The semi-annual appearance of the president of the FED before Congress, key of the week

MADRID. Last week (slightly shorter than usual in the US due to the Presidents’ Day holiday) the trends observed in the market since the beginning of the year were maintained. Sovereign debt sold at yields well below projected inflation – even amid rising inflationary pressure – and financial assets around the world generally rose, although the pace was uneven.

Shares only rose slightly, while prices of stocks commodities continue to rise. The behavior of currencies was also mixed, although most of those classified as high risk appreciated against the US dollar. The pound sterling and the currencies of the commodities they performed well in the G10, and the Chilean peso continues to rise strongly thanks to the increase in the price of copper.

One of the keys this week will be semi-annual appearance of the chairman of the Federal ReserveJerome Powell, before Congress, in which we hope to keep the extremely flexible speech of the last few weeks. It will be interesting to see if there are questions about the growing concern about inflation. This will undoubtedly be the main point of interest in the macroeconomic publications of the week.

Tuesday will be published CPI in the Eurozone, and Friday will also be the indicator preferred by the Fed to measure inflation in the US: the Personal Consumption Expenditure Price Index (PCE). We see that there is scope for bullish surprises in both cases.

Outlook for major currencies

Pound sterling

The pound keeps rising thanks to the good vaccination data and the loss of fear due to the possible economic repercussions that Brexit could have caused at this time. The PMI activity indicators that were released last week gave even more support: They were much stronger than expected and suggest that the economy is recovering from the restrictions faster than expected. The employment data that we will know this week is somewhat out of date and should not affect the market too much. We expect the currency to take a breather after the strong appreciation in recent weeks.


The slight improvement in February PMI indices It masked a dichotomy between the manufacturing sector (on the rise) and a service sector still hampered by closures and lockdowns. We expect the services PMI to begin to improve starting next month as restrictions are relaxed across the continent. One of the keys of the week will be inflation report. The strong rise in core inflation, which fell from a record low of 0.2% to 1.4% year-on-year in January, could be attributed to specific factors, but if the increase continues, it will be more difficult to deny the consolidation of inflationary pressures.

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American dollar

Power outages in Texas have caused a brief setback in the vaccination campaign in the United States, although the rate of new infections continues to decline. The big news last week was the January retail sales data. -very strong- and the continuous rise in Treasury yields -that under the indulgent gaze of the Federal Reserve and in light of the prospects of new fiscal stimuli are signs of a strong recovery and inflationary pressures. We believe it is significant that although real Treasury yields have started to follow nominal ones on their way up, the dollar has not yet taken advantage of significantly. We expect both rates and currency markets to continue to await PCE inflation data (Price Index for Personal Consumption Spending), published on Friday.

Enrique Díaz-Álvarez is Director of Risks at Ebury


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