Markets to Watch This Week: Fed, ECB and BoE Speakers to Drive Markets

We standardise WoW price changes across different markets to allow for cross-market comparisons.

Market Moves Over the Past Week

Over the past week, the Federal Reserve (Fed), European Central Bank (ECB) and Bank of England (BoE) dominated headlines. Find summaries below, with their full reviews linked in.

As widely expected, the Fed hiked 25bps at the policy meeting on Wednesday. The meeting provided limited new information on the policy path or the Fed’s economic view. As it stands, the Fed remains focused on core services excluding shelter inflation, which it does not think has turned out yet. As a result, markets remain far apart from the Fed on inflation and the FFR. Read Dominique and Mustafa’s Fed review.

Remaining in the US, November nonfarm payrolls (NFP) were 517,000 against the 188,000 expected. This extreme print will likely see a downward revision, but that probably will not change the big picture: labour demand is returning to its pre-pandemic trend but too slowly to relieve labour market overheating. The strong NFP print is also consistent with other labour market datasets.

Turning to Europe, the ECB came out strongly hawkish, hiking the deposit rate by 50bp and emphasising the probability of a 50bp March hike and more thereafter. Hawkishness came as President Christine Lagarde took care to repeat the arguments for further hiking: strong core inflation, the generosity and breadth of current fiscal plans, and the trajectory for wages. Henry believes the ECB decision and press conference supports his expectation that the ECB will hike to at least 3.5%. Read Henry’s ECB review.

And in the UK, the BoE delivered a dovish 50bp hike to 4.0%. Seven Monetary Policy Committee members backed the move; two (external members Tenreyro and Dhingra) voted for no hike. Meanwhile, the policy statement strongly supported Henry’s belief that they are now done with hikes (dropping reference to ‘forceful monetary policy response’) with additional hikes conditional on inflation worsening versus their November forecasts. Read Henry’s review.

The week closed out with US yields higher, with most other G10 yields falling (Charts 1 and 2). The widening in spreads helped a USD revival against G10 FX; NOK (-3.2% WoW) and GBP (-2.6% WoW) fell the most (Chart 3). Meanwhile, equities found a strong footing, outperforming over the past week. However, John Tierney is yet to trust this equity rally. Read our latest biases here.

What to Watch

Turning to the week ahead, in the US, Fed speakers will react to the large NFP print and sharp improvement in the services PMI. The most important speakers will be Chair Jerome Powell and Governor Cook (voter, dove). Since Governor Cook is likely the most dovish FOMC participant, she will provide a sense of how dovish the FOMC could get. Other speakers include Bullard (non-voter, hawk), Barr (voter, dove), Williams (voter, dove), Bostic (non-voter, dove), Kashkari (voter, hawk), Waller (voter, hawk) and Harker (voter, dove).

Similarly in Europe, Henry sees little by the way of data but plenty of opportunities for ECB and BoE speakers to provide more background to the decisions. For the ECB, speakers, most leaning hawkish, will strongly support Lagarde’s guidance that more hikes are needed. For the BoE, future decisions depend on new data; there is little to be heard until that comes out. As a result, Henry expects this to sap some of the generic rates strength across Europe.

Remaining in Europe, we expect the Riksbank (Thursday) to hike 50bp to 3%. Since the December meeting, CPIF excluding energy (which forced Riksbank to be more forceful in December) was a marginal beat, while the labour market has broadly developed in line with forecasts. We think there is a risk of a pause in April.

Down under, we expect the Reserve Bank of Australia (RBA; Tuesday) to hike the policy rate by 25bp to 3.35%. While the RBA claimed inflation has topped, core inflation momentum is still on the up, especially in core services. They have also been glued to labour market readings and wage growth prospects. Our indices for both are yet to show material weakness – the RBA consults a wide range of indices for wage growth, so the recent pullback in the NAB survey is a small sign of hope for the RBA, not concrete evidence for a change in trend. Further ahead, we expect one more hike in March before a pause in April.

Watch Andrew and Dominique discuss the key data points over the past week, what would make the Fed change the policy path, whether Powell ruled out rate cuts for later in the year, a deep dive into NFP print and the market reaction, as well as much, much more!

Ben Ford is a Researcher at Macro Hive. Ben studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.