Even though last week was a short week, with many of us coming back from a long weekend, the markets overall were not in a lacklustre frame of mind. Last week, we saw some very interesting data that pointed one way in the first half of the week and another way at the back end of the week. One thing is clear in the market at the moment, and that is that the market is unsure of where the next data set will print and what central banks will do going forward.

The biggest release last week was the US inflation number, where the number printed below expectations. The 5.0% print was better than the 5.2% forecasted and caused markets to seriously consider that the Fed could pause at their next meeting in May. This caused the US dollar to weaken, and for a brief moment, we saw the US dollar trading above the 1.1000 level against the euro. The talk of whether the Fed will pause or not gained momentum as the week wore on – until Friday, when that point became mooted.

Fed’s last hike

The Michigan Consumer Sentiment number came out on Friday. The number is used as an indication of inflation estimates for the next 12 months, and that number exceeded expectations. This means that the number suggests higher inflation for the next year than expected. This nipped the pause rhetoric firmly in the bud, and we saw the US dollar on the front foot on Friday afternoon and other EM’s on the back foot. There have also been Fed speakers stating that the Fed is not done hiking which only helped the US dollar’s cause, but with little in the way of significant data out before the Fed meeting, it could be an interesting meeting, to say the least.

Inflation to rises on back of rising gasoline prices

In terms of top-tier data, this is not the week of having a full cupboard, in fact, the cupboard is empty. This could leave the market in a bit of a lull, with momentum from Friday’s number slowly starting to wane, and we wait for further direction. With the Fed being front and center at the moment, we do have quite a few Fed speakers during the week, which will keep the market’s ears trained on whether the Fed have some more hikes to go or could dovish tones be entering the speeches. GBP inflation numbers out on Wednesday, and that could cause some Pound volatility depending on where the number prints.

Locally, the rand has enjoyed the respite in the US data and twice tried to break below the R18.00 level against the US dollar. However, the about turn of Fridays’ data has caused the rand to lose some of its momentum and is currently trading in limbo in the R18.00/R18.40 range. The biggest data out this week is the inflation rate on Thursday, with the expectation being that the number will print at 6.9%, which will see the inflation number slowly creeping back to the inflation target of the SARB. Even though we believe that the rand is undervalued, there is still a strong case to be made that the rand could test higher before the expected reverse into the second half of the year.