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The Hot Zones this Week
Macro Market
Inflation
Inflation in the United States is on a path of gradual decline, moving steadily towards the central bank’s target. This deceleration is anticipated despite some persistent pressures, particularly from the services sector, which has been slower to adjust. For the year ahead, it’s expected that both headline and core inflation measures, which exclude volatile food and energy prices, will soften to around 2.6% on a year-over-year basis by the end of the fourth quarter. The downward trend is projected to continue into the following year, with inflation rates potentially easing further to 2.3%. These projections slightly exceed earlier estimates, underscoring a cautious outlook on the pace of disinflation. The path to reaching the targeted inflation levels suggests a nuanced balance between ongoing economic recovery efforts and the central bank’s monetary policy adjustments.
GDP
The U.S. economy is showing signs of resilience and adaptability in response to shifting supply-side dynamics and labor market conditions. Growth forecasts for the coming year have been adjusted upwards, indicating a robust start with an anticipated annualized rate increase. This uptick in growth is supported by an improving labor force and other supply-side factors, with real GDP expected to rise at a solid pace in the first quarter. However, the momentum is projected to moderate somewhat as the year progresses, leading to a slightly adjusted growth outlook for the subsequent year. This evolving economic landscape reflects the complex interplay of domestic and global factors influencing the United States’ economic trajectory, highlighting the importance of closely monitoring supply-side developments and their implications for overall growth.
Fed Policy
The central bank’s approach to monetary policy in the current economic environment is characterized by a cautious and deliberate strategy. Amid ongoing discussions about inflation and economic growth, there’s a consensus leaning towards the necessity of achieving “greater confidence” in the inflation outlook before initiating any policy normalization or adjustments to interest rates. The expectation is that, with inflation gradually moving towards the central bank’s target, there may be sufficient grounds to commence a gradual easing of rates in the upcoming months. This approach underscores the central bank’s commitment to steering the economy towards stable growth and low inflation, with policy decisions being closely tied to evolving economic indicators and forecasts.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
Review Last week’s numbers here.
Earnings
Aggregate Estimates and Revisions
- 23Q4 Y/Y earnings are expected to be 10.0%. Excluding the energy sector, the Y/Y earnings estimate is 13.6%.
- Of the 498 companies in the S&P 500 that have reported earnings to date for 23Q4, 76.1% have reported earnings above analyst estimates. This compares to a long-term average of 66.6% and prior four quarter average of 76.4%.
- During the week of March 18, five S&P 500 companies are expected to report quarterly earnings.
Source I/B/E/S data from Refinitiv
Global Spotlight
U.S.-China Diplomatic Moves
The U.S. Secretary of State, Antony Blinken, embarks on a significant visit to the Asia-Pacific region, starting March 18. His itinerary includes meetings in South Korea to discuss alliance and security issues, participation in the Summit for Democracy, and a visit to Manila to meet with Philippine President Ferdinand Marcos Jr. This tour underscores the U.S.’s dedication to reinforcing its diplomatic, economic, and military ties in the face of increasing security threats, notably from China concerning Taiwan and the South China Sea. Concurrently, Chinese Foreign Minister Wang Yi is set to visit Australia and New Zealand from March 20, focusing on bolstering bilateral relations and discussing Indo-Pacific security, aiming to mitigate the growing U.S. influence in the region. These diplomatic endeavors highlight the ongoing strategic rivalry between Washington and Beijing, with each vying for influence while balancing economic interests with escalating security concerns.
EU Council Summit on the Horizon
The European Council is set to convene in Brussels from March 21-22, addressing a variety of critical issues including the Middle East crisis, the Ukraine war, and EU expansion. A primary focus will be on intensifying support for Ukraine by potentially leveraging nearly $300 billion in frozen Russian assets to fund military aid. Discussions will also encompass imposing new sanctions against Belarus, Iran, and North Korea for their support of Russia’s military actions. Additionally, the summit is expected to discuss the initiation of EU accession talks with Bosnia-Herzegovina, underscoring the EU’s ongoing strategic and geopolitical considerations.
Venezuela’s Election Countdown
In Venezuela, the window for registering presidential candidates is set for March 21-25, ahead of the July 28 elections. This period is crucial for the opposition as they determine their stance regarding Maria Corina Machado, their primary candidate who faces legal challenges from the government. Despite her popularity, Machado’s eligibility is in jeopardy following a ban by Venezuela’s Supreme Court. As the deadline approaches, the opposition is under pressure to identify a viable alternative capable of rallying support while navigating governmental hurdles and legal obstacles.
EU-Egypt Strategic Partnership
The European Union is advancing its relations with Egypt through a strategic partnership aimed at bolstering mutual interests in economy, energy, and border security. A delegation including European Commission President Ursula von der Leyen and leaders from Belgium, Greece, and Italy is meeting with Egyptian President Abdel Fattah Al-Sisi to finalize a significant aid package valued at approximately 7.4 billion euros. This financial support is primarily focused on addressing economic challenges and controlling refugee flows from regions like Sudan and the Gaza Strip. The deal emphasizes the EU’s strategic interests in North Africa, linking financial aid to Egypt’s adherence to reforms aligned with the International Monetary Fund’s stipulations.
Stratfor.com
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