Macroeconomics: The Day Ahead for 18 March

Another harrowing week in the war in Ukraine draws to a close, with Russia wreaking death and destruction on Ukraine’s population, but clearly failing to achieve any of its major objectives, and sadly little progress evident in moving towards a ceasefire. The day’s regular calendar has precious little in the way of data, with US Existing Home Sales and the less than timely Canadian Retail Sales the only times of any note, and the focus likely to be on the Biden Xi phone call meeting. As expected, the Bank of Japan made no changes to rates or unconventional policy measures, and Kuroda once again reiterated that core inflation will remain below target, and that removing accommodation is not on the BoJ’s agenda for the time being. Russia’s central bank meets with no further changes expected on rates (20%), and the only point of interest being whether anything is said about foreign bond coupon payments and redemptions. The first round of post FOMC Fed speakers has Barkin, Bowman and Evans, with particular focus likely paid to anything they might reveal about the Fed’ balance sheet reduction (QT) plans.

Rather underdiscussed over the past couple of days has been clear signals that China’s zero Covid policy is in effect being abandoned, perhaps because markets hear the magic word ‘stimulus’ (fiscal & monetary), but this should help to ease some supply chain bottlenecks, though this will not be a case of waving a magic wand, above all in terms of agricultural commodities and energy. As the very powerful UNCTAD graphic highlights just how many countries in Africa are colossally, if not totally dependent on Russian and Ukrainian wheat, with high prices and current supply disruptions more than likely to prompt social unrest and political instability, in the short and medium-term.

Yesterday’s “everything up” (stocks, bond prices, Oil and many commodities, with credit spreads tightening) once again serves as a reminder that TINA and FOMO are very much alive and kicking, despite all the recent volatility and the high level of uncertainty about the economic outlook, aside from the obvious point that there is going to be even more inflation. The fact that some of the biggest moves came in High Yield bonds and unprofitable (i.e. loss making) tech sector companies unprofitable also highlights just how indiscriminate the  move was (notwithstanding RV considerations), and again has many of the hallmarks of a vicious market rally, which appears to be being chased very hard by retail money.