By: John Kicklighter, Head of Market Research
Talking Points:
Risk aversion was a prominent feature of the landscape this past week – even if the market recovered some lost ground Friday and the fallout was felt principally in US markets. The Nasdaq 100 was still past the ‘technical correction’ (-10 percent decline from cycle high) threshold, and the S&P 500 has yet to offset its own designation of the same earlier in the week. The rebound that did materialize at the end of the week is still very restrained given the depth of the preceding dive and given the fundamentals that seemed to facilitate the lift in confidence. The combination of trade war actions that were softer than expected, softer-than-expected US inflation readings, a judge ruling the rehiring of a significant number of federal jobs to reverse the Trump Administration’s cuts (good for payrolls) and Congress averting a government shutdown could be considered a robust turn of fundamental events. It could be argued that the technical bounce doesn’t exactly reflect the level of influence that these headlines would insinuate. It is important to monitor how sensitive and responsive the market is to ‘good’ and ‘bad’ news over the coming week and beyond.
Chart of S&P 500 with 200-Day SMA, 1 and 20-Day Rate of Changes (Daily)
Source: John Kicklighter, TradingView
For macro developments that can exert serious pressure on the balance of confidence one way or the other, I will be focusing more on the scheduled event risk surrounding more traditional macro themes versus the volatile abstractions from headlines like those related to the United States’ directing of the trade war. It isn’t that there are substantial repercussions from trade barriers throttling total global growth in the pursuit of restrictions aimed at shifting advantage, rather the fallout will be longer term and Trump’s penchant for faster reversals is hardening the market against projecting its assumptions too far into the future. That said, the drop in the University of Michigan’s most recent consumer confidence and surge in inflation expectations deserves close monitoring. That swell in inflation expectations represents a complication against the backdrop of CPI and PPI readings for the previous month (February) that were softer than expected.
Chart of DXY Dollar Index with UofM Consumer Sentiment and Inflation Expectations (Weekly)
Source: John Kicklighter, TradingView
The Federal Reserve is due to announce its latest decision on its monetary policy settings on Wednesday. The probability of a change (a cut in this stage of the cycle) at this meeting is set extremely low. Following the second, -25 basis point rate cut on December 18th; the central bank held the benchmark rate unchanged at its 4.25-4.50 percent in late January. According to Fed Fund futures, there is a negligible 2 percent chance that the group will institute another quarter-percent reduction. Barring any dramatic surprises on that front – and the Fed is well known for attempting to avoid stirring volatility, particularly in volatile times like these – the focus turns to the updated forecasts the group will offer up in the Summary of Economic Projections (SEP). In the last update in December, the central bank raised its year-end 2025 rate forecast from 3.4 percent to 3.9 percent, while it increased its end-of-2026 projecting from 2.9 percent to 3.5 percent. That shift generated substantial lift for the Greenback given most of its major peers were still firmly in their dovish cycles. That global balance has shifted these past few months.
Scenario Table for FOMC Rate Decision
Source: John Kicklighter
Speaking of the FOMC’s peers, we have a range of the group’s peers on tap this week. I will set aside the policy decisions from the central banks of Brazil (-100bps expected), South Africa, Taiwan and Russia (no change expected) and focus on the larger groups. The Bank of Japan (BOJ) announcement is due before the Fed’s. Economists don’t expect any further change at this meeting; but given their recent tightening efforts, there will be serious potential of contrast for a measures like USDJPY. On the opposite end of that spectrum, the People’s Bank of China (PBOC) is dealing with a struggling economy and is following up on this past week’s government commitment to bolstering flagging economic activity. A cut to the 1-year and 5-year Loan Prime Rate shouldn’t be written off. As for the Bank of England (BOE), no change is expected, but there is plenty of room to ease and an argument to be made in the context of economic struggle and the view that US withdrawal of Ukrainian support boosts the financial responsibility and burden on the UK. As for the Swiss National Bank (SNB), a -25bp cut is highly likely given the group’s general policy is to mirror the ECB, which recently cut.
Major Central Bank Policy Spectrum
Source: John Kicklighter
Outside of the monetary policy sphere, there a number of macro releases on tap from US housing stats to Eurozone confidence to Japanese trade that have interesting context to consider. Of the mix, perhaps the most interesting and concentrated run of data comes from China’s February economic readings. The country is due to report industrial production, fixed asset investment, retail sales, unemployment and housing prices figures on Monday. While there are those that question the validity of the data, it is nevertheless the only mass readings we have for the important segments of the world’s second largest economy. In the wake of the Two Sessions and the government’s commitment to support growth, this data will represent a benchmark for the effort ahead.
Calendar of Top Global Macro Event Risk
Source: John Kicklighter
-- Written by John Kicklighter, Global Head of Content
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