Week Ahead: Fed And BoE Meet As Inflation Fears Intensify
XM Group | Mar 11, 2022 09:13AM ET
One big trade
Ever since the Russian invasion, financial markets have turned into one massive war trade. Most assets are being driven entirely by this theme, rising and falling with war headlines. Stock markets, the British pound, and the euro suffer whenever sanctions escalate, while the US dollar, the yen, and commodities tend to benefit.
In the commodity sphere, the crippling sanctions on Moscow will limit the supply of various metals, food, and energy products. This translates into higher raw material prices, so traders are betting inflation won’t cool anytime soon. Market-based measures of inflation expectations have stormed higher, creating a headache for central bankers.
Finally in Canada, the latest inflation report will hit the markets on Wednesday ahead of retail sales on Friday. In contrast to its commodity currency cousins, the loonie has not managed to capitalize on the boom in commodities, which is a bad sign.
The stars have aligned lately with soaring oil prices, a strong domestic economy, and markets pricing in aggressive rate increases by the Bank of Canada. If the loonie couldn’t rally under these conditions, will it rally at all?
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