Week Ahead Central bank minutes to guide interest rate expectations

The past week in the markets has been dominated by dramatic, and often incongruent, moves that have been marked by still-buoyant volatility in the aftermath of the preceding week’s wild market swings. Through the course of the past week, equity markets rebounded sharply, paring much of the losses that were suffered when stock indexes briefly entered into correction territory during the first full week of February.

This sharp equity rebound has occurred despite increasing fears of rising inflation and interest rates that were recently put on full display as US Treasury yields hit new multi-year highs and US inflation indicators came in significantly higher than expected. Also defying expectations was the US dollar, which continued to fall through much of the past week, establishing yet a new three-year low on Friday (before bouncing), despite growing anticipation of higher US interest rates and a potentially more hawkish Federal Reserve.

In the week ahead, markets should continue to be preoccupied with the specters of rising inflation and interest rates as reflected in government bond yields. Of more immediate concern, however, will be the release of minutes from three major central banks detailing their most recent monetary policy meetings. These reports will provide important clues as to the central banks’ monetary policy stances, potential interest rate trajectories, and outlooks on inflation and economic growth.

The Reserve Bank of Australia is up first on Tuesday in Sydney with its release of meeting minutes. In early February, the RBA left interest rates unchanged as widely expected, marking a full year-and-a-half without any rate changes. The central bank is not expected to raise interest rates until either late this year at the earliest, or possibly next year, as its recurring concerns about a strong Australian dollar is one of the factors precluding a more immediate rate hike.

Next up is Wednesday’s Federal Reserve release of minutes from its FOMC meeting at the end of January, in which the central bank kept rates steady. Though new inflation data has emerged since then, any substantive discussion of inflation during that meeting will provide some indications as to the Fed’s potential policy trajectory.

Finally, the European Central Bank releases its own monetary policy meeting accounts on Thursday. The euro has remained exceptionally buoyant, especially against a heavily weakened US dollar, on a rising eurozone economy and keen anticipation of monetary policy tightening by the ECB. Recently, the central bank hinted that the era of extraordinarily loose monetary policy is essentially over, which lends further support for potentially more hawkishness from policymakers on a global scale.

Along with the release of minutes from these three major central banks, some other important events and releases are as follows:

• Tuesday, February 20th:
  • Reserve Bank of Australia Monetary Policy Meeting Minutes
  • Canadian Wholesale Sales (M/M)
• Wednesday, February 21st:
  • Australian Wage Price Index (Q/Q)
  • French Flash Services PMI
  • French Flash Manufacturing PMI
  • German Flash Services PMI
  • German Flash Manufacturing PMI
  • Eurozone Flash Services PMI
  • Eurozone Flash Manufacturing PMI
  • UK Average Earnings Index (3M/Y), Claimant Count Change, and Unemployment Rate
  • UK Inflation Report Hearings
  • US FOMC Meeting Minutes
• Thursday, February 22nd:
  • UK GDP (Q/Q)
  • European Central Bank Monetary Policy Meeting Accounts
  • Canadian Retail Sales and Core Retail Sales (M/M)
• Friday, February 23rd:
  • New Zealand Retail Sales and Core Retail Sales (Q/Q)
  • Eurozone Final Consumer Price Index (Y/Y)
  • Canadian Consumer Price Index (M/M)