Below are the most important global events likely to affect FX and bond markets in the coming week starting Monday, March 18.
A number of central-bank meetings in both Europe and Asia will be the focus of a busy week, most notably decisions by the U.S. Federal Reserve as investors hunt for clues as to the timing of a first rate cut, and by the Bank of Japan, which could opt to exit negative interest rates.
Other central-bank decisions are due in China, Australia and the U.K., as well as Indonesia, Taiwan, Switzerland and Norway. Chinese economic data will be watched closely for signs of recovery at the start of the year.
U.S.
The Federal Reserve announces a policy decision on Wednesday, where interest rates are expected to be left on hold and markets will scrutinize any comments that provide hints on when the central bank could start lowering rates.
Markets are fully pricing in a rate cut in July, with a sizeable chance of an earlier move in June, Refinitiv data show. Fed Chair Jerome Powell said in testimony recently that interest rates had peaked and were likely to be cut this year. U.S. economic data continue to suggest that the economy is holding up well, while recent figures showed inflation unexpectedly rose in February, which will likely concern some policymakers.
U.S. economic data releases start with housing on Tuesday, followed by weekly jobless claims and existing home sales on Thursday.
JAPAN
The BOJ's decision on Tuesday will be closely watched by global investors as bets have been growing recently about the central bank's imminent exit from negative interest rates and its yield-curve control policy.
Analysts and investors expect the BOJ to raise its key short-term interest rate from minus 0.1% either in March or in April.
Policymakers have grown more confident that a positive cycle of higher wages and higher prices is finally starting to kick in after decades of deflation, with many companies saying they will raise wages significantly this year.
However, views are split on whether the BOJ should follow up by raising interest rates into positive territory, and if so, how quickly. According to people familiar with the BOJ's thinking, the bank is likely to move slowly in raising rates above zero if it does decide to end negative rates, given Japan's fragile momentum on prices.
"If the bank raises short-term rates too rapidly, it could damage the economy," said one of the people familiar with the BOJ's thinking.
"Any policy inaction or indication of little urgency from the BOJ could suggest that markets have gotten ahead of themselves, which may tame hawkish rate bets and potentially weigh on the yen," said Yeap Jun Rong, market analyst at IG. Any near-term pullback "could still be a temporary move," however.
CHINA
After the highly-anticipated "Two Sessions" gathering of policymakers failed to give markets much to cheer about, fresh data for January-February will indicate whether the world's second-largest economy is picking up. Sentiment is low after February home-price data showed continued declines. That adds to views that the stimulus undertaken so far isn't doing much to boost the property sector, fanning concerns that the sector downturn will continue dragging on China's economy for some time.
Figures for retail sales, fixed asset investment and industrial output are set to be released on Monday.
On Wednesday, focus will be on the loan prime rate (LPR) announcement by the People's Bank of China amid expectations of more monetary-policy support in the pipeline but a lack of clarity on what shape this will take. The PBOC held its one-year medium-term lending facility unchanged on Friday, signaling that the LPR will also stay steady. Commercial banks in China are asked to price their LPR with medium-term lending facility rates.
Last month, the one-year LPR, which is tied to many personal and corporate loans, was left unchanged the previous month while the five-year LPR, which is linked to mortgages, was lowered.
"The PBOC remains on a dovish tilt, but depreciation pressure on the renminbi limits room for monetary easing in China before global central banks start to cut rates," said Lynn Song, ING's chief economist for Greater China.
HSBC economists Jing Liu and Erin Xin see more likelihood that the central bank will use liquidity tools like another cut to lenders' reserves requirement and structural tools like targeted relending rather than interest-rate cuts in the near term.
EUROZONE
Data in the eurozone is relatively sparse in the coming week but will still be watched given prospects of the European Central Bank cutting interest rates in the coming months and as concerns remain about the fragility of the eurozone economy even as it slowly recovers.
Monday's final estimate of eurozone inflation for February will be important, while Thursday's provisional purchasing managers' surveys for March will be key for indicating how well the economy is recovering. Other surveys include the latest German ZEW survey on Tuesday, eurozone consumer confidence on Wednesday and the German Ifo sentiment indicator on Friday.
Government bond supply in the eurozone will be spread across sovereigns, with smaller countries joining the four big issuers. Slovakia and Belgium will sell bonds on Monday; Finland on Tuesday; Germany on Wednesday; Spain, France and Ireland on Thursday and Italy on Friday. Eurozone benchmark issuer Germany will tap bonds at the long-end, auctioning 2044- and 2052-dated Bunds. In Scandinavia Denmark and Sweden will conduct auctions on Wednesday and Thursday, respectively.
U.K.
The Bank of England is expected to keep rates unchanged at 5.25% when it announces its policy decision on Thursday.
A relatively robust U.K. economy means most investors expect the BOE to start cutting rates later than the U.S. Fed and the ECB, but still the tone of the statement will be scrutinized for clues.
Ahead of the meeting, BOE policymakers could be influenced by Wednesday's U.K. inflation data for February, which will be watched closely. Producer prices data are also due on Wednesday and the U.K.'s purchasing managers' surveys for March are released on Thursday.
"Our baseline is that [BOE] policy guidance will be unchanged, although a particularly weak inflation print...may give members enough conviction to soften language further," Barclays analysts said in a note.
On Tuesday, the U.K. Debt Management Office will auction 2053-dated government bonds, or gilts.
AUSTRALIA
The Reserve Bank of Australia's policy decision on Tuesday will be the key focus of Australian bond traders next week.
RBA Governor Michele Bullock is widely expected to keep the official cash rate unchanged at 4.35%. While painting a balanced view of the economic outlook, she is likely to maintain the threat of more interest-rate increases.
Most economists expect that the RBA is in no rush to adjust its policy position, and will hold the line until either there is further evidence that inflation has fallen, or unemployment spikes upward. The week will end with the RBA releasing its latest report card on financial stability.
CANADA
Canadian inflation data for February will be watched on Tuesday for clues on whether prices are coming down sufficiently to allow the Bank of Canada to cut interest rates in the coming months.
NORWAY
Norges Bank, Norway's central bank, is expected to leave its key interest rate on hold at 4.5% on Thursday, with focus on the accompanying statement. Norway's solid economy means a rate cut isn't expected until later in the year.
SWITZERLAND
The Swiss National Bank announces a rate decision on Thursday. Investors will be watching to see whether the SNB leaves its policy rate on hold at 1.75% and waits until June to cut, or whether it opts to cut rates this month given falling inflation and its concerns about the impact of a strong Swiss franc on Swiss exporters.
LATIN AMERICA
Central-bank decisions are due from Brazil on Wednesday and Mexico on Thursday.
INDONESIA
Bank Indonesia announces a decision on Wednesday after keeping rates on hold again at its last meeting in February. BI has said it plans to start easing this year if inflation stays contained, economic growth resilient and the rupiah stable.
Many economists expect it will move cautiously, with a rate cut only coming toward the end of the year if at all.
UOB's Global Economics & Market Research team thinks BI will stand pat in 2024, but notes several downside risks to the Southeast Asian country's economic growth and IDR stability. These include prolonged geopolitical tensions, weaker demand from China and Japan, and slower disinflation in the U.S., which could delay Fed rate cuts and, consequently, BI's easing cycle.
IDR has narrowed losses as political uncertainties ebbed after mid-February elections, but concerns of a widening fiscal deficit due to new spending programs are likely to dent sentiment, at least in the near term, the UOB team said. "We are still of the view that IDR would join the regional FX recovery when the Fed cuts rates in June." It expects USD/IDR at 15,500 in 2Q and 15,200 in 3Q.
TAIWAN
On Thursday, it is the Taiwanese central bank's turn to decide on monetary-policy settings. The CBC stood pat at its last meeting in December, citing expectations of easing inflation, alongside concerns that cooling global economies could disrupt domestic growth.
While inflation is expected to cool further in the second half of 2024, UOB's Global Economics & Market Research team sees no compelling reasons for the central bank to start cutting interest rates this year, especially as an economic growth rebound could spark price pressures.
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03-17-24 1714ET
