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Fed Chair Powell Testimony, U.S. ISM and Jobs Data, ECB Meeting: Macro Week Ahead

By:Ilya Spivak

All eyes are on U.S. rate cut expectations as Fed Chair Powell testifies in Congress and key economic data arrives

  • Investors focus on service-sector ISM and U.S. jobs data as Fed policy speculation churns.
  • Fed Chair Powell may strike a hawkish tone in two days of Congressional testimony.
  • The euro is in the balance as the ECB prepares to signal the start of interest rate cuts.

U.S. stock markets continued to roar higher last week.

The bellwether S&P 500 passed the leadership baton to the Nasdaq 100 having outperformed the tech-heavy index in the prior week. Signs of end to the hawkish re-pricing of the Federal Reserve interest rate cut path seem to have played the defining role.

First, the U.S. central bank’s favored PCE inflation gauge registered in line with expectations, easing worries about an upside surprise akin to the analog CPI report. Next, the manufacturing activity gauge from the Institute of Supply Management (ISM) fell short of expectations, showing the pace of contraction unexpectedly accelerated.

The 2024 policy path priced into Fed Funds futures promptly added 10 basis points (bps) to the expected rate cut tally in response. Shares rocketed higher, Treasury yields fell, gold prices jumped, and the U.S. dollar gave up some of the gains it scored against major currencies earlier in the week.

Below are macro waypoints that are likely to shape price action in the week ahead.

U.S. ISM non-manufacturing survey

The service sector ISM gauge is expected to show that the pace of expansion slowed a bit in February. Nevertheless, the downtick would put growth just a hair below January’s four-month high.

Services are a far larger part of the U.S. economy than manufacturing, so signs of resilience here may push back on last week’s dovish Fed repricing.

ISM Economic Activity Surveys
Data source: ISM

Federal Reserve Chair Powell testimony

Fed Chair Jerome Powell will sit for two days of back-to-back testimony before the U.S. Congress.

He begins with a sit-down in the House, then heads for a repeat performance in the Senate. Prepared remarks will be mostly unchanged from one outing to the next, with the key differences likely to show up in the Q&A portion of each exercise.

On balance, a hawkish tilt seems likely. U.S. economic data has mostly outperformed relative to baseline forecasts since the beginning of the year and inflation expectations priced into bond markets have moved up accordingly. On rate cuts, Powell is likely to reiterate that cuts are on the menu this year but talk down their urgency and scope.

Futures Implied FOMC Outlook vs. S&P 500
Data source: CME

European Central Bank (ECB) policy meeting

The euro hangs in the balance as the European Central Bank inches closer to cutting interest rates.

As it stands, three 25 bps cuts are fully priced in to appear by June, September, and December. A total of 84 bps in easing for 2024 is reflected in benchmark ESTR futures, implying a 64% probability of a fourth reduction by year-end.

Leading purchasing managers index (PMI) data shows that Eurozone economic activity shrank for an eighth consecutive month in February. Meanwhile, market-based measures of near-term inflation expectations seem to be anchored below the ECB’s 2% target. On balance, this seems to make room for some dovish stage-setting.

Eurozone EST Futures Implied 2024 Rate Change
Data source: ICE

U.S. employment data

Job creation in the U.S. is expected to slow a bit in February. Still, an increase of 195,000 in nonfarm payrolls would land firmly within the broadly benign range of outcomes anchoring the labor market for the better part of a year. The jobless rate is seen holding steady at 3.7% yet again.

Absent a meaningful surprise on the downside, the numbers seem unlikely to stir dovish speculation in a lasting way. Still, the markets’ sensitivity to anything that might push Fed policy bets—one way or another—might make for sharp price swings in response to even most deviation from the forecasts.

US Employment Situation March 2024
Data source: BLS

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

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