Huge Week Ahead

What You Need to Know

This week the World Bank & IMF will hold their spring meeting, in which crypto assets will be discussed. Although it’s just a preliminary meeting with final discussions and outcomes to appear later this year (likely Q3), we could potentially see some price swings on Bitcoin throughout the week. Word travels fast through social media and I suspect we’ll hear some rumours. That’s all I’ve got on the topic.

Turning to the macro side of things, it’s all about CPI and last month’s FOMC minutes. Then we’ll turn to the big bank earnings on Friday from JPMorgan Chase, Wells Fargo and Citigroup.

Let’s take a boo at the calendar.

Economic Calendar

Highlights

  • CPI Inflation (Headline + Core) – Wednesday
  • FOMC Minutes – Wednesday
  • Producer Price Index (PPI) – Thursday
  • Retail Sales – Friday
  • Michigan Consumer Sentiment – Friday
  • Four Fed Speakers

Breakdown

CPI Inflation (Headline + Core)

Here’s the trend in YoY CPI over the last several months:

January: +7.5%

February: +7.9%

March: +8.5%

April: +8.3%

May: +8.6%

June: +9.1%

July: +8.5%

August: +8.3%

September: +8.2%

October: +7.7%

November: +7.1%

December: +6.5%

January: +6.4%

February: +6%

March: ????

The market should be thrilled with anything under 6%, and consensus is that we will be way below that mark. In fact the expectation is a little aggressively low in my view. An upside surprise could thus create a selloff in equities and crypto. Need to be a little careful here.

FOMC Minutes

In March, the FOMC lifted its rates by 25bps and removed its reference to the Committee anticipating that ‘ongoing increases in the target rate will be appropriate’, though noted that ‘some additional policy firming may be appropriate’.

They projected confidence in the banking system, saying that it is ‘sound and ‘resilient’ but adding that the recent developments would likely result in tighter credit conditions & impact hiring and inflation.

The statement said they would continue to reduce Treasury and MBS holdings in line with previous guidance. Since then, Fed members have rested their gaze on managing inflation, with a long-term target of 2%.

Although no participants had rate cuts in their base scenario for 2023; traders have been betting otherwise, and hinting that the Fed will need to pivot towards more accommodative action. This has been particularly evident following the banking crisis.

Powell has emphasized that policymaking remains based on incoming meeting-by-meeting data, and the actual & expected effects of the credit tightening.

The market widely expects one more 25bps hike before a Fed pause, and this week’s minutes will likely bake that in. Still, the data is king.

Producer Price Index (PPI)

U.S. producer prices cooled off in February and the increase for January was also revised downward, which is good news on the inflation battle front. March is expected to show a slight uptick but the overall trend here remains slightly downward.

Retail Sales

Retail sales are forecast to show a second month of cooling following the January surge. This would suggest slowing economic growth and more cautious consumers as tax season hits.

The March CB Consumer Confidence report noted that while consumers feel a bit more confident about what’s ahead, they are slightly less optimistic about the current landscape. Consumers plan to spend less on highly discretionary categories, but will spend more on less discretionary categories.

Michigan Consumer Sentiment

The March dip in consumer sentiment was the first decline in four months, as consumers become increasingly wary of a recession ahead. It still remains below the 2020 Covid lows and in an overall downtrend.

Fed Speakers

Fed members Williams, Harker, Kashkari, and Waller are set to speak on various days throughout the week. We’ll be on the lookout for any notable statements.

Earnings

To top off our jam packed week, we’ve got JPMorgan Chase, Wells Fargo and Citigroup earnings on Friday morning before the opening bell.

Last week, data from the Federal Reserve showed another $65 billion in deposits left the U.S. banking system, with Bloomberg’s Alex Tanzi noting most of this decline came from large banks. In each of the prior two weeks some $120 billion flowed out of small banks while some $126 billion left the overall banking system during the week ended March 22.

In his annual letter to shareholders published last week, JPMorgan CEO Jamie Dimon wrote: “As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.” (Source)

Jay Charles

Editor in Chief, The Trading Tank.

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