North America Trading Outlook for the week of March 12, 2017
By Colin Cieszynski, CFA, CMT, CFTe, Chief Market Strategist, CMC Markets
The coming week has the potential to be huge for trading opportunities and could become a turning point for a number of markets with several key economic, monetary and political events taking place.
Everything centres around the Ides of March, the 2,061st anniversary of the assassination of Julius Caesar, with a number of key developments coming out both on the 15th and 16th.
The main focus is on the Fed meeting, with its interest rate decision due at 2:00 pm EST on Wednesday the 15th. Between recent comments from FOMC members including Fed Chair Yellen, and confirmation of a strong US job market along with rising wage inflation, a 0.25% hike to 0.75% - 1.00% pretty much looks like a done deal.
Traders may look to the dot plot or additional comments for signs of how many additional increases are expected this year. A gradual pace would suggest one hike per quarter or 4 total this year which the US Dollar has priced in. Fed Funds are currently pricing in a 50% chance of a second hike in June, a 28% chance of a third hike in September and a 19% chance of a fourth hike in September.
On the inflation side, US producer prices Tuesday and consumer prices Wednesday could attract attention ahead of the Fed decision.
If the Fed keeps its party line of 3 hikes this year it would suggest they are trying to give themselves flexibility to skip a quarter if needed. Having passed in March last year, the Fed found itself backed into a corner by December after the Brexit vote and the US election made it impossible to act in June and December last year. This year, the risk comes from potential strife over the debt ceiling, as the current deal ends March 15th. Past negotiations have devolved into big showdowns and government shutdowns which could force the Fed back to the sidelines temporarily.
There are a number of additional central banks meeting on the 16th including the Bank of Japan, Swiss National Bank, Bank of England and Norges Bank so we could quickly see how any changes at the Fed could impact policy at other central banks.
The coming week comes in between last week’s big speeches and next week’s Ides of March but there could still be a number of trading opportunities.
Overseas, March 15th brings the Netherlands election which may indicate how strong the populist movement is in Europe heading into the bigger French and German elections. Currently Euroskeptic Wilders’ party is running in second but a surprise win could really upset a lot of apple carts.
March 16th is also expected to the day President Trump issues his preliminary budget request to Congress, highlighting his spending priorities for the year. Markets have soared on anticipation that he will be able to push through tax reform, health care reform, infrastructure spending, trade changes and military spending increases quickly and with limited opposition.
Thursday could be the day the instant speed of markets crashes into the glacial speed of government. Increases in military spending are expected to be offset by cuts in other areas like environment. Recent reports suggest tax reform could slip to later in the year and infrastructure could get pushed off to 2018.
The release of the budget request could force a rethinking among traders of who may be the near-term winners and losers under President Trump. One thing to note, US manufacturing payrolls rose 28K last month way above the 10K the street had expected, suggesting that businesses are already starting to make decisions based on expected changes to trade policy.
Speaking of trade, Tuesday is the first face to face meeting between President Trump and German Chancellor Merkel. Relations have been rocky so far with the President accusing Germany of using its Euro membership as a way of depressing its currency relative to a standalone Deutschemark. On the other hand, Germany’s big trade surplus has started to come down this year. It remains to be see if we will see fireworks or not.
One other thing, the Article 50 bill works its way through the UK Parliament with the potential that Article 50 could be triggered this week. If so, this also could have an impact on trading particularly in UK stocks and GBP pairs.
This week’s events have the potential to cause major shifts in sentiment toward indices, stocks, commodities and currencies with potential ramifications that could impact markets for the next several months.
Due to the importance of this week’s events, Colin Cieszynski and Michael Hewson will be holding an Ides of March / FOMC preview webinar at 1500 GMT, 11:00 am EST on Tuesday the 14th.
Register at: https://www.cmcmarkets.com/en/learn/events/fomc-preview-webinar1403
Economic news (North America time):
Monday evening China retail sales, industrial production
Tuesday morning US producer prices
Tuesday Germany Chancellor meets with US President Trump in Washington
Wednesday morning US consumer prices, retail sales, Empire manufacturing
US debt ceiling deal ends
Wednesday afternoon FOMC rate decision (0.25% increase expected)
FOMC dot plot (party line has been 3 hikes this year)
FOMC Yellen press conference
Wednesday evening Netherlands election results
Bank of Japan meeting
Thursday morning US preliminary budget request may be issued
Bank of England meeting
Swiss National Bank meeting
Norges Bank meeting
Friday morning US industrial production
Friday G20 finance ministers meeting in Germany
TBA UK could potentially trigger Article 50 to start Brexit negotiations
There are no major earnings reports scheduled for this week.