In February it was all about European instability, possibility of Greece exiting the Eurozone, and Euro collapsing. Well it did not happen; let’s put the Grexit fears on pause for another four months and look for other concerning topics covering the global economy as a whole. It is already obvious what that could be, “deflation fears of the central banks”.

In January and February there was so much talk about Greece that it felt as if the world no longer cares about the macroeconomic factors which also showed itself with the volatility as well until the last two days of February.  On Thursday, simple comments from St. Louis Fed President James Bullard added more strength to already strong USD. Mr. Bullard actually did not say anything that the market was not aware of, but he emphasized things in simpler language for everyone to understand, he said:

• The Fed can only control inflation in medium term

• ECB's QE is likely to weaken the euro further

• The Fed should remove “patient” from statement in March

downward trend graph 1 (PD)Following Mr. Bullard’s comments, the US dollar strengthened furthermore with the power given by better than expected core US CPI data for January. Better than expected CPI data for January supported FED Chairwoman Janet Yellen’s earlier testimonies that slow inflation is caused by the falling energy prices.
Last week’s market reaction showed that market players do watch the developments carefully and value inflation as the primary risk factor vs. employment previously. It is becoming obvious that the inflation outlook of central banks globally is becoming the key macroeconomic driver. That being said, market will follow the FEDs and ECB’s inflation outlook carefully as the oil prices are still much below what most of the investors expected in late 2014.

The first week of March is full of high impact fundamental developments.

Monday, March the 2nd, is expected to add on Euro volatility. We will have Markit Eurozone February PMI data announced, then February Eurozone YoY CPI Flash estimates where investors will look for inflation outlook of the Eurozone. Meanwhile in the US there is February ISM Manufacturing PMI data announced, expected to contract by 0.1 points vs. January data.

Tuesday, March the 3rd:  The initial focus of the market will be on Germany for the January Retail sales data . Investors will be looking for 0.3% increase compared to December figures, any disappointment in this figure could put Euro under pressure as Germany is the largest EU economy. While in the UK BOE Governor Mark Carney will be testifying on currency probe before the Treasury Select Committee, in London. Investors will be looking for possible rate hike signals from the BOE governor which will increase the monetary policy divergence between Europe and the UK.

Wednesday, March the 4th: In Australia investors will be looking for Q4 2014 QoQ GDP data.
In Europe investors will be looking for Markit February non-manufacturing PMI data for the primary EU countries with improvement expectations.  The biggest market mover of the day though is expected to be the US ADP Non-farm payrolls data for February. Economists expect the data to come at 219,000 in February vs. 213,000 in January. Lastly the FED will be releasing its monthly Beige Book compilation for the regional economic reflections.

Commodities market on the other hand will be watching for the weekly US Energy Information Administration oil inventory data. The data is expected to reveal higher supply than demand, which could push already troubled Crude Oil under further pressure.

Thursday, March the 5th: Two biggest central banks of Europe, BOE and ECB will make their monthly interest rate announcements. While investors do not expect any significant language change from the ECB, surprise language change could be expected from the BOE.

Friday, March the 6th: In Europe market will be following the German industrial production levels for January which is expected to improve marginally compared to December 2014.

The biggest event of the last trading day of the month is the February US Non-farm payrolls data. As it has been for the last multiple months the data is expected to show further strengthening in the US job-market, giving the US FED further opportunity to tighten its monetary policy in the medium range.

It is worth recalling the signals given by Janet Yellen back in late 2014 that the FED could possibly tighten its monetary policy in a couple of meetings, couple then was falling onto the FOMC meeting of April 2015, hence investors will be following the US employment as well as inflation figures carefully in March to get a better idea for the FED’s upcoming tightening policy.

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