Volatility ahead of Powell testimony, non-farm payrolls, RBA and BOC and OPEC rate decisions

AAsian markets are expected to be volatile this week amid uncertainty caused by Russia’s invasion of Ukraine, despite a two-day rebound in US equity markets.

Main instruments to watch

Merchandise

The new round of sanctions against Russia could have a significant impact on global commodity markets.

Russia is Europe’s largest natural gas supplier and the world’s second largest oil exporter, and sanctions against Russia would further limit supply. Crude oil futures rose above the $100 mark last week amid heightened tensions. We could see the price continue to rise, despite a sharp pullback last Friday.

Precious metals, including gold, silver, palladium and platinum, face increased volatility amid uncertainty. Gold is not only a safe haven, but also an important industrial raw material. Last week, gold hit $1974, the highest since September 2020. Technical support between $1,870 and $1,878 should be watched closely, with the ongoing geopolitical dispute. Apart from gold and silver, Russia’s share in world palladium and platinum exports is 45.6% and 15.1% respectively.

Russia’s agricultural exports, including wheat and corn, have been volatile. Russia could lose the capacity for international trade with the banning of the SWIFT system.

American and Asian stocks

US stocks appear to have found a footing last week as investors piled into cheap tech stocks. Geopolitical unrest could cause the Fed to be less aggressive in its monetary policy, which could benefit technology stocks and negatively affect the financial sector

Key economic data and events for the week ahead

Powell’s testimony, US ISM PMI, non-farm payroll

US Federal Reserve Chairman Jerome Powell is due to testify before Congress on Thursday and Friday. These will be the last public remarks before the Fed’s policy meeting on March 15-16. Powell may give some clues about the Fed’s next move on rate hikes. The chances of the Fed raising interest rates aggressively have weakened somewhat due to the Ukraine crisis.

February’s US ISM manufacturing PMI and labor non-farm payrolls data will be closely watched as leading economic indicators. The manufacturing PMI should maintain its positive momentum as inflation rises. Slightly slower growth in labor markets is expected, with 450,000 new jobs compared to 467,000 in January.

RBA decision on cash rates, Australian GDP

The Reserve Bank of Australia’s board of directors meets on Tuesday. It ended its bond buying program at its February meeting. There is little expectation of a rate hike in a context of lower inflationary pressures than elsewhere in the world and a relatively strong local currency, supported by rising commodity prices. Australian GDP is expected to slow to 2.6% from 3.9% year-on-year from the third quarter due to lower business investment in the last quarter.

BOC to raise interest rates

The Bank of Canada is expected to raise interest rates by 25 basis points to 0.5% amid growing inflationary pressure and improving economic data, while the Ukraine crisis could be positive for commodity exports from the country.

OPEC meeting

OPEC and other major oil producers are unlikely to change their plans to increase production by 400,000 barrels per day as prices rise due to Russia’s invasion of Ukraine.

Major Economic Events (February 28 – March 6) (AU Time)

China NBS Manufacturing and Non-Manufacturing PMI (February) 12:30 PM, Tuesday – Can the manufacturing PMI hold above the 50 level for the 4th consecutive month?

China Caixin Manufacturing PMI (February) 12:45 PM, Tuesday – Can manufacturing SMEs stage a recovery in February after falling to a 23-month low of 49.1 in January?

RBA decision on interest rates 2:30 PM, Tuesday – Will the RBA start raising rates after 14th consecutive month of waiting?

US ISM Manufacturing PMI (February) 2:00 a.m., Wednesday – Consensus estimates that manufacturing growth will pick up to 58 after slowing to 57.6 (January), its weakest reading since September 2020.

US President Biden’s State of the Union address on Wednesday

AU Q4 GDP 11:30 a.m. Wednesday – Forecasts call for a slowdown to 2.6%y/y from 3.9%y/y (Q3).

Eurozone Inflation Rate Flash (February) 9:00 PM, Wednesday – Another hot print of 5.2%y/y is expected.

BoC interest rate decision 2:00 a.m., Thursday – Consensus calls for the first rate hike of 25 basis points to 0.50% since 2018.

China Caixin Services PMI (February) 12:45 PM, Thursday – Forecasts call for a slight improvement in service sector growth to 52 from 51.4 (January).

US ISM Non-Manufacturing PMI (February) 02:00 Friday – Consensus estimates services activities will show improved growth to 61 from 59.9 (January).

US Nonfarm Payrolls (February) 12:30 a.m., Saturday – Expectations point to a slowdown in hiring; +450K from +467K (January).

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