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  • Weekly global market focus
  • FOMC meeting will be watched for Fed-dot shift and balance sheet news
  • Prospects improve for the third Brexit vote on Tuesday
 

Weekly global market focus — The U.S. markets this week will focus on (1) the Tue/Wed FOMC meeting which will feature revised Fed-dot forecasts and a possible announcement on the Fed’s plans to end its balance sheet reduction plan, (2) any news on the US/Chinese trade talks, (3) this week’s moderately busy U.S. economic calendar, (4) the Treasury’s sale of $11 billion of 10-year TIPS on Thursday, and (5) earnings reports by nine of the S&P 500 companies including FedEx and Nike.

The markets will be watching crude oil prices as OPEC+ today holds its Monitoring Committee meeting in Baku, Azerbaijan.  Ahead of the meeting, Saudi Oil Minister Al-Falih said this past weekend that OPEC+ needs to “stay the course” on production cuts since its job is nowhere near complete in restoring oil-market fundamentals.  Meanwhile, Russian Oil Minister Novak said that it is too early to discuss the extension of its 1H-2018 production cut into 2H-2019 and that the decision should be taken in May or June.  Russia says it is speeding up its compliance with the production cut agreement for 1H-2019. 

In Europe, the focus this week will be on Brexit, the 2-day EU Summit that begins on Thursday, and Thursday’s BOE meeting.  The BOE is expected to leave its policy unchanged as it awaits the Brexit outcome in Parliament.  Friday’s March Eurozone manufacturing PMI is expected to show a small +0.2 point rise to 49.5, partially recovering from Feb’s sharp -1.2 point drop to 49.3 but remaining below the boom-bust level of 50.0.  Friday’s March Eurozone services PMI is expected to show a +0.1 point increase to 52.0, adding to Feb’s +0.9 point rise to 51.9.

Chinese President Xi will be in Europe later this week with a visit to Italy on Thursday to sign a framework agreement with Italian Prime Minister Conte on the Belt and Road infrastructure program.  Mr. Xi will then travel to France.

In Asia, the focus will be on any developments on the US/Chinese trade talks.  There are no Chinese economic reports this week following last week’s weak Chinese economic data on industrial production, retail sales, and unemployment.  The Japanese markets are closed on Thursday for a public holiday.  Thursday night’s Japan Feb CPI is expected to edge higher to +0.3% y/y from Jan’s +0.2% but the CPI ex-fresh food is expected to be unchanged at +0.8% y/y. 

 

FOMC meeting will be watched for Fed-dot shift and balance sheet news — The FOMC on Tuesday and Wednesday will produce an updated series of forecasts.  The markets will be anxious to see the new Fed dots and the extent to which FOMC officials still expect to boost interest rates over the next two years regardless of the current pause in their rate-hike regime.  The last set of Fed dots, issued in December and before January’s shift to a neutral policy, predicted two rate hikes in 2019 and one hike in 2020.

The markets are also waiting to see if the Fed at this week’s meeting will announce its plans for ending its balance sheet reduction plan.  Fed Chair Powell in his recent testimony to Congress said that he expects an announcement soon the Fed’s plan to end its balance sheet reduction program by later this year.

The market is currently discounting a 32% chance of a -25 bp Fed rate cut by the end of this year from the current federal funds rate level of 2.40%.  The market is discounting a -27.5 bp rate cut by the end of 2020, i.e., a 100% chance of a -25 bp rate cut.

 

 

Prospects improve for the third Brexit vote on Tuesday — Prime Minister May late last week gained some support for her Brexit separation bill although it remains to be seen whether it is enough for the bill to be passed by Parliament.  Parliament is expected to vote on the bill on Tuesday but the vote could be delayed until Wednesday or could be pulled altogether if defeat is assured.  

Ms. May’s Brexit bill went down to heavy defeat the last two times Parliament has voted.  However, Ms. May has reportedly made some progress on convincing the Northern Ireland DUP party to approve her plan.  In addition, there are some Brexit hardliners that are reportedly more willing to vote for the bill since the alternative will likely be an extension of the Brexit deadline by as much as a year.  If the Brexit deadline is delayed by a year or more, there would be time for new elections or a second referendum, meaning the chances emerge for a softer Brexit or even no Brexit at all.

If Parliament approves her Brexit agreement this week, then Ms. May said she will ask for a technical Brexit deadline extension through June 30 to give Parliament time to pass the enabling legislation.  If Parliament votes down her Brexit agreement again this week, then Ms. May says she will ask for a long deadline extension from the EU, with speculation focusing an extension of a year or more.

Ms. May is facing a deadline of the EU Summit this Thursday and Friday where EU leaders are ready to approve a Brexit deadline extension.  Next Friday’s Brexit deadline of March 29 is now only 11 days a way.

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