Week Ahead: Crude turns higher into a pivotal new month

This week sees central banks get more data to assess the state of the labour market and inflation pressures. The US non-farm payrolls data released on Friday is expected to see another round of solid gains. Like supply chain strains, a lack of suitable workers may hold back growth potential. But this will put up costs as wages get bid higher in a red-hot jobs market.

The US PCE inflation figures may be the key release of the week on Thursday. This is the Fed’s targeted measure and will be important in driving market expectations for Fed policy. A strong report will support calls for bigger rate hikes going forward, beginning with the May and June FOMC meetings. EUR/USD moved lower last week in a relatively narrow range. If we lose last week’s low at 1.0960, 1.09 should come into view and the cycle bottom around 1.08.

Many traders will be watching the latest OPEC meeting on Thursday, as this may also influence inflationary pressures. G7 leaders have asked the cartel to boost output to compensate for the disruption generated by the Ukraine crisis. Can Opec continue with “business as usual” when Russia’s production could fall by as much as 3mn b/d from next month? Whether the group is actually able to substantially raise production may be the more important issue. Crude prices rose last week with Goldman Sachs saying Brent could reach as high as $175 this year.

Major risk events of the week

29 March 2022, Tuesday:

-US Consumer Confidence: Market median forecasts a print of 107.8 after February’s reading of 110.5. Analysts say that rising inflation concerns may dampen confidence going forward. The Michigan survey fell to its lowest level in nearly 11 years, though this places more emphasis on the stock market and gasoline prices.

31 March 2022, Thursday:

China PMIs: Consensus sees the data falling to 50.0 from 50.2 in manufacturing and 50.7 from 51.6 in non-manufacturing. Stricter Covid restrictions are expected to affect factories. But lockdowns in the main services and financial regions have been brief with employees used to working from home.

US Core PCE: The Fed’s favoured inflation gauge has reached a 40-year high, and the February deflator is expected to remain at 0.6%. The core figure is forecast to fall one-tenth to 0.4%. A strong report will support the dollar, especially against low-yielding currencies.

01 April 2022, Friday:

Eurozone CPI: Analysts forecast the flash CPI estimate rising to 6.3% in March from the prior record 5.8%. Steeper increases in the price of energy and food are expected to be accompanied by higher surges in the cost of services and goods. The euro remains under pressure with upside risks to gas prices rising.

US Non-Farm Payroll: Consensus expect more healthy job gains with a median forecast of 450k for the headline print. This comes after a large beat in February as well as decent revisions to past data. The unemployment rate is estimated to fall to 3.7% and support robust wage growth which is forecast at 0.4%.

US ISM: Analysts estimate a small drop in the March reading to 58.3 from 58.6 last month. Manufacturing activity is growing at a strong pace with backlog orders growing by the most in 11 years in February. But the Ukraine crisis could further choke supply chains.

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