Fed, ECB minutes in focus

Wednesday's minutes of the Federal Reserve's meeting in March will highlight the week, especially in light of expectations for a half percentage point rate hike in its next meeting. Besides concerns over the economic impact of tighter monetary policy, the war in Ukraine will remain top of mind. Bonds are flashing warning signs as the stock market shrugs off concerns about global economic growth. Also, the European Central Bank is scheduled to release minutes, and the Reserve Bank of Australia is expected to meet. 

Bond market flashes red

The yield curve for U.S. Treasury bonds inverted again on Friday as expectations for more aggressive Fed rate hikes were firmed up.

A yield curve inversion, in which shorter-dated yields rise above longer-dated ones, is a phenomenon that has been used to predict past recessions.

Bond investors have taken a more pessimistic stance in light of tighter monetary policy and uncertainty arising out of the war in Ukraine. This is despite stock markets seeming unconcerned about a future recession.

Fed minutes

Wednesday's minutes of the Fed's March meeting will give investors an update on how officials view the monetary policy outlook. They may also contain more details on plans to shrink the central bank's $9 trillion balance sheet.

Last month, the Fed raised interest rates by a quarter percentage point in its first move to curb inflation, which is at a four-decade high. Several Fed officials, including Chair Jerome Powell, have indicated that they are prepared to hike rates more aggressively to prevent inflation from becoming entrenched.

Several other Fed officials will also speak this week, including Fed Governor Lael Brainard, Minneapolis Fed President Neel Kashkari, New York Fed President John Williams and St. Louis Fed President James Bullard.

Central banks

ECB minutes will be published this week before its upcoming meeting on April 14. Markets were surprised last month when the ECB announced speeding up plans to withdraw stimulus measures.

Data shows that Eurozone inflation hit a record high of 7.5% in March, increasing pressure on the ECB to control inflation when the economy is sluggish due to the effects of the pandemic and the war in Ukraine.

Elsewhere, the Reserve Bank of Australia's rate will likely remain unchanged in Tuesday's meeting.

There seems to be growing expectation that the Bank of Canada will raise rates by half a percentage point at its next rate meeting on April 13, provided the upcoming business outlook survey turns out to be upbeat.

Economic data

Besides Wednesday's Fed minutes, investors will also watch ISM services PMI, factory orders, initial jobless claims, and trade balance for the U.S. this week.

The index is expected to rebound to 58.0 from the low of 56.5 reached in March, a twelve-month low. The consumer confidence index was lowered from an all-time high of 69.1 in December through the Omicron wave. Rising inflation concerns may now reduce consumer demand again.