Last week, markets were on edge as yields and the US Dollar continued to rise and stocks were mixed. Federal Reserve Chairman Jerome Powell spooked traders when he reiterated that the Fed is not concerned with rising yields nor rising inflation expectations. On Wednesday the US will get the February reading for CPI, which will give traders another tool to determine inflation expectations. In addition, the US will hold 3-year, 10-year, and 30-year auctions this week. Given how terrible the 7-year auction went recently, these will be closely watched. The US Senate is also expected to vote on the stimulus package. The ECB and the BOC will meet this week. Some members from the ECB mentioned last week that the central bank should intervene to keep yields low. Comments will be watched closely. Lastly, Canada will release their Employment Change on Friday.
Fed’s Not Concerned
US Federal Reserve Chairman Jerome Powell spoke on Thursday regarding the US economy at the WSJ Jobs Summit. He reiterated what he, and several FOMC members, had been saying:
- The Fed was not concerned about levels of rates at this time.
- The rise is yields is a response to positive expectation for a recovery.
- The current rise in inflation expectations is unsustainable.
- The Fed will advise well in advance of any tapering.
As he was speaking at a jobs conference, Powell noted that the mandate of the Fed was controlling inflation AND maximizing employment. He noted that there are still 10 million jobs lost since the pandemic began. He said that the Fed will focus on job creation and that he is more concerned about low labor force participation, rather than inflation. On Friday, the US released its Non-Farm Payroll data. The headline number was +379,000 vs an expectation of +180,000. Although this barely puts a dent in the 10 million jobs still lost, most of these jobs were in the hospitality sector. As economies around the world begin and continue to reopen, watch for these numbers to increase. This week, the US will release February’s CPI data. Expectations are for the YoY headline number to increase from 1.4% to 1.7%, while the Core inflation Rate is expected to remain unchanged at 1.4%.
Upcoming Treasury Auctions
On February 25th, the Treasury auctioned off 7-year Treasuries, and the auction went horrible. There was light demand, and dealers were left holding much of the supply. The lack of demand caused bond prices to move lower and yields to move higher. This also caused the US Dollar to move higher and stocks to move lower. This week, the US Treasury will auction 3-year notes on Tuesday, 10-year notes on Wednesday, and 30-year bonds on Thursday. The results of these auctions will be closely monitored to see if demand has improved over the last 2 weeks. If so, traders may expect yields and the US Dollar to move lower and stocks to move higher.
Stimulus in the Senate
The $1.9 stimulus package proposed by US President Joe Biden and passed by the US House of Representatives is sitting in the Senate. While most of the package is complete, including a recent agreement to extend emergency unemployment benefits through September, there are a few Senators trying to add additional amendments to the bill. However, a vote is likely to occur soon (as early as this weekend) and the bill is expected to pass. Anything short of the bill passing similar to its current form in a timely manner could upset the markets.
ECB and BOC
This week will bring interest rate decisions from the Bank of Canada (BOC) on Wednesday and the European Central Bank (ECB) on Thursday. The BOC is expected to leave rates unchanged at a record low 0.25% and continue with its QE program of at least $4 billion per week. As for the rise in yields, Bank of Canada Governor, Tiff Macklem, echoed Fed Chairman Powell’s comments that the rise in yields was due to confidence in a recovery, although he didn’t expect to be easing up on stimulus anytime soon. On the other hand, some ECB members are concerned about rising yields. The ECB’s Panetta noted that the ECB should expand bond purchases or even increase the quota in order to keep bond yields down. ECB’s Villeroy de Galhu said that the ECB “can and must react” against any unwarranted rise in bond yields that threaten to undermine the Euro Area economy. What will the ECB do? The consensus is that the ECB will pick up the pace of their bond buying program, PEPP. They may even extend it beyond its current duration, which is March 2022. Comments during the Q&A will be monitored closely for clues as to what the ECB is thinking and where monetary policy may be headed next!
Earnings
There are a few earnings this week that may be of interest, although not many. They are as follows: PSON, WISH, TKWY, RLLCF, WPP AMC, MRW, ORCL, JD
Economic Data
The 2nd week of the month is typically a light week for economic data. However, there are 2 major central bank meetings to watch. Some noteworthy items to watch include Industrial Production from Germany on Monday, Inflation data from China and the US on Wednesday, and the Canadian Employment Change on Friday. Other important economic data are as follows:
Sunday
- China: Trade Balance
Monday
- Germany: Industrial Production (JAN)
- UK: BOE Governor Bailey Speech
Tuesday
- Japan: GDP Growth Rate QoQ Final (Q4)
- Australia: HIA New Homes Sales (FEB)
- Australia: NAB Business Confidence (FEB)
- Germany: Trade Balance (JAN)
- EU: Employment Change Final (Q4)
- EU: GDP Growth Rate 3rd Est (Q4)
- US: 3 Year Note Auction
Wednesday
- Australia: Westpac Consumer Confidence Change (MAR)
- Australia: Building Permits Final (JAN)
- China: Inflation Rate (FEB)
- China: PPI (FEB)
- US: Inflation Rate
- Canada: BOC Interest Rate Decision
- US: 10 Year Note Auction
- Crude Inventories
Thursday
- Australia: RBA Gov Lowe Speech
- Japan: PPI (FEB)
- Australia: Consumer Inflation Expectations (MAR)
- EU: ECB Interest Rate Decision
- US: 30 Year Bond Auction
Friday
- New Zealand: Business NZ PMI (FEB)
- China: New Yuan Loans (FEB)
- Germany: Inflation Rate Final (FEB)
- UK: Trade Balance (JAN)
- UK: Industrial Production (JAN)
- UK: Manufacturing Production (JAN)
- EU: Industrial Production (JAN)
- Canada: Employment Change (FEB)
- US: PPI (FEB)
- US: Michigan Consumer Sentiment Prel (MAR)
Chart of the Week: Weekly WTI Crude Oil
Source: Tradingview, FOREX.com
We went this whole article and didn’t even mention oil! OPEC left supply unchanged at their March meeting and as a result, oil prices skyrocketed, up over 7.5% this week to 66.30! However, WTI Crude Oil has been on a rise since putting in a post-pandemic low during April 2020. Last week, the black gold commodity broke through a long-term descending trendline from October 2018 and reached its flag target near 64.50. WTI is currently at its highest level since late October 2018! On the weekly timeframe, WTI crude has room to move to the October 2018 highs, just above 77.00! Support is back at last week’s lows near 59.25, then the previously downward sloping trendline near 55.50. The RSI is just under 80, indicating that price may be ready for a pullback (at least to give the RSI time to unwind). However, with the continued low supply and expected increase in demand (after the “reopening”), WTI may continue higher.
Central Bank meetings, auctions, stimulus, and economic data will give the markets direction this week. Watch for volatility in the Euro and Canadian Dollar pairs around their respective central banks’ meetings. In addition, the US Treasury auctions should be closely monitored for demand. If they are as weak as the 7-year auction, both bonds and stocks may fall, while yields and the US Dollar rise!
Have a great weekend and please remember to always wash your hands!
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