Another busy week ahead of us, with the highlights being Powell’s testimony on Tuesday and the Italian Elections on Sunday. Market participants will be eager to hear Powell’s view on monetary policy, while the Italian elections are expected to result in a hung parliament. Eurozone CPI data, as well as the US Core PCE index, could attract market attention as well.
Monday is a relatively quiet day with the only major event on the agenda being a speech by ECB President Draghi before the European Parliament’s Economic and Monetary Affairs Committee.
On Tuesday, during the European morning, we get Germany’s preliminary CPI data for February. Expectations are for consumer prices in Eurozone’s growth engine to have slowed further, to +1.5% yoy from +1.6% in January. This could raise bets that the bloc’s headline CPI rate for the month, due out the next day, could move in a similar fashion.
In the US, Jerome Powell will make his first appearance as the Fed Chairman. He will deliver his semi-annual testimony before Congress. At the latest policy meeting and the last chaired by Janet Yellen, the FOMC left the door wide open for a March hike, while developments in the aftermath raised speculation for four hikes this year instead of three as the December “dot plot” suggested. According to the Fed funds futures, the probability for a hike at the upcoming gathering currently rests near 83%, while there is a 22% chance for a fourth hike by December. As for the number of rate increases fully priced in for the year, the market has almost matched the “dot plot”. It currently anticipates 2.8 hikes in 2018. Having all these in mind, we believe that market participants will be eager to hear Powell’s view on the economy and inflation in order to assess whether the likelihood for a March hike is as elevated as the market implies, and how likely is for the Committee to revise up its “dot plot” when it meets next.
Read the full financial markets weekly outlook on JFD Research.