THE WEEK THAT WAS & THE WEEK AHEAD – April 3, 2022

Nicholas Glinsman | April 3rd, 2022

A free look at some brief thoughts about the week ahead, and highlights from the past week’s subscription issues of Ahead of the Herd.

THE WEEK AHEAD

A series of yield curves inverted last week, which has led to much nail-biting and concern about a recession, as well as debate on the uses, if any, of the term premium. Investors are both concerned that the central bank will hike too fast and too late, and that it will force a recession as it struggles to deal with out-of-control inflation. The Fed will have a chance to correct the narrative with its minutes on Wednesday.

The Fed says that the 2s10s yield curve merely represents rate expectations and doesn’t cause recessions. I agree, but my theory expands on that to suggest that the reason the yield curve anticipates recessions is because the Fed causes them. Mind you, another recession indicator, the 3m10y curve, is going in the opposite direction.

Meanwhile, the emerging-market tightening cycle looks to be coming to an end. Brazil has overtly said it plans 100 bps more in May, while Chile and Colombia this week came out more dovish than markets expected. Economies are slowing as pandemic stimulus fades and rate hikes bite, and there may also be signs that inflation has led to demand destruction. Poland may slow the pace of hikes to 50 bps this week, while Romania is expected to stick to 50 bps after surprising in February. Australia is expected to hold.

Developed market central banks are just getting going, and this probably means that EM outperformance will fade in coming months, unless Russia and Ukraine reach a peace deal and we get a dividend in eastern Europe, which doesn’t look like an immediate prospect.

As well as those rate decisions, we will have had elections over the weekend in Costa Rica, Hungary and Serbia and plenty of inflation data for traders to get excited about. Turkey and Russia should be especially interesting.

·         Monday: US factory orders, durable goods Spain unemployment; Turkey CPI

·         Tuesday: US trade; Eurozone services PMI; Australia rate decision, PMI; France industrial output; Colombia, Philippines, South Korea, Thailand CPI

·         Wednesday: US FOMC minutes; Russia CPI; China services PMI; Eurozone PPI; Poland rate decision

·         Thursday: US initial jobless claims; Eurozone retail sales; Mexico CPI; Singapore GDP; Peru, Sri Lanka rate decision

·         Friday: Japan BoP, trade consumer confidence; Canada unemployment; India rate decision; Brazil, Chile, Taiwan CPI

THE WEEK THAT WAS…

New Keynesian central bankers are dangerously close to pushing us into recession – April 1st

Have financial conditions really tightened? – March 31st

Where to look in the markets for economic predictive indictors – probably not equities – March 30th

The equity market needs to ask is whether Powell will prove more Arthur Burns than Paul Volcker – March 29th

Has Will Smith just slapped the Japanese Yen? – March 28th