Top Things to Watch this Week

This week promises a heavy dose of potential market volatility and peaks of adrenaline rush.

Key events include the ECB meeting, that can impact interest rate decision, and the US jobs report, that is expected to display a slower growth, data that is crucial ahead of the March 20 Federal Reserve meeting.

Fed Chair Powell will be delivering the Semiannual Monetary Policy Report to Congress and will testify before the House Financial Services Committee. As usual, all is words will be scrutinised for hints on policymakers’ current thinking, particularly the timing of future rate cuts.

March 5th

US: ISM Services PMI

The ISM (Institute of Supply Management) Non-Manufacturing index is a leading indicator since it helps to foretell future spending and expenditures that contribute to economic expansion. The indicator tends to reflect changes before the economy does. An uptick leads to stronger economic considerations.

Analyst are forecasting a modest decline but any significant deviation from this estimate will surely spark large price swings in the U.S. dollar as it can shift interest rate expectations.

March 6th

Canada: BoC interest rate decision

No change in interest rates is anticipated. However, traders will be looking for clues on interest rate decision for the nearer future to foretell the timing for the easing cycle to begin.

March 7th

Euro Area: ECB interest rate decision

Last Friday Euro Area core inflation fell for the 7th straight month to its lowest level in two years, but missed expectations of a larger fall. However, no policy changes are expected, and Christine Lagarde will probably be repeating the argument that it's too early to discuss rate cuts.

Mexico: Inflation YoY (February)

Last week I talked about a market I rarely consider (India) and this week I am choosing Mexico for the same reasons.

The Mexican Peso (MXN) is considered by analysts a sort of supercharged dollar. The re-working of world trade routes created a "friend-shoring" twist that favours oil exports from Mexico.

MXN has climbed 20% on the USD (US dollar) over the past two years. And yet the peso's interest rate protection remains immense as the Bank of Mexico has been resisting to follow the same monetary policy of other big emerging market central banks to pre-empt U.S. Federal Reserve easing - possibly waiting for the Fed to move as it keeps a lid on a near 5% domestic inflation rate.

Mexico's key policy rate is of 11.25% (!!!) more than twice the Fed equivalent, for an inflation (CPI - Consumer Price Index) below 5% and decreasing.

March 8th

Euro Area: GDP Growth Rate QoQ (Q4 - 3rd estimate)

Euro zone economic growth was flat in the last three months of the 2023. This week report will most likely confirm previous estimate, and markets will probably interpret such data as a narrow escape from a technical recession, defined as two consecutive quarters of negative growth.

In a scenario where the ECB expects inflation to fluctuate in the 2.5-3% range for much of this year, a flat GDP will only confirm that any interest rate cut before May would be premature.

US: Non-Farm Payrolls/ Unemployment Rate

Non-farm payroll data has major importance in identifying trends related to the rate of economic growth and inflation.

Consensus forecasts point to a decline in jobs added, but employment data has been delivering upside surprises recently.

A significantly stronger-than-expected report will signal continued labor market strength, and such information will probably delay the Fed's rate-cutting cycle. This would be bullish for the U.S. dollar, but bearish for gold and risk assets.

Conversely, a weaker job growth will fuel expectations of a more dovish Fed decision, which could send gold prices higher and USD lower.