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Weekly Market Briefing
In Like A Lion

Karl Schamotta March 6, 2017

Thursday’s European Central Banking meeting and Friday’s non-farm payrolls report are likely to dominate market movement through the week ahead – but events in Australia and China will also play a role in shaping outcomes.

Europe’s central bank will almost certainly keep interest rates and bond purchases stable, despite a recent jump in headline inflation. Oil effects are expected to fade through the latter half of the year, with core price pressures stabilizing below the institution’s two-percent target. Ongoing but relatively well-contained political tension within several euro-bloc economies is also unlikely to shift policy.

But, Mario Draghi and the council’s more hawkish representatives could ‎indulge a penchant for unpredictability. A renewal of the tapering debate, or any material increase in 2018 inflation expectations could trigger a surprise surge in the euro. ‎

East of the Continent, Friday’s jobs report (which lands during the Federal Reserve’s mandated blackout period) is expected to show that the US economy added another 180,000 roles in February, with the unemployment rate falling further.

We have similarly optimistic expectations – but are cautious nonetheless. After last week’s suasion campaign, markets have almost fully discounted a March hike, and long positions are stacked up in the dollar’s favour. A mildly disappointing headline number could easily unleash a drastic market reappraisal.

Even further east, the Reserve Bank of Australia is also due to make an interest rate decision. The economy has seemingly escaped technical recession, but continues to underperform. Policymakers are widely expected to stay in neutral, keeping interest rate carry tilted against the currency and the currency tightly range-bound against the big dollar.

North across the Pacific, China is slated to release what could be extremely noisy numbers throughout the week, heavily skewed by the Lunar New Year holiday. The economy continues to grow after one of the largest infusions of credit in human history – but slowing consumer spending and massive capital outflows are counteracting rising producer prices and weaker inflows to paint an increasingly confusing picture. We expect heightened volatility in the commodity complex as these data releases hit the wires.

March may have come in like a lion, but the lambs are not in the ascendant quite yet. Have a great week!

 

Catalysts

Potential Volatility Triggers:

MON
10:00    ***       USD Durable Goods Orders, January
22:30    ***       AUD Reserve Bank of Australia Rate Decision

TUE
05:00    **         EUR Euro-Zone Gross Domestic Product, Q4
08:30    ***       USD Trade Balance, January
18:50    **         JPY Gross Domestic Product, Q4

WED
0:00      ***       CNY Trade Balance, February
08:15    **         USD ADP Employment Change, February
10:00    **         USD Wholesale Inventories, January
10:30    *          USD Department of Energy Oil Inventories
20:30    **         CNY Consumer Price Indices, February

THU
07:45    ***       EUR European Central Bank Decision
08:30    ***       USD Initial Jobless Claims

FRI 
0:00      ***       CNY New Yuan Loans, February
02:00    **         EUR German Trade Balance, January
04:30    **         GBP Trade Balance, January
08:30    ***       CAD Unemployment Rate, February
08:30    ***       USD Non-Farm Payrolls, February
13:00    *          USD Baker Hughes Rig Count

 

Counterparties

Background Reading:

Worthwhile Canadian Initiative: Federal Budgetary Comparison
Bank for International Settlements: Interest Rates Are Overrated
Aeon: Show Me the Monet 
FiveThirtyEight: Fed’s Favourite Inflation Predictors Aren’t Very Predictive
Money: Is Vladimir Putin Secretly the Richest Man in the World?
Financial Times: Wealth of China’s Richest 200 Lawmakers Tops $500bn
Bloomberg: Million-Dollar Home Contagion Spreads to Toronto Suburbs
Peterson Institute: Global Concentration Is Declining
Wall Street Journal: World’s Most Radical Monetary Policy Experiment Isn’t Working
Project Syndicate: Addicted to Dollars

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