Week Ahead Preview: March 21, 2022

Stock markets recovered from a weaker start to the new week, with major indices trimming their losses by mid-morning London session on Monday. Crude oil rose nearly 4%, aluminium added 1.7% while gold was up only modestly. The focus continues to remain on the situation between Ukraine and Russia.

On that front, no agreements have been reached yet in negotiations with Ukraine, while there needs to be significant progress made first before a possible meeting between Putin and Zelensky, according to Kremlin. Last week, hopes over a possible deal had lifted sentiment in the market. Russia’s negotiator on Friday, for example, said that the two sides were now 'halfway there' on the issue of Ukraine's demilitarization, and that on the issues where their views are most-closely aligned is Ukraine's neutral status and not joining NATO. Let’s see if the gap closes in the days ahead, but it doesn’t look promising.

Stocks end week on the front-foot

If you look at the financial markets over the past week or so, it is as if the Ukraine war never happened, or the Fed was not very hawkish. Stock markets roared back higher to close solidly in the black last week. This was the second consecutive weekly positive close for European indices, but the first one for Wall Street and Asia Pacific (APAC) markets. STOXX Europe 600 erased all the losses it had suffered since the invasion of Ukraine began. Risk-sensitive commodity dollars surged higher, while safe-haven Japanese yen and gold slumped. Yen pairs had a wonderful week. Cryptocurrencies traded mostly higher. Crude oil bounced sharply off the lows but still ended lower for the second consecutive week. But that rebound has continued into the new week with Brent reaching $111 and WTI $108 per barrel. Oil prices must be watched closely given ongoing concerns over soaring inflation, as any further sustained pressure will intensify those concerns and potentially have repercussions elsewhere in the financial markets.
 
Watch FedSpeak

As well as the ongoing situation in Ukraine, the focus in the week ahead will also be on Fedspeak, with Powell speaking on both Monday and Wednesday. The Fed has signalled a much stronger appetite to combat inflation, indicating a further 6 rate increases in 2022. Judging by comments from some of the Fed officials that have spoken, there is a possibility that we may even see a 50 basis point increase in May. Let’s see if there is much appetite for that, and what plans they might have for running down the central bank’s $8.9 trillion balance sheet.

In terms of macro data, the highlights include durable goods orders and housing market data. From the UK, we have CPI and retail sales, while in Switzerland, the SNB will be making a “decision” on interest rates. Hint: no rate increases are coming. Another set of key data will be the latest PMI numbers, due on Wednesday from Eurozone.
 
Economic data highlights
 
Monday 21 March
 

• Fed Chair Powell Speaks

Tuesday 22 March
 

• Central bank speech: ECB’s Lagarde, FOMC’ Williams, SNB’s Jordan and MPC’s Cunliffe

Wednesday 23 March
 

• UK spring statement and Consumer Price Index (CPI) for February
• Central bank speech: BoE’s Bailey, FOMC’s Powell and Bullard

Thursday 24 March
 

• SNB rate decision
• Flash PMIs from France, Germany and UK
• US durable goods orders, jobless claims and flash PMIs

Friday 25 March

• UK retail sales   
• German Ifo

  
Friday 25 March
 

• UK retail sales   
• German Ifo

 
S&P 500 breakout vs. death cross

A lot was made of the S&P’s so-called “death-cross,” but we haven’t seen much downside action. The “death cross” on the S&P describes the fact the 50-day has fallen beneath the 200-day moving average. This usually happens as a result of a correction or sell-off, which makes it a bit of a lagging indicator. Nonetheless, it provides an objective signal, telling traders that the market is no longer in an uptrend. As such, some traders and fund managers would be less inclined or unwilling to look for long trades in such a market. Others might even use this signal to look for short trades. So, it has some important implications. But by the time the moving average crossover happens, the bulk of the price move may have already taken place, as has been the case now. The bears need to see the S&P remain or go back inside its bearish channel again, otherwise the bulls will remain in charge.

Source: ThinkMarkets and TradingView.com