market movements and economic trends.
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