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Market Update (March 20, 2017)

Last week in review:

JP Morgan

JP Morgan Asset Management Weekly Market Recap

Thought of the week:

JPAM Thought of the Week 3-20-17

This week’s chart shows a maturity breakdown of the $2.3 trillion treasury notes and bonds on the Fed’s balance sheet. A “reverse QE” process, in which the Fed passively allows securities to roll off its balance sheet at maturity, would cause a lumpy and haphazard drawdown. If winding down the balance sheet begins one year from now, then 32% of the treasuries would roll off in the following two years, representing an average decrease of $30 billion per month. Decreasing the size of the balance sheet will be a process that requires more finesse than increasing it did, and we predict the Fed will tread carefully, endeavoring to smoothly exit from its considerable asset ownership. A stable monthly reduction of the balance sheet is a more likely course, and the maturity distribution of the balance sheet shows that this would involve some combination of rolling off maturing securities and outright sales. Although we expect the Fed will do its best to gently decrease the size of its balance sheet, it is likely that anticipation and announcement of the project will cause heightened interest rate volatility in the coming year.

Goldman Sachs

Goldman Sachs Market Monitor

GSAM Chart of the Week - 3-17-17

Although the Federal Reserve (Fed) increased the fed funds rate target range by 25bps, Fed Chairman Janet Yellen affirmed that the Fed was on track for three 2017 rate hikes instead of prior market pricing for four. US 10-Year Treasury yields rallied 9 bps, their biggest jump since June 2016. We continue to monitor the Fed’s broad US economic growth assessment against the elevated potential for unexpected and meaningful marketmoving geopolitical events.

The Week Ahead: 5 Things to Watch on the Economic Calendar

Investing.com

  • Following a busy week packed with central bank meetings and European elections, market players will focus on a handful of Federal Reserve speakers in the week ahead, including Chair Janet Yellen, as they look for more clues on the timing of the next U.S. rate hike.
  • Traders will also keep an eye out on U.S. housing data to gauge if a recent increase in consumer spending and inflation is translating into higher home prices and a pick-up in home sales.
  • Meanwhile, in the U.K., market participants will be looking ahead to reports on consumer prices and retail sales for further indications on the continued effect that the Brexit decision is having on the economy.
  • In the euro zone, investors will await flash survey data on euro zone business activity for fresh clues on the health of the region’s manufacturing and services sector.
  • Elsewhere, traders will be looking to retail sales and inflation data from Canada to gauge the health of the economy.
  • Ahead of the coming week, Investing.com has compiled a list of the five biggest events on the economic calendar that are most likely to affect the markets.

1. Fed Chair Janet Yellen Speaks

  • A handful of Fed policymakers are due to make public appearances this week that may offer insight into the likelihood of higher interest rates in the months ahead.
  • Monday sees Chicago Fed President Charles Evans speak about current economic conditions and monetary policy at the National Association for Business Economics luncheon in New York.
  • On Tuesday, New York Fed President William Dudley, Kansas City Fed President Esther George and Cleveland Fed President Loretta Mester make public appearances.
  • Thursday sees Fed Chair Janet Yellen deliver opening remarks at the Federal Reserve System Community Development Research Conference, in Washington DC at 8:45AM ET (12:45GMT).
  • Minnepolis Fed President Neel Kashkari at Strong Foundations Conference and Dallas Fed President Rob Kaplan are also on tap Thursday.
  • Finally, on Friday, Chicago Fed’s Evans, New York Fed chief Dudley and St. Louis Fed President James Bullard are scheduled to deliver comments.
  • The Fed raised its benchmark interest rate last week in a widely-expected move, but stuck to its projection for two more hikes this year. Heading into the meeting, markets had braced for a potentially more hawkish tone from the Fed.

2. U.S. Housing Data for February

  • The National Association of Realtors is to release data on existing home sales for February at 10:00AM ET (14:00GMT) on Wednesday, amid forecasts for a decline of 1.8% to 5.57 million, following a gain of 3.3% a month earlier.
  • On Thursday, the Commerce Department is to publish a report on new home sales for February at 10AM ET. The data is expected to show an increase of 0.6% to 568,000, following a jump of 3.7% in January.
  • Besides the housing-related data, this week’s rather light calendar also features reports on initial jobless claims and durable goods orders.
  • Headlines from Washington will also be in focus, as traders await further details on President Donald Trump’s promises of tax reform and infrastructure spending.
  • The House is expected to vote on a heath care bill Thursday, and if it passes that would be seen as a small step moving Congress closer to considering tax reform, though any legislation must also battle its way through the Senate.

3. U.K. CPI & Retail Sales for February

  • The U.K. Office for National Statistics will release data on consumer price inflation for February at 09:30GMT (5:30AM ET) on Tuesday. Analysts expect consumer prices to rise 2.1%, after increasing 1.8% a month earlier.
  • On Thursday, the ONS will produce a report on February retail sales at 09:30GMT (5:30AM ET), with analysts expecting an increase of 0.4%, following a drop of 0.3% in the preceding month.
  • The Bank of England voted to keep interest rates unchanged last week, but the decision was split with one of the nine members voting to raise rates for the first time since July given the recent spike in inflation.

4. March Flash Euro Zone PMIs

  • The euro zone is to publish preliminary data on manufacturing and service sector activity for March at 09:00GMT (5:00AM ET) on Friday, amid expectations for a modest decline.
  • Ahead of the euro zone PMI’s, France and Germany will release their own PMI reports at 08:00GMT and 08:30GMT respectively.
  • An upbeat reading would likely add to growing speculation that the European Central Bank could start raising interest rates before its asset purchase program has come to an end.
  • Ongoing signals of robust growth and surging inflation combined with hawkish comments from a number of ECB policymakers in the past week prompted market players to bring forward their expectations for a rate hike to as early as December.

5. Canadian Retail Sales & Inflation Figures

  • Canada is to release January retail sales figures at 8:30AM ET (12:30GMT) Tuesday, amid expectations for a gain of 1%, following a 0.5% decline in December. Core sales are forecast to climb 1.2%, after falling 0.3% a month earlier.
  • On Friday, Canada is to publish data on February consumer price inflation at 8:30AM ET (12:30GMT). The data is expected to show that inflation increased 0.2% last month, after rising 0.9% a month earlier. On a yearly base, CPI is projected to climb 2.1%.
  • The Bank of Canada kept interest rates on hold earlier this month and said that the current monetary policy stance remains appropriate.