Foreign Exchange Commentary – The Week Ahead

The week ahead: SARB in a changed environment

Bottom line: Central banks, inflation and treasury yields remain the focus this week. In SA, we get both CPI and the SARB meeting. Globally, Fed and ECB speakers dominate the calendar, while we end the week with the US core PCE inflation data. Overall, a busy week, with scope for continued volatility and the continued pull of dovish central banks and push of higher treasury yields.

SARB: With rates all but certain to be kept on hold, the focus will be on: the QPM forecasts; whether the voting split goes from 3-2 (flat v cuts) to 5-0 (flat); and, the tone of the statement and the accompanying Q&A, in particular in regards to the rise in US treasury yields. SA inflation shouldn’t overly worry them: forecasts are mostly in the 2.9-3.1% y/y range. It’s also possible that we get the National Treasury’s new issuance plan this week – we think it will be out some time before the end of the month.

Global focus is very much still on central banks. With the Fed meeting behind them, Fed members hit the speaking circuit with numerous talks every day. Powell alone speaks three times this week, including twice with Yellen to Congress. ECB speakers are almost as active. Audiences will continue to bug Powell on the tapering timeline, yield curve control and on policy generally, although he may not let anything slip.

The highlight of the global data calendar is Friday’s personal income and spending report, which includes the core PCE inflation measure, the Fed’s favorite. Expectations are for this inflation print to have remained stable at 1.5% in February – anything higher would worry. The only other global data worth mentioning are the various surveyed consumer and business sentiment figures from the Eurozone and US, out Wednesday and Friday.

The Eurozone Covid situation could get some attention given there has been a lot of negative market talk around their slow vaccine rollouts and renewed lockdowns.

Financial market focus will remain very much on US treasury yields. Any new high in the 10-year will ripple through global markets; by contrast, if yields stabilise then global markets should do well.

US core PCE inflation measure is expected to remain at 1.5%


Source: RMB Markets