Week Ahead Economic Preview: Week Of 04 April 2022

 | Apr 01, 2022 12:31

Worldwide services PMI will be due in the coming week for a detailed look into the impact of recent developments from the Ukraine war and the rising cost of living upon the service sector in March. Meanwhile the March Fed FOMC minutes release will be the highlight from amongst the central banks while the RBA and RBI also convene. A string of inflation data will also be expected from APAC economies next week.

The market remains coalesced around two key themes, the Ukraine war and tightening monetary policy, though sentiment improved this week as investors calmed themselves around the idea of rising interest rates. Peace talks between Russia and Ukraine also helped to soothe some frayed nerves. Although developments around the Ukraine war remain highly uncertain, the impact on inflation and thereby central bank policy will continue to be studied next week, most notably via the March Fed minutes and services PMI releases.

While flash PMI surveys pointed to the easing of COVID-19 restrictions cushioning the blow from rising costs on business activity for developed economies in March, the implication of these burgeoning price pressures upon consumers remains a delicate issue. Fed minutes from the March FOMC minutes will therefore offer insights into the Fed's resolve towards taming inflation back towards the approximate 2% target. As it is, the RBI may be one to move ahead with raising interest rates to tackle above-target inflation at their April meeting next week. The RBA, on the other hand, is expected to stay patient and hike rates only later in the year.

Given the focus on prices, particularly on the back of both the Ukraine war and China lockdowns, March CPI data across a number of APAC economies will also be in focus.

h2 US sees higher inflation and stronger growth, for now/h2

Traders will be eagerly awaiting the minutes from the latest FOMC meeting to assess the likely path of future rate hikes. The Fed hiked by 25 basis points at the last meeting, raising interest rates for the first time since 2018 to take the Funds target range to 0.25-0.50%, with a further six hikes signalled during 2022. However, an even more aggressive near-term hike path is being increasingly viewed as likely by the markets, reflecting the need to rein in inflation expectations.

The case for more aggressive rate hikes was strengthened by the latest survey data. S&P Global's US PMI showed US businesses not only reporting input cost inflation pressures to have persisted at a near-record rate in March, according to the early 'flash' estimate, but also stronger output and demand growth. New orders growth surged to the highest rate since last June, reflecting the reopening of the economy from COVID-19 containment measures.

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Although the survey also reflected a pull-back in firms' expectations about growth in year ahead, the overall level of confidence remained well above the pre-pandemic average, suggesting that - contrary to some bond market indicators - companies are not anticipating a downturn just yet. However, we remain keen to evaluate the extent to which the rebound from the pandemic could get blown off course by the headwinds of the Ukraine war, soaring prices, and of course higher borrowing costs.