Markets will be looking for commentary from Fed speakers to see if there is any push-back against the market interpretation of the rate increase and statement. At this point, there are no major speeches scheduled from senior officials, with Chair Yellen’s comments on Thursday likely to be related to community banking.
US economic data releases are unlikely to have a major impact on the week.
US political developments will also be important as the fiscal policy debate intensifies with trade and currency policies also having a significant impact. European political events will remain important with developments in the French Presidential election under close scrutiny with the first round now five weeks away.
1. UK consumer prices
The latest UK CPI inflation data will be released on Tuesday March 21st at 05.30.
The UK inflation data will be watched closely, especially given the potential impact on monetary policy. At the March meeting, there was an 8-1 vote to leave interest rates on hold at 0.25% while Forbes voted for an immediate hike in rates due to inflation concerns.
Some other members also commented that only limited evidence of stronger growth or inflation could make it appropriate to increase interest rates earlier than expected.
This month’s data will, therefore, be important and a stronger than expected rate would increase speculation that the Bank of England could edge towards higher interest rates, especially with a gradual shift in global policies towards a tighter stance.
A lower than expected rate would dampen expectations that the central bank would be pushed towards a near-term tightening.
The producer prices data will also be watched closely given that it will be an important indicator of underlying inflationary pressures and likely CPI trends over the next few months.
The latest UK retail sales data will also be released on Thursday.
2. Canada Consumer prices
The latest Canadian CPI data will be released on Friday March 24th at 08.30 ET.
Last month’s CPI reading was much stronger than expected with a 0.9% increase in prices, although underlying inflation was little changed.
In its latest monetary policy statement, the Bank of Canada stated that it would look through the temporary increase in inflation that was caused by higher energy prices and environmental legislation.
If the latest data is relatively weak, the central bank will find it easier to justify this position. If, however, there is another stronger than expected reading and evidence of increased core inflation, there will be pressure on the Bank of Canada to shift towards a less dovish policy stance at the next monetary meeting.
3. Reserve Bank of New Zealand interest rate decision
The Reserve Bank of New Zealand (RBNZ) will announce its latest interest rate decision on Thursday local time (16.00 ET Wednesday).
The RBNZ adopted a neutral policy stance at the previous meeting and Governor Wheeler confirmed that it was equally likely that the next move in rates could be an increase or a cut.
Since then, there has been a sharp decline in dairy prices, which will have a negative impact on the economy. There has, however, been increased evidence of a stronger global economy and there will be some relief over a moderation in the exchange rate. Commentary on domestic housing trends will also be an important element.
The most likely outcome is that the neutral stance will be maintained, although there will be a strong market reaction if there is a significant shift from the early February statement.
4. Eurozone PMI data
The latest Eurozone flash PMI data will be released on Friday March 24th at 05.00 ET.
Ahead of the Eurozone data, Markit will release the French and German data.
The latest Eurozone PMI data will have important implications on economic and political grounds.
At the March meeting, the ECB recognised that there were no longer deflation risks within the economy and that growth indicators have improved with a general easing of downside risks.
There was still caution over the outlook and a reiteration that underlying inflation pressures remained weak.
If the PMI data suggests that growth conditions are continuing to improve and that price increases are becoming entrenched, there will be additional pressure on the ECB to take a less accommodative monetary policy and increased market speculation that the interest rate cycle has turned with an increase in the deposit rate.
If, however, the data suggests that growth momentum if fading and prices increases have moderated, then there will be reduced speculation of any near-term policy shift by the ECB.
5. US Chicago Fed President Evans speech
Chicago Fed President Evans is due to speak on the economy on Monday March 20th at 13.10 ET.
Following the Fed rate hike at the March meeting, markets will be looking for any fresh policy hints from Fed speakers. In particular, any suggestion from speakers that markets have misinterpreted the Fed stance will be important.
Evans has generally been very dovish in his stance over the past two years, although his comments this year have pushed him closer to the centre of the spectrum. Ahead of the March meeting, Evans stated that 3 rate hikes were a possibility this year.
The main focus of Evans’ concerns has been persistently low inflation. He remains uneasy over the negative impact of inflation rates persistently below the Fed’s target and the potential damage that this could cause to the economy given that it would be increasingly difficult to raise inflation.
Markets will be looking to assess whether Evans is now more optimistic that inflation will meet the target. If not, he will be uncomfortable with further significant near-term tightening.