The coming week’s key macro event is Wednesday’s publication of the FOMC minutes from the March 16 meeting, which may include additional details on the prevailing narrative within the Committee about how quickly the Fed is likely to raise rates. In addition, the March Services and Composite PMIs, which measure economic activity, will be published on Tuesday, and US crude oil inventories as of April 1, which are expected to give some guidance about the ongoing energy crisis, will be released on Wednesday.
US investors also continue to closely follow the ongoing Russia-Ukraine crisis. While recent positive headlines about a potential ceasefire have pushed equities up, most analysts are cautioning against expectations of an upcoming end to the hostilities, and point to previous examples of wars conducted by Russia – including Afghanistan, Chechnya, and Syria – all of which lasted several years.
Minutes from the FOMC meetings are usually a deep dive into the Committee’s decision-making process. They are precise accounts of the policymakers’ different views and record potential dissents. Investors will be looking for clues on what the hiking pace will look like if the Fed is taking into account the fallout of the Russia-Ukraine war as well as some initial accounts that inflation could be moderating going forward – including evidence from a Yield curve inversion that may point to a potential recession. The minutes carry additional significance since the next FOMC meeting isn’t until May.
The pace of future Fed hikes is important for investors and consumers alike. A fast succession of rate increases may negatively affect economic growth, increasing the odds of a recession. On the other hand, a slower than anticipated pace of hikes can be unsuccessful in taming inflation, which is now affecting wages – proof that it has become entrenched in the economy.
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US crude oil inventories
The increase in energy prices has been a major driver of inflation and has been putting downward pressure on equity returns. While this week’s OPEC+ (which includes Russia) meeting did not yield a meaningful increase in oil production, the US government has decided to release a substantial amount of its strategic reserves to tame prices and help consumers. The US inventories number can help investors understand how effective this strategy can be in the long run, if the geopolitical risk does not subside.
Investors have been encouraged by news of potential localized ceasefires and prospects of higher-level meetings between the two sides. However, the coming week is unlikely to bring more clarity on the end game, and geopolitical risk is expected to remain top of investors’ minds for the foreseeable future.
Later this month we’ll be publishing a comprehensive Q1 update for more information about our products’ performance in this volatile market environment.
1. Average hourly earnings for all employees on private nonfarm payrolls rose by 13 cents to $31.73 in March. Over the past 12 months, average hourly earnings have increased by 5.6 percent. In March, average hourly earnings of private sector production and nonsupervisory employees rose by 11 cents to $27.06. Source: Bureau of Labor Statistics. https://www.bls.gov/news.release/pdf/empsit.pdfm
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