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The upcoming week is unlikely to find this theme diminishing as we step towards the March Federal Open Market Committee (FOMC) meeting.
Certainly there had been a strong focus on US President Donald Trump’s first address to congress and China manufacturing PMI data, but the true focus had been on Fed speakers. We have heard from a series of Fed speakers in the week thus far, with speeches broadly tinged with a hawkish tone. The pivotal moment likely came with the highlight by Federal Reserve Governor Lael Brainard, a known dove, that rates can rise ‘soon’. Probability of a March hike has risen substantially by all accord.
Correspondingly, the US dollar saw a significant revival in the week, with the likes of USD/JPY up at $114.00 into the end of the week and eyeing the $115.00 resistance. US indices also saw the optimism largely sustain with the S&P 500 index looking to clock its fifth consecutive weekly gain and the Dow Jones its third, led by the energy and financials sectors. Regional indices meanwhile saw a slight moderation of sentiment. The HSI was seen leading the pullback with a week-to-date decline of more than 1.5% into the close, weighed in part by the stress from a potential rate hike.
Although the likelihood of us seeing a Fed hike is fairly high at the moment, this theme is likely to retain in the week ahead. Guidance is expected from Federal Reserve Chair Janet Yellen’s speech today (Friday) but next week’s focus will be on February’s non-farm payrolls (NFP) data. The current market expectation is for February’s NFP data to come in at 185k, down from 227k previously, but nevertheless a steady figure. Unless the number significantly disappoints, we may not find the Fed being overly concerned with the set of figures. Other US data due at the start of the week includes January factory orders and trade balance.
In the march to the next FOMC meeting, the Reserve Bank of Australia (RBA) and European Central Bank (ECB) are expected to decide on monetary policy on Tuesday and Thursday respectively. No change in rates have been expected from both central banks though the market is likely to keep a close watch for growth comments and forecasts.
Following this week’s purchasing managers’ index (PMI) numbers, China is likely to remain in the limelight with more feeds in the upcoming week. The National People’s Congress NPC) kick starts this weekend and the key piece of information coming from this meeting would be the GDP growth target figures for 2017. This target is likely to shape trade for the region and serve as a guidance on growth expectations for the Asian region.
In addition to the NPC, China’s February trade balance figures will be due on Wednesday ahead of Thursday’s consumer and producer price indexes. Exports and producers prices are both expected to accelerate from the exceptional growth rates seen previously. A pickup in exports may further fuel the optimism for regional markets after the stronger than expected PMI number for February.
Other pieces of data arriving in the week ahead includes an update to Japan’s Q4 GDP and Q1 large manufacturers’ business sentiment index (BSI) on Wednesday and Friday respectively. Taiwan and Philippines are also expected to report February inflation rates. For the local market, the key piece of indicator will be January retail sales report on Friday.