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March FOMC View Shifts 

The outlook for the March FOMC has shifted dramatically in recent days. Following hawkish comments from Powell early last week which saw market pricing swinging in favor of a larger .5% hike. The subsequent market volatility around the collapse of SVB has seen traders heavily scaling back their March FOMC view with pricing now once again fully endorsing a smaller .25% hike. This view gained greater conviction yesterday as the latest round of US CPI data showed prices cooling to 6% in February, down from 6.4% prior. On the back of a weaker jobs number and lower wages growth, Fed hawkishness seems to have been written off entirely with some players, including Goldman Sachs suggesting the Fed won’t hike at all this month.
 

Retail Sales Up Next 

Today, the focus moves to US February Retail Sales as the next key input to monitor. As with CPI, Retail Sales spiked higher in January, adding to the sense of hawkishness at the time. However, looking at today’s data, the market is expecting headline retail sales to fall 0.3%, down from 3% prior with core retail sales expected to fall 0.1%, down from 2.3% prior. Indeed, in light of yesterday’s weaker US CPI reading, market pricing now reflects a roughly 20% chance that the Fed keeps rates on hold this month.
 

Market Reaction 

The market reaction we’ve seen to yesterday’s data has been reflective of this shift in outlook. Risk assets have stabilized across the board, led by gains in banking stocks which have seen equities indices moving higher. In FX, a weaker USD has allowed for better prices elsewhere, chiefly EUR which has been the key beneficiary of USD weakness.

Looking ahead today should retail sales confirm a drop in activity, this will no doubt see pricing for an unchanged decision from the Fed this month start to grow further. In this scenario, USD is likely to stay pressured near-term while equities should continue to recover, along with EUR and higher-beta FX.
 

Technical Views

Nasdaq

(Click on image to enlarge)

The recovery in the Nasdaq off the channel lows has seen the index trading back up to challenge the channel top and the 12166.97 level. This is a key pivot for the index and a break higher here should encourage fresh bullish momentum, paving the way for a move back up towards 12875.84 as momentum studies turn bullish. 

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