US Still The Only Game In Town: Watch Fed Speakers And US Non-Farm Payrolls


US Still The Only Game In Town: Watch Fed Speakers And US Non-Farm Payrolls

North Korea missile launches, Fed's March rate hike to drive market sentiment

Published on 6 March 2017

We believe North Korea’s recent missile launches are likely to have a temporary impact on market sentiment. We don’t foresee this geopolitical risk as having a large and sustained impact on financial markets this week.

We believe that the US Fed will hike the policy interest rate four times in 2017 versus the Fed’s guidance of three hikes. A March hike is imminent in our view. The expectations of US Fed are potentially likely to continue to drive global market sentiment this week.

Last week as of Singapore 5.00 p.m. on 3 March, the Dow Jones Industrial Index hit an all-time high of 21,115.55 during the week but fell by around 0.8%. The DAX rose by around 1.7%. Most major Asian equity markets traded a narrow range. Gold fell by around 2.5%. US 10YR government bond yields spiked to 2.48% versus the previous week’s close 2.31. USD/SGD rose by around 0.7% to 1.41. AUD/USD fell by around 1.5% to 0.755. GBP/USD fell by around 1.6% to 1.226. While USD/JPY rose by around 1.9% to 114.28.

Next week, global financial markets are likely to continue to digest the statements made by Chairman Janet Yellen and Vice Chairman Stanley Fischer on 3 March and the implications for the 15 March US Federal Reserve FOMC meeting. Yellen and Fischer’s statements suggested that a hike on 15 March is a high probability event. However, the guidance on the future path of hikes was mixed in our view. The initial reaction of financial markets to these statements was muted.

The February US non-farm payrolls reports will also feed into market expectations for the March FOMC. Market expectations of a March Fed policy rate hike have risen to around 88% currently from just around 30% a few weeks ago as recent Fed speakers have given guidance for a March Fed hike. This – along with most US macroeconomic data and commodity prices continuing to rise – has turned market sentiment more hawkish.

The early press release from China’s National People’s Congress (NPC), February trade and new loans data will also be at centre stage to potentially drive market sentiment.

The European Central Bank also meets next week and the main statements to watch out for will be guidance on the asset purchase programme and policy interest rates, where market expectations suggest no changes until 2018.

More specific to having implications for India’s financial markets with limited global implications will be the results of the Uttar Pradesh State elections.

Last week, US President Donald Trump’s address to Congress on fiscal policy and the budget surprised on the downside, with limited details being given. What surprised financial markets was the relatively hawkish statements from several Fed presidents of a potential March hike. EU January PPI and February CPI inflation data were in line with market expectations. Economic activity data were mixed, broadly speaking.

While in Asia, Japan January inflation data met consensus expectations. China and the US geopolitical and economic policy dialogue continued to adjust to the new Trump administration.


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