LONDON (Reuters) – U.S. jobs data, testimony by the Federal Reserve chief, a key date in the U.S. election calendar and President Joe Biden’s State of the Union address all in one week.
That’s one side of the Atlantic. On the other, is an ECB meeting and UK budget. Asia’s not missing out, China’s annual parliament meeting takes place against a backdrop of pain in the world’s No.2 economy.
Here’s your week ahead in global markets from Ira Iosebashvili in New York, Jamie McGeever in Orlando, Kevin Buckland in Tokyo, Li Gu in Shanghai, and Dhara Ranasinghe and William Schomberg in London.
1/ DOUBLE TROUBLE
U.S. earnings season is winding down but investors don’t have much down time with a Congressional testimony from Fed Chairman Jerome Powell on Wednesday and Thursday, and February U.S. jobs data on Friday.
Excitement over AI’s business potential has helped drive stocks to fresh record highs, even as a robust economy dampens rate cut bets.
Signs of continued jobs market strength or a hawkish message from the Fed could make it harder for investors to shrug off concerns about how higher-for-longer interest rates could impact markets and the economy.
Among those effects is a rise in Treasury yields – potentially disruptive for stocks if it continues. Ten-year yields are up 40 bps this year
Economists polled by Reuters expect the U.S. economy created 188,000 new jobs, after a blowout 353,000 jobs in January.
2/ HELLO, SUPER TUESDAY
It may be too early to properly price and position for November’s U.S. Presidential election, but ‘Super Tuesday’ will shine a light on the political divisions and challenges facing America.
And the debt ceiling issue is back as well. U.S. Congress on Thursday approved a short-term stopgap measure to avert a partial federal government shutdown but only by a week.
The Treasury market absorbed $169 billion of debt issuance this week with relative ease. But polarized politics over the government’s finances are a reminder that the national debt is $34 trillion and counting, so Treasuries could feel some heat.
In an election year, however, aggressive fiscal consolidation is unlikely. Muddling through with temporary spending measures is more likely.
Super Tuesday is the day in the U.S. presidential primary cycle when the most states vote, with Biden and Donald Trump expected to secure the Democratic and Republican nominations.
3/ ROOM WHERE IT HAPPENS
Hopes are high for fresh China stimulus when the National People’s Congress begins its annual session on Tuesday, aimed at reviving a crumbling property sector, and invigorating moribund consumers given the worst deflation since the global financial crisis.
There’s a lot more at stake than meeting what will likely be another 5% economic growth target this year.
Chinese stocks have recovered from five-year lows hit in early February, snapping a six-month losing run with their best monthly performance since late 2022. The main drivers have been state-led stock buying and tighter regulations on short selling.
But it’s hard to forget that the slide to five-year lows were driven by dashed hopes for steps from Beijing. That puts the market spotlight firmly on what comes out in the days ahead.
4/ TOO EARLY?
The ECB meets on Thursday and the focus is on whether policy makers will repeat that it’s too early to discuss rate cuts or open the door to a move.
Rates have been on hold since September and the ECB has pushed back on rate cut talk, insisting that even if the next move is a reduction, that will be later than traders anticipate.
Wage pressures after all, remain high even if they are easing.
So, having priced 150 bps worth of rate cuts at the start of 2024, markets now expect roughly 90 bps with a first move fully priced for June.
Pricing also suggests the ECB could cut before the Fed does – not surprising perhaps given a relatively weak euro zone economy. The ECB typically moves after the Fed.
5/ HUNT HEMMED IN
British finance minister Jeremy Hunt must find a way to cut taxes in Wednesday’s budget to help Prime Minister Rishi Sunak’s bleak election prospects without causing another upset in the bond markets.
Memories of former premier Liz Truss’s “mini-budget” crisis are still fresh and the fiscal outlook has shown no improvement since then, leaving Hunt with little room for manoeuvre when he stands up in parliament on March 6.
But media speculation has focused on possible income tax cuts or another reduction in social security rates, and investors are expecting Hunt to use most if not all of the fiscal “headroom” he has.
(Compiled by Dhara Ranasinghe; Graphics by Prinz Magtulis, Kripa Jayaram and Kevin Yao; Editing by Edwina Gibbs)
Comments