US Fed expected to lift interest rates

Financial markets will be watching closely as Jerome Powell takes over as chairman of the US Federal Reserve. Photo/File.

US Federal Reserve officials are widely expected to lift their target interest rate during their two-day policy meeting, the first chaired by Jerome Powell, and investors will closely eye for any signs the central bank might accelerate its pace of hikes.

At the end of Federal Open Market Committee's meeting on Wednesday, investors will scrutinise its statement and forecasts, as well as the press conference by Powell.

"Fed officials should sound somewhat more upbeat at the March FOMC, with the balance of risks now skewed to the upside," TD Securities said in a note on Friday.

The Fed's Summary of Economic Projections should be stronger "but we do not anticipate any change in the median dot for three hikes in 2018, which could be interpreted as dovish for a market anticipating the Fed could indicate four hikes for this year," according to TD Securities.

Last Friday, Wall Street rose on Fed reports showing better-than-expected US factory output.

The Dow Jones Industrial Average added 0.3 percent, the Standard & Poor's 500 Index rose 0.2 percent, and the Nasdaq Composite Index finished the day little changed.

Even so, for the week, the Dow shed 1.5 percent, the S&P 500 slid 1.2 percent and the Nasdaq declined 1 percent.

US Treasuries, meanwhile, fell on Friday, pushing yields on the 10-year note two basis points higher to 2.84 percent. And some predict a further rise in yields.

"Our expectation that the 10-year Treasury yield will rebound is tied instead to our forecast that the Fed will tighten policy by a bit more than investors are anticipating this year," Capital Economics' chief markets economist John Higgins said in a note on Friday. "We project four 25-basis point rate hikes, rather than the three or so implied by OIS [overnight index swap]."

"We also think that there will be some supply-driven increase in the yield, resulting from looser fiscal policy," Higgins noted.

The coming days will offer US reports on existing home sales, due Wednesday; weekly jobless claims, FHFA house price index, PMI composite flash, leading indicators and the Kansas City Fed manufacturing index, due Thursday; as well as durable goods orders and new home sales, due Friday.

Also, Atlanta Fed President Raphael Bostic is set to speak today and again on Friday, while Minneapolis Fed President Neel Kashkari is scheduled to give a talk on Friday.

Starting today, a group of 20 central bankers and finance ministers is gathering for a two-day meeting in Buenos Aires.

German Chancellor Angela Merkel and Chinese President Xi Jinping discussed overcapacity in world steel markets and agreed on Saturday to work on solutions within the framework of the G20 group of industrialized nations, Merkel's spokesman said, Reuters reported.

In a telephone discussion, the two newly re-elected leaders emphasised close ties between the two countries, both facing planned US steel and aluminum tariffs, and agreed to deepen their strategic partnership, Steffen Seibert said in a statement, according to Reuters. They also underscored the importance of multilateral cooperation on global trade.

In Europe, the Stoxx 600 Index ended Friday with 0.2 percent gain from the previous day's close.

Bank of England policymakers will announce a decision on Thursday, though they are not expected to hike rates until May. Investors currently assign a more than 80 percent chance of a move in May, according to Bloomberg.

Investors will also eye a two-day European Council summit, beginning on Thursday, amid expectations the European Union will respond to the Trump administration's new tariffs on steel and aluminium imports, set to take effect on Friday, if it is not exempted from them, as well as the latest developments on Brexit negotiations.

"We don't expect sign-off on the 123-page document [the Brexit withdrawal agreement], but both sides should announce a 'political agreement' finalising the content of the 5-page transition deal contained within," according to TD Securities.