Week Ahead

The war between Russia and Ukraine has taken almost all markets’ attention and there is little hope that next week will bring any peaceful solution to the conflict. On the macro side, the US Federal Reserve and the Bank of England are set to hike interest rates. Other important data releases include US retail sales, Germany ZEW Economic Sentiment Index, UK labour indicators and China industrial production.

In the US, the Fed is expected to deliver a quarter-point rate hike on Wednesday, which would be the first increase in the fed funds rate since 2018. Investors will keep a close eye on fresh economic and interest rate projections and any comments on the central bank plans for its nearly $9 trillion balance sheet. Any guidance on the inflation and growth outlook will also be scrutinized, at a time commodity prices remain elevated due to Russian sanctions and the uncertainty over the war in Ukraine lingers. Other important macro releases include producer prices, consumer inflation expectations, retail sales, industrial production, the NAHB housing index, building permits and housing starts, existing home sales, and business inventories.

Elsewhere in America, inflation rate and retail sales for Canada; Brazil monetary policy decision and unemployment rate; and Chile GDP growth rate for Q4 will also be in the spotlight.

In the United Kingdom, the Bank of England is expected to hike interest rates for the third straight meeting by 25bps to 0.75%, bringing borrowing costs to pre-pandemic levels, aiming to curb inflation currently running at 30-year highs of 5.5%. Before the war in Ukraine, the BoE had forecast inflation to peak at a 30-year high of 7.25% in April, well above the 2% target, when energy bills and taxes are due to go up. On the data front, the UK unemployment rate in the three months to January is set to fall to its lowest level since the Feb-Apr 2020 period and wage growth is seen accelerating.

Elsewhere in Europe, German investor morale is expected to plunge to its lowest in two years, when Covid-19 hit, hurt by the Russia-Ukraine conflict and mounting inflationary pressures. Other key economic indicators include the Eurozone final inflation data, industrial activity, balance of trade and Q4 wage growth; German wholesale prices; Switzerland balance of trade and SECO economic forecasts. Turkey and Russia are also expected to decide on interest rates next week.

It will be a busy week for Japan, with external trade figures, industrial production, private-sector machinery orders, and an inflation rate reading before the Bank of Japan meets on Friday. The central bank is widely expected to leave monetary policy unchanged amid a record-beating rise in wholesale prices, as consumer price inflation remained well below its 2% target. Also, the BoJ should downgrade its economic assessment due to the worse-than-anticipated impact of the Omicron variant in consumption and the war in Ukraine.

Meanwhile, China’s central bank will likely cut its medium-term lending facility, which is seen as a guide for changes in the key Loan Prime Rate. Also, in China industrial production and retail sales will be in the spotlight. Elsewhere, the Bank of Indonesia will decide on interest rates and South Korea and Australia are expected to release labor figures. It would be also interesting to see India’s external trade and inflation data.