All eyes will turn back to the US this week as newly appointed Fed chair Jerome Powell faces the Congressional committees for the first time this week. Along with crucial inflation data this will be key for markets. We take a look at the outlook for forex, equities and commodities.
The volatility that struck a chill of fear through traders’ spines a few weeks ago seems to have reduced as the end of February draws in. However, fears over inflation remain paramount and whilst the minutes of the January FOMC meeting did not stoke those fears, it is notable to say that this was a meeting that took place prior to that hot wage growth number in the payrolls report. US CPI held an upside surprise but was broadly flat, so the focus on the core PCE will be key this week. Treasury yields have been pulling ever higher as markets have moved to solidly price in at least 75 basis points of tightening in 2018. The almost incessant rise in the US 2 year yield has added almost 100 basis points since September and the 10 year continues to bear down on a yield of 3%. The market is though approaching a really important level, with the 2014 high of 3.04% marking a crucial crossroads in longer term rates. A decisive breakout would be an outlook changing event after the multi-decade bull market for Treasuries. Could an upside surprise in the core PCE be the catalyst this week? One is not expected but the CPI surprised on the upside recently. Volatility has managed to settle down recently, but higher than expected inflation driving yields higher would likely spook the markets once more. Fed officials seem to be guiding on mass for at least three, perhaps four (the latter if inflation surprises). Could we begin to see a move for this in the coming week?
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