GEMFOREX - weekly analysis

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

  1.Nonfarm payrolls (Friday)

This week‘s non-farm employment report for February will be the last before the Fed’s upcoming meeting on March 21-22. This takes on extra importance after Januarys report urged investors to reevaluate their expectations regarding the future course of interest rates.

Expectations are that the economy has added 200,000 jobs in January, after Januarys whopping jobs growth of 517,000.  The unemployment rate is expected to remain steady at 3.4%.

Another stronger-than-expected report could stir up fears of more hawkish Fed action, as strong demand in the labor market helps wages increase, which contributes to higher inflation, thus keeping pressure on the Fed to push rates higher to try and control it.

Investors are currently expecting another 25-basis point hike from the Federal Reserve this month, but market pricing suggests a slightly higher chance for a bigger increase than what had previously been implied.

2.Powell testimony (Tuesday, Wednesday) 

On Tuesday and Wednesday, Fed Chair Jerome Powell will appear before Congress to present the central bank's semi-annual monetary policy report. He will be testifying before the Senate on Tuesday and the House of Representatives on Wednesday.

His comments will be closely monitored for insights on whether a larger rate hike is under consideration this month, after recent data pointed to inflation that is still enduring. Powell has said that the January jobs report shows why the battle against inflation will go on for longer.

The Fed reduced the tempo of rate hikes to 25 basis points at its last meeting on the first of February, after a 50-basis point increase in December that had been preceded by four consecutive 75 basis-point increases.

3.Stock market volatility

Wall Street recovered on Friday, with the S&P 500 breaking a three-week losing streak and the Dow Jones recording its first weekly progress since late January.

After rebounding in January, bonds and equities retreated in February as investors worried that the Fed will push interest rates higher than previously expected and keep them high for longer, in an attempt to control inflation.

More market volatility may well be in store as the markets prepare for the Fed's March meeting. Meanwhile, fourth-quarter earnings season is almost over, with all but seven of the companies in the S&P 500 having reported. 

Results for the quarter have beaten consensus estimates 68% of the time, according to Refinitiv data.

4.Central bank decisions (Friday, Tuesday, Wednesday)

Central banks in Japan, Australia and Canada will all hold monetary policy meetings this week.

On Friday, Governor Haruhiko Kuroda will chair his final meeting after a decade at the helm of the Bank of Japan, supervising a super-easy monetary policy. No changes are expected before the appointment of his successor, Kazuo Ueda, on April 8th.

The Reserve Bank of Australia meets on Tuesday, and even though officials had hinted at the possibility of further tightening at their last meeting, investors are now expecting rates to remain on hold, as recent data showed that the economy grew at the weakest rate in a year in the fourth quarter. Also, January figures indicate that inflation may have peaked.

The Bank of Canada is also expected to hold rates steady at its Wednesday meeting, the first one since policymakers announced a conditional pause in January to allow the economy time to adjust to higher borrowing costs.

5.U.K. GDP (Friday)

The U.K. is to publish GDP data on Friday, revealing how the economy fared in January after narrowly avoiding falling into a recession in the final quarter of 2022. Economists are expecting gross domestic product to have expanded by just 0.1% in January from December.

Britain's economy is showing slightly more momentum than expected and pay growth is proving a bit faster than the central bank forecast last month, Bank of England Chief Economist Huw Pill said Thursday.

That said, Britain is the only G7 economy that is still smaller than its pre-coronavirus pandemic size. The International Monetary Fund believes it will be the only G7 economy to become smaller this year.

The BOE might now have to keep raising rates, as consumers appear to be holding up in the face of double-digit inflation.

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