March 25 (Reuters) - As a tumultuous quarter approaches its
end, markets will watch U.S. and euro zone data to gauge just
how aggressive central banks might get in their fight against
Also in focus will be Europe's dilemma whether or not to
sanction Russian energy exports, potentially causing further
price surges and economic difficulty.
Here's your week ahead in markets from Ira Iosebashvili in
New York, Alun John in Hong Kong, Sujata Rao, Tommy Wilkes and
Dhara Ranasinghe in London.
Is the Federal Reserve's aggressive trajectory for
tightening monetary policy too hawkish, or not hawkish enough?
Friday's March U.S. jobs report might show.
Economists polled by Reuters expect 450,000 new jobs were
created, versus 678,000 in February.
Hiring far above those estimates will strengthen the case
for a 50 basis-point interest rate hike in May. After all, Fed
Chairman Jerome Powell has signaled readiness to make a big
move if needed.
Despite that, the S&P 500 has managed to nearly halve its
year-to-date losses. But watch the U.S. Treasury yield curve,
which is getting close to inversion as investors fret about a
Fed-induced recession. The bond market rarely gets it wrong.
2/ HARD TO SAY NO
Targeting Russian energy, as the United States and Britain
have done, is one of the most powerful levers the European Union
could pull to punish Moscow for its invasion of Ukraine. But it
remains a divisive choice for the bloc which relies on Russia
for 40% of its gas and reeling from a surge in fuel prices.
But as pressure grows to announce a ban, there's been a new
twist -- President Vladimir Putin's demand that "unfriendly"
countries need to pay for gas in roubles is raising yet more
concerns about Europe's energy crunch.
EU leaders could soon agree to buy gas jointly and secure
additional U.S. gas supplies. But in the meantime, the debate is
causing unease in all kinds of quarters. Oil producing group
OPEC, for one, has warned the move could hurt consumers
3/ UP AND AWAY
When first estimates of March euro zone inflation emerge on
Friday, they may test the European Central Bank's narrative that
there's no rush to raise interest rates.
Inflation is already at a record high 5.9% and could hit 7%
in the coming months. Given the ECB target of 2%, it's
unsurprising that some officials are urging one or even two rate
moves this year.
A strong inflation print will strengthen their case. But
bond markets too suggest higher rates are coming, having priced
five moves of 10 bps each by year-end.
Germany's two-year bond yield is up 30 bps in March, set for
its biggest monthly rise since 2011. Having spent years deep in
negative yield territory amid ECB bond buying to boost
inflation, it is fast approaching 0%. That's significant.
4/ THE BEST AND WORST
The first quarter of 2022 was one most investors would
prefer to forget. Except of course those trading oil, metals or
grains, who would have rejoiced in Brent crude soaring over 50%,
and a 30% gain for the CRB commodities index.
It was less rewarding on equities; with a 5% loss, the S&P
500 looks set to break a seven-quarter winning streak. Nasdaq
euro zone stocks fared worse while Chinese markets had to cope
with renewed COVID-linked lockdowns in many cities.
Bond markets hit milestones unseen, in some cases, for
decades. The 140 basis-point rise in two-year U.S. yields is the
biggest since mid-1984; the German equivalent will post its
largest quarterly rise since 2011.
Unsurprising, given central bankers' acknowledgement that
inflation is not after all transitory and interest rates need to
rise. Global inflation will hit 6.3% this quarter, the fastest
rise in a quarter century, JPMorgan estimates.
Finally, pity those who failed to exit Russia investments on
time -- with the country being ejected from equity and bond
indexes, they will need to mark their holdings to zero.
China's pledge not to roll out a property tax offers only
short-term relief to developers, struggling with debt
restructuring and access to finance.
Evergrande, the poster child for the sector's
difficulties, has revealed new problems at a key subsidiary
, and will not publish audited results by the March 31
Another embattled developer Kaisa said the same,
though others such as China Vanke, Country Garden
and Sunac China plan to publish annual
results next week.
Developers' shares and Chinese high yield bonds
remain under pressure. The property sector woes will
remain on investors' must-watch list until some real relief
(Compiled by Dhara Ranasinghe; Editing by Raissa Kasolowsky)