Key events to watch in the week ahead: 20-24 Feb 2023

This week’s overview

Hopes of disinflation are being challenged this week, as a series of upside surprises in US inflation data seem to suggest that more needs to be done to bring pricing pressures under control towards the 2% target. The US dollar finds comfort on the hawkish recalibration in rates from the markets, heading to its one-month high after a period of indecision. The grappling of how high Fed’s rates have to go will continue to dominate the landscape next week, as the US core Personal Consumption Expenditures (PCE) price index looms. Another hotter-than-expected print could potentially double down on rate hike fears. Aside, the US Federal Reserve (Fed) meeting minutes and Reserve Bank of New Zealand (RBNZ) interest rate decision are lined up mid-week, and closer to home, Singapore’s inflation rate for January is expected.

Here are some of the key events to watch next week:

22 February 2023 (Wednesday): US Fed meeting minutes

Market participants had a ‘dovish’ takeaway from the previous Fed meeting, tapping on Fed Chair Jerome Powell’s acknowledgement of the ‘disinflation process’. Whether markets are being too optimistic on the Fed’s rate outlook will depend on the Fed meeting minutes, which will provide greater clarity on policymakers’ views. Focus will likely be on any slightest discussions of an impending rate pause from the central bank. That said, views from the meeting may be backward-looking, failing to factor in the recent upside surprise in US inflation readings, which seem to put the ‘disinflation’ narrative from the Fed in disarray. Therefore, much still awaits whether the minutes will be able to prompt a sustained reaction in markets.

Thus far, the S&P 500 remains on an upward trend on higher highs and higher lows, but the 4,200 level will serve as a key resistance to overcome. Near-term support remains at the key psychological 4,000 level.

22 February 2023 (Wednesday): RBNZ interest rate decision

Heading into the upcoming RBNZ meeting, a 50 basis-point (bp) hike remains the strong consensus (89% probability), but market pricing is also for a downshift to 25 bp hike thereafter. Declining economic activities and inflation being not as bad as feared since the last meeting have suggested cash rate increases to be less aggressive than before, with some paring bets that rates will peak at 5.50% as guided by the central bank’s previous estimates. Any dovish confirmation from the central bank and subsequent softer data could lead the NZD lower. For the NZD/USD, it seemingly trades within a double-top formation since November last year, and any break below the 0.622 level could be on watch to pave the way towards the 0.593 level next.

23 February 2023 (Thursday): Singapore’s core inflation rate

In line with the global trend, Singapore’s inflation rate has moderated from its peak of 7.5% in September last year, but still hangs more than three-fold that of the preferred 2% level. December revealed a 6.5% year-on-year increase in headline pricing pressures, while the core aspects came in unchanged at 5.1%. As the next Monetary Authority of Singapore (MAS) meeting looms in April, further persistence in inflation could warrant more tightening moves from the central bank, leading to further strength in SGD against its regional peers. For the USD/SGD however, recent resilience in the US dollar has driven a retest of the 1.341 level as near-term resistance to overcome. Any break above the 1.341 level could be on watch to pave the way towards the 1.360 level next.

24 February 2023 (Friday): US core PCE price index

Higher-than-expected inflation readings out of the US this week have led markets to revisit their rate hike expectations, with market participants finding greater conviction that a Fed’s move to the 5.25%-5.5% range is warranted. This is a hawkish shift from the 4.75%-5.5% range being priced just three weeks back. With the PCE Price Index being the Fed’s preferred gauge of inflation, another round of upside surprise could further anchor down such higher-for-longer rate expectations, which could provide another boost to the US dollar while weighing on risk assets. Over the past week, the US dollar has been edging higher in light of an upmove in Treasury yields. The 105.00 level will be on watch next for a retest, where its previous two-month high stands.