Take Five: A manic March

LONDON (Reuters) -It’s an action-packed week ahead for world markets again grappling with the prospect of major central banks hiking interest rates for longer to contain persistent inflation.

U.S. Federal Reserve chief Jerome Powell testifies to Congress, while the Bank of Japan’s boss looks set to bow out, and latest U.S. jobs numbers, Australia’s central bank meeting and UK economic growth data are also on the calendar.

Here’s a look at the week ahead in markets from Lewis Krauskopf in New York, Kevin Buckland in Tokyo, Li Gu in Shanghai, and Amanda Cooper and Naomi Rovnick in London.

1/ JOBS JOLT

It’s all about jobs, and Friday’s February U.S. employment report takes on added significance after stunningly strong January data prompted a rethink on projections for an economic slowdown and the Fed’s rate path.

    Another dose of hot job growth after January’s payrolls increase of 517,000 trounced estimates could stoke fears of more hawkish Fed action. Initial expectations are for a 200,000 increase in jobs in February, according to a Reuters poll.

    Fed chief Powell meanwhile testifies before a U.S. Congressional committee on Tuesday. Powell has said the January jobs report showed why the battle against inflation will “take quite a bit of time”.

Investors expect another 25 bps hike from the Fed, but market pricing suggests a slightly higher chance for a bigger increase than had previously been the case. Powell’s comments and the jobs data could help settle what the Fed does later this month. 

2/ KURODA EXITS

    After a decade at the top of the Bank of Japan, overseeing ever-more complex stimulus measures, Governor Haruhiko Kuroda chairs his last policy meeting at the end of the week.

    As recently as a month ago, investors thought there could be fireworks, with unpopular yield curve controls tumbling down. But a series of band aids, and the stated dovishness of successor Kazuo Ueda, have cooled investor attacks on the bond market for now.

    Meanwhile the Reserve Bank of Australia meets Tuesday, and investors there have also reeled in hawkish rate-hike bets.

The RBA hinted at further tightening at its meeting last month, but data since then has pointed the other way. The economy grew at the weakest pace in a year last quarter, and January consumer price data suggested inflation may be past the peak.

3/ CHINA’S NPC 

China set a modest target for economic growth this year of around 5% on Sunday as it kicked off the annual session of its National People’s Congress (NPC), which is poised to implement the biggest government shake-up in a decade.

Global investors have turned cautious over the direction of policy, economic stimulus, and regulations in the world’s No.2 economy. They want to see if President Xi Jinping prioritizes common prosperity over reforms.

Policy sources had recently indicated China might be aiming at a 2023 growth target as high as 6%.

Measures encouraging consumers to spend more and save less are also anticipated. The direction the Congress sets for the property market and infrastructure spending is also key to appetite for commodities and China’s high-yield bond market.

Word is also out on the next generation of leaders, such as the top candidates for posts of premier and central bank governor. Markets are watching closely.

4/ MARCH MUDDLE

Markets have moved into March in a muddle. After a red-hot January rally, bonds and equities retreated in February as strong data sparked concerns about more rate hikes. Ahead of the Fed’s March 22 meeting, more wild swings could be next.

Money markets are increasingly positioning for the Fed to extend its most aggressive tightening cycle since the 1980s. But the world’s dominant central bank might also view recent robust economic performance as temporary, sticking to its forecast of a soft economic landing.

Jittery government bond markets suggest sentiment will keep shifting between these two views. An index of volatility in the $24 trillion U.S. Treasury market, where yields underpin asset valuations worldwide, rose by the most in February since June 2022 and continued climbing as March got underway.

5/ ONE IS THE LONELIEST NUMBER

The British economy, which narrowly avoided falling into recession in the last three months of 2022, is showing signs of life.

Business activity, consumer confidence and a pick-up in tax revenues means some analysts have upgraded growth forecasts.

The Bank of England, which many had widely expected to wrap up its 15-month old tightening cycle this month, might now have to keep raising rates, not least as consumers and businesses appear to be holding up in the face of double-digit inflation.

Data on Thursday for how the economy fared in January might offer a glimmer of optimism. That said, Britain is the only G7 economy that is still smaller than before the coronavirus pandemic. The International Monetary Fund believes it will be the only G7 economy to shrink this year.

(Compiled by Dhara Ranasinghe; Graphics by Sumanta Sen, Sarah Slobin and Prinz Magtulis,Vincent Flasseur, Riddhima Talwani and Kripa Jayaram; Editing by John Stonestreet and Jan Harvey)