Week Ahead – An Encouraging Recovery

Fundamental analysis of Forex market

Are investors correct to be optimistic?

Investors appear remarkably calm at the moment given the level of uncertainty we’re facing this year, from inflation to interest rates and even Covid, when you consider China is still embracing lockdowns.

Throw soaring commodity prices into the mix and there’s plenty of reason to be pessimistic. But when you look at financial markets, that isn’t what we’re seeing. Equities aren’t far from record highs in many cases and the yield curve isn’t yet inverted in a way that suggests a recession is coming.

Instead, the Fed is warning of a very aggressive tightening cycle, telling us the labor market is too strong and that inflation will be under control again soon enough. For once, the central bank and markets appear on the same page. Which probably makes me feel more uneasy than it should.


The focus on Wall Street remains on geopolitics, but many traders will pay close attention to the economic readings about the US jobs market, consumer, inflation, and manufacturing activity. The Fed is confident that the economy is on solid footing despite surging inflation, but if the economic data tells a different story, that could change the front-loaded approach of supersized rate hikes.

The nonfarm payroll report will confirm that the labor market remains strong. The consensus estimate for jobs created in March is 450,000 which would be a decrease from the 678,000 gain in February. The unemployment rate is expected to tick lower to 3.7%, while average hourly earnings could rebound to 0.4%, an improvement from the flat reading seen a month ago.


It goes without saying that the focus next week will continue to be what’s happening in Eastern Europe and what the EU is doing in order to reduce its reliance on Russian energy and allow it to impose more severe sanctions. The latter is unlikely any time soon but the US LNG deal was a step towards it.

Next week offers an abundance of economic data, with the standout being flash inflation indicators. The eurozone flash CPI on Friday will be the one to watch but we could get hints from individual nations earlier in the week.

Central banks have been forced to back down on their transitory message in recent months and the ECB took a step in that direction a couple of weeks ago. Further unexpected inflation spikes will further pile on the pressure and make comments from President Lagarde and her colleagues all the more interesting.


Mostly tier two and three data from the UK next week, with a speech from BoE Governor Andrew Bailey on Monday the highlight. The MPC last week gave the impression that they were slightly softening their hawkish stance after three consecutive hikes but inflation last month accelerated faster than expected which may force them to persevere for a few more meetings yet. Deputy Governor Ben Broadbent also speaks on Wednesday.


Against the backdrop of Russia’s illegal invasion of Ukraine, sanctions imposed on it by the West, and the Kremlin’s attempts to hit back – for example, the decision this week to insist on purchases of Russian gas to be made in rubles – there’s going to be little hype about the unemployment and manufacturing data next week.

Negotiations are continuing with Ukraine but appear to be making little progress. Meanwhile, sanctions are continuing to be imposed and the EU is slowly severing energy ties which will be damaging in the long run. In the near future, the economy is expected to fall into a two-year recession, with this year’s contraction being particularly sharp at up to 10%.

South Africa

The SARB raised interest rates by 25 basis points this week but two members (out of five) of the MPC voted for a 50 basis point hike. The tightening cycle looks set to continue with inflation running at the upper end of its 3-6% target range and commodity pressures increasing.


A relatively quiet week is in store for Turkey, with the manufacturing PMI the only notable release.


There is a myriad of forces impacting Chinese markets in the week ahead. Evergrande is back in the headlines with foreign bondholders running out of patience. Covid-19 continues spreading in the mainland, raising the threat of lockdowns impacting manufacturing and logistics. US authorities are less positive about the audits of US-listed China companies than the noise from China. Russian support, tacit or official, is a huge risk point from a sanctions point of view.

China also releases its official and Caixin manufacturing and services PMIs.

All of this provides downside risk to Chinese equities which have quickly run out of steam after government jawboning to support the market last week. China left its LPRs unchanged, disappointing participants who wanted to see concrete action.


India releases its balance of trade on Friday, which could show the impact of higher oil prices. As a huge net energy importer, and with the central bank continuing its reluctance to hike interest rates, the INR remains near the weak end of its range. A sharp rise in oil prices, or US yields next week, could spark more INR weakness which could also see hot money exit the Sensex.


The AUD/USD is close to recent highs thanks to the new surge in commodity prices and potentially some haven inflows, although risk sentiment remains better than the previous week. Employment data was strong and the week ahead features retail sales, private sector credit, and manufacturing PMI. AUD and local equities will also be sensitive to the China PMI prints.

There is a lot of good news built into AUD at these levels, helped also by AUD/JPY buying. Weak data, a sharp sentiment swing, or weak China PMIs could cause an abrupt correction lower by AUD, which could also be reflected in equity markets.

New Zealand

The New Zealand Dollar has rebounded sharply on commodity prices and haven inflows as markets prime for a faster RBNZ tightening. There is a lot of good news built into the price like AUD/USD, and that leaves NZD vulnerable to a sharp correction lower.

ANZ business confidence on Tuesday may provide that excuse if confidence slumps due to the Ukraine war and soaring inflation.


USD/JPY has risen 400 points in the past week as the US/Japan rate differential exploded wider. The BoJ and MoF have tried to talk them down with limited success. Currency markets should now be on alert for more “watching FX closely” comments, which could send USD/JPY sharply lower intraday over the coming weeks.

Japan has a heavy data calendar featuring unemployment, retail sales, and arguably most important industrial production and the Tankan Large Manufacturers Survey. The latter two will give a snapshot into whether the Ukraine disruption and inflation wave are impacting business. Low prints could be a headwind for local equities.


Inflation rose this week, setting up a MAS tightening in April. Local markets have been buoyant though as Covid restrictions were dramatically eased. PPI has upside risk this week which could increase the MAS noise and dampen equities. USD/SGD remains content to continue running with the USD/Asia pack, which is moving entirely on Ukraine sentiment swings right now.

Economic Calendar

Sunday, March 27

Economic Data/Events

  • China industrial profits

Monday, March 28

Economic Data/Events

  • US wholesale inventories
  • President Biden to reveal 2023 budget request
  • South Africa unemployment
  • Mexico trade
  • Norway Norges Bank Deputy Governor Borsum speaks to the bank’s regional network
  • UK Chancellor Sunak appears before Treasury Committee to discuss his Spring Statement
  • BOE Gov Bailey speaks on the economy at an event organized by European think tank Bruegel

Tuesday, March 29

Economic Data/Events

  • US consumer confidence
  • Australian Treasurer Frydenberg presents the annual budget
  • Philadelphia Fed President Harker discusses the economic outlook at an event hosted by the Center for Financial Stability in New York
  • Bank of England quarterly bulletin
  • Japan unemployment
  • Australia retail sales, consumer confidence
  • Mexico international reserves

Wednesday, March 30

Economic Data/Events

  • US Q4 final GDP
  • Germany CPI
  • Fed’s Barkin speaks at a conference on investing in rural America hosted by his bank
  • BOE’s Deputy Governor Broadbent speaks at “The MPC at 25” conference
  • UK PM Johnson appears before the Liaison Committee
  • Russia unemployment
  • Mexico unemployment
  • New Zealand building permits, business confidence
  • Thailand rate decision: Expected to keep benchmark interest rate unchanged at 0.50%
  • Japan retail sales
  • Eurozone economic confidence, consumer confidence
  • EIA crude oil inventory report

Thursday, March 31

Economic Data/Events

  • US consumer income, initial jobless claims
  • OPEC and non-OPEC ministerial meeting on output
  • SNB’s Maechler, Moser speak at a money market event in Zurich
  • Fed’s Williams makes opening remarks at a conference
  • Bank of Italy Governor Visco makes an annual address on the state of the economy
  • France and Italy CPI
  • UK GDP
  • Czech Republic GDP
  • Japan industrial production
  • South African trade balance
  • Eurozone and German Unemployment:
  • China manufacturing PMI, non-manufacturing PMI
  • Australia job vacancies, building approvals
  • India fiscal deficit, eight infrastructure industries, BoP
  • Thailand BoP
  • Japan housing starts
  • Singapore money supply

Friday, April 1

Economic Data/Events

  • US Mar change in nonfarm Payrolls: 450K v 678K prior, construction spending, unemployment,  ISM Manufacturing, vehicle sales
  • Europe-EU virtual summit with Chinese President Xi and Premier Li Keqiang along with European Council President Michel and European Commission President von der Leyen
  • Eurozone Manufacturing PMI, CPI
  • Eurozone ECB’s Schnabel and Knot speak at an event in Cernobbio, Italy
  • Poland CPI
  • Germany manufacturing PMI
  • UK Manufacturing PMI
  • New Zealand house prices, consumer confidence
  • Japan vehicle sales, PMI
  • Singapore home prices
  • Australia home loans value, house prices
  • China Caixin PMI
  • Thailand PMI, foreign reserves, business sentiment index

Sovereign Rating Updates

  • Poland (S&P)
  • Turkey (S&P)
  • Italy (Moody’s)
  • South Africa(Moody’s)
  • France (DBRS)