The markets will come alive this week reacting to the outcomes of an incredible array of tier 1 event risk, with some 14 central bank meetings, including six G10 central bank meetings, as well as numerous emerging market central banks too.
At a more micro level, Nvidia NASDAQ:NVDA takes centre stage with the highly anticipated GTC conference a potential volatility driver for the AI juggernaut.
Nvidia GTC conference
After a record 10 weeks of consecutive gains for Nvidia’s share price, investors get a chance to hear more about the future of generative AI, as well as new products in the pipeline and potential sales opportunities through the lens of the AI market leader. We hear from CEO Jensen Huang (on 18 March) and other key figures within the business. Expectations that the conference will hit the sweet spot are sky-high and the options market implies an -/+11.6% move in the share prices by Friday.
The importance of Nvidia to the broad US and even global equity market can’t be overstated and the read-through to semiconductors and the wider NASDAQ100 is a real risk. AI has been the key equity theme for a while and will continue to be so, and Nvidia is at the epicentre of this. The prospect of a sell-on-fact scenario is a real risk.
FOMC meeting
The Federal Reserve won’t cut rates at the FOMC meeting on 21 March and the guidance and overall tone will likely remain unchanged from prior commentary. US interest rate swaps price 75bp of cuts by year-end, so the FOMC statement, economic projection (SEPs) and Jay Powell’s press conference will need to reconcile against that pricing.
The ‘dots’ are key – if 2 Fed members lift their projection for the fed funds rate in 2024 it will result in the median projection for the collective being reduced to 2 cuts (from 3) through 2024. Given market pricing for 75bp of cuts this year, a move towards 2 cuts for 2024 as the median ‘dot’ should cause US bond yields to spike higher, taking the USD higher and US equity and gold trade lower.
- Mexico’s peso market sees further bearish trends
- The first full trading week of the year awaits
- A high-stakes week for traders in global markets
The longer-term projection for the fed funds rate – or what is considered the ‘neutral rate’ for Fed policy – currently sits at 2.5% – could this be revised higher to 2.75%?
If the Fed’s 2024 dot for 2024 remains at 4.6% (and for 3 rate cuts), but we also see an upgrade to the 2024 GDP forecast (currently 1.4%), we could feasibly see a relief rally in equity and gold and promote USD sellers.
Bank of England (BoE) meeting
The BoE statement on 21 March will likely be a low volatility event for the GBP, with the UK swaps market not pricing the first full 25bp cut until August. Look for a 7-1-1 split decision and a patient stance, with the BoE content with current market pricing on rate expectations.
I hold no real directional bias for the GBP from this meeting, so GBPUSD will likely take its direction from the UK CPI print and moves in the S&P500 and broad risk semantics. That said, the trend in GBPUSD skews risks to the downside, and I favour GBPUSD shorts, with stops above 1.2770.
Bank of Japan (BoJ) meeting
(19 March – likely seen between 1pm and 4pm AEDT)
Despite strong union wage increases on Friday, 29 of 31 economists see BoJ rates left at -0.1% on 19 March, with a view that the BoJ send a strong signal they will hike rates in the April meeting. Market pricing, however, implies a 10bp hike at 50%, suggesting an elevated risk of JPY volatility over the meeting. We also look for changes to Yield Curve Control (YCC) and/or the pace of bond and ETF purchases.
The algos will play a key role in determining initial market moves, and hedge funds will set them to respond squarely on whether we see a 10bp hike or not. While the broad market is short of JPY it feels that unless we see a 10bp hike and changes to the rate of Japanese Government Bond purchases then it will be hard to promote a material move higher in the JPY.
