On Friday, global stock markets were able to show restrained growth amid some positive change in the global market sentiment. Better sentiment was observed on Thursday amid strong data of US statistics. Friday's US data also proved positive and supported the US stock markets, USD dollar and the market sentiment in general. (Data on US industrial production in February were much stronger than expected (+ 1.1% m / m), and Michigan consumer sentiment index was 102 points, the highest since 2004)
However, on Monday, investors recalled the main risks that pressure the markets for three weeks and the new week begins negatively. Today, major Asian markets are closed under pressure, European exchanges are trading negatively, and futures for US indices are also in the red. The situation in global markets remains rather complicated. US domestic political concerns, as well as the risks of trade wars, which continue to have a negative impact on the markets, new fears of worsening geopolitical situation in the Middle East were added. It became known that the EU prepared a draft of new sanctions against Iran, in order to comply with US demands for tightening the terms of the deal on the Iranian nuclear program. It seems that this is a kind of US response for Iran's cooperation with Russia and the role of Iran in Syria. This led to Iran's stiff reaction, which threatened to reconsider the very nuclear deal. Saudi Arabia, in turn, declared its readiness to develop its nuclear bomb. After that, the oil market moved to growth, on Friday, Brent crude soared to $66.45, but then corrected a bit.
Fears of trade wars have not disappeared, but have receded into the background. US demands on China to normalize the trade balance still have a restraining influence on the markets. In this regard, the forthcoming G20 summit (March 19-20) will be in the focus this week, also the focus will be on the EU summit, where European countries are expected to discuss additional sanctions against Iran and Russia in the new conditions.
The main market event of the upcoming week will be a meeting of US Fed, led by the new chairman, J. Powell. The markets have already priced expectations on rate-hike in the current price levels. Its expected that Fed will increase the main rate by 25 points. However the main focus will be on Powell’s comments and the regulator's plans for the year in the current economic conditions.
The Bank of England also meets this week, but no decisions on raising rates is expected from the British regulator. The new week may bring corrective data on Brexit, so the British pound will be in the spotlight. EU should consider the outcome of the negotiations and decide whether sufficient progress has been made in the transition period. There are fears that the Irish border will again be a setback.
In the FOREX currency market, the entire previous week USD dollar was traded in different directions. US currency, having demonstrated a decline against the British pound and the Japanese yen, gained towards the commodity currencies and euro by the end of the week. The European currency came under pressure after the release of data on European inflation.
We noted that the activity in FX market last week remained below average. In a situation like this, USD dollar could demonstrate a more significant gains, across the entire spectrum of the market, but this is not happening. This is quite an interesting situation. Looks like the traders have already priced in all the positive in the current price of dollar (which is fair before the Fed meeting). In this case, we can see the weakening of USD dollar after the decision on the rate - the technical pullback on the fact of the expected news release. On the other hand, USD currency is overbought and we can see the continuation of the weakening of the dollar. In any case, we are expecting a very interesting and busy trading week ahead.