UPCOMING EVENTS:

Thursday: US Jobless Claims.

Friday: EZ CPI, US PCE.

Last week the Fed hiked by 25 bps and left its terminal rate and QT unchanged. The tl;dr of the meeting is that they don’t know how the recent events in the banking sector have impacted or will impact the economy, so they will look at the data to decide their next moves. The market, on the other hand, is already pricing an aggressive rate cut cycle as it sees a slowdown in economic activity due to the tightening in credit. The jobless claims and PMIs reports though have not showed any meaningful impact on the economy yet.

Thursday: What everyone wants to know about is how the recent events in the banking sector have impacted the real economy. One way to look at it is from the data that have as reference period the week after the SVB collapse and onwards. Jobless Claims are released every week, so we can see how the events impacted the labour market. Initial Claims are expected at 196K vs. 191K prior, and Continuing Claims are expected at 1684K vs. 1694K prior.

I would expect risk off in case we see a notable jump in the data with gold and bonds bid and oil and stocks offered. For the US Dollar I would expect it to appreciate against the commodity currencies in case we get a miss and depreciate against the JPY as the fall in Treasury yields should drag the pair lower. In case we get another beat though, we should see some repricing of the recent moves with a fall in gold and bonds and the USD/JPY higher.

Friday: Eurozone headline CPI is expected at 7.2% vs. 8.5% prior, while the Core reading is expected at 5.7% vs. 5.6% prior. I would say that a beat in the data should be negative for risk sentiment, while a miss should be positive. Ultimately, I expect Jobless Claims to be the most important event of the week anyway.

US Headline PCE is expected at 5.3% vs. 5.4% prior for the Y/Y figure and 0.2% vs. 0.6% prior for the M/M reading. The Core Y/Y is expected at 4.4% vs. 4.7% prior and 0.4% vs. 0.6% for the M/M reading. This report is based on the month of February, so I think it’s more likely that we see a reaction to a miss rather than a beat, because the market is more interested about the data after the banking woes.

This article was written by Giuseppe Dellamotta.