The combination of US monetary policy tightening and heightened European political risks look set to dominate markets in the coming week. The Federal Reserve is widely expected to raise interest rates, while voters in the Netherlands head to the polls in an election that’s seen as a litmus test for the strength of populist sentiment on the continent in a key year for the EU.

Meanwhile the British government looks on course get its Brexit bill through parliament this week, raising speculation that Theresa May is about to officially trigger Article 50.

Federal Reserve

 

Markets fully expect the Federal Open Market Committee (FOMC) will vote to raise interest rates when it convenes on Wednesday. Chair Janet Yellen said recently that a rate hike “would likely be appropriate” at the next meeting.

Faced with Trump’s inflationary policies and a rising stock market, policymakers are concerned that waiting too long to raise rates might require rates to rise rapidly in the future, which could disrupt financial markets and push the economy into recession. Upwards pressure on the front end of the yield curve as inflation expectations rise mean the job is being done by the markets already so tightening by policymakers should be fairly smooth.

Markets are going to be focused on Yellen’s post-meeting press conference, where we learn a lot more about how quickly the Fed plans to tighten. The dollar has so far not risen as much as might have been expected but this event has the potential – if policymakers more hawkish than previously about future interest rate rises – to spark a further rally for the greenback

 

Dutch Elections

 

Over to Europe, the year of elections kicks off in the Netherlands on Wednesday. Populist Geert Wilders and his Party for Freedom are ahead in the polls and may claim the most seats in the 150-seat parliament, but it is not expected to be able to form a government.

However this election is seen as a litmus test for Europeans’ appetite for populism in the wake of Brexit and Trump, and a surge in support for the far-right might give Marine Le Pen’s FN a fillip ahead of the French elections. The prospect of her emerging victorious has seen French bond yields rise and put pressure on the euro. The elections in the Netherlands are therefore likely to have an impact on European bond spreads and the euro.

Bank of England

 

Hot off the heels of the FOMC meeting, the Bank of England is due to make its decision on monetary policy on Thursday. The Bank is widely expected to leave interest rates on hold at 0.25% and the size of its asset purchase programme at £435bn.

Markets will be eyeing any potential shift in tone on growth and inflation as policymakers assess the risks from Brexit and the weak pound. For traders the question that has yet to be fully answered is whether the next move on rates is likely to be up or down. Hawks argue the rise in inflation, which might soon overshoot the Bank’s targets, and a resilient economy mean rates should rise rather than fall. Doves stress the risks to growth and trade as we head towards triggering Article 50.

Article 50?

 

Finally we will see the government trigger Article 50 this week? There is increasing speculation that Royal Ascent for the bill could come in the next few days.

Economic Calendar

(All times GMT)

Sunday, 12 March

US/Canada – Daylight Saving Time shift

23:50 – Japan core machinery orders, PPI inflation

Monday, 13 March

04:30 – Japan tertiary industry activity

09:00 – Italian industrial production

14:00 – US labour market conditions index

Tuesday, 14 March

00:30 – Australia NAB business confidence

02:00 – China industrial production, fixed asset investment, retail sales

07:00 – German final CPI inflation

10:00 – German ZEW economic sentiment

12:30 – US PPI inflation

21:45 – New Zealand current account

Wednesday, 15 March

07:45 – French final CPI inflation

08:15 – Swiss PPI inflation

09:30 – UK average earnings, unemployment rate

12:30 – US CPI inflation, retail sales, Empire State Manufacturing index

14:30 – US crude oil inventories

18:00 – FOMC statement, federal funds rate, economic projections, press conference

21:45 – New Zealand GDP

Thursday, 16 March

Tentative – Bank of Japan monetary policy statement

00:30 – Australia unemployment rate

08:30 – Swiss National Bank Libor Rate, monetary policy assessment]

10:00 – Eurozone final CPI inflation

12:00 – Bank of England monetary policy summary, official Bank Rate

12:30 – US building permits, Philly Fed manufacturing index, weekly unemployment claims, housing starts

14:00 – US Jolts jobs openings

Friday, 17 March

10:00 – Eurozone trade balance

12:30 – Canada manufacturing sales

13:15 – Capacity utilization rate, industrial production

15:00 – Preliminary University of Michigan consumer sentiment

Corporate Calendar



Tuesday, 14 March

Prudential (PRU) – Y/2016, EPS estimate 1.145

RWE (RWE) – Y/2016, EPS estimate 1.101

Volkswagen (VW) - Y/2016

Antofagasta (ANTO) - Y/2016

Ocado (OCDO) - Trading statement

Wednesday, 15 March

Oracle (ORCL) – Q3/2017, EPS estimate 0.617

Hikma Pharmaceuticals (HIK) - Y/2016

Thursday, 16 March

Balfour Beatty (BBY) – Y/2016, EPS estimate 0.091

Deutsche Lufthansa (LHA) – Y/2016, EPS estimate 2.824

J Sainsbury (SBRY) - Trading statement

Friday, 17 March

Tiffany & Co (TIF) – Q4/2017, EPS estimate 1.388

Berkeley Group Holdings (BKG) - Trading update

Source: Bloomberg