RBA and RBNZ meetings, followed by employment data from the US and Canada will be the highlights of the week ahead of us. Please note that Friday is Good Friday holiday, liquidity will be thinner than usual and with NFP being published we could have greater than usual volatility.
USD
March consumer confidence improved to 104.2 from upwardly revised 103.4 in February. Households managed to look past banking turmoil and show us a picture of a healthy consumer. Final reading of Q4 GDP showed that consumer struggled mighty in the previous quarter with GDP coming in at 2.6% vs 2.7% annualized in second reading and personal consumption attributed only 0.7% to the reading, down from 0.93% in second and 1.42% in first reading.
Headline PCE inflation in February came in at 5% y/y vs 5.4% y/y in January. while core PCE slipped to 4.6% y/y from 4.7% y/y the previous month. Inflation continues to come down making it a 50/50 whether there will be a pause or a 25bp rate hike in May. Personal spending and personal income both continued to increase by 0.2% and 0.3% respectively.
The yield on a 10y Treasury started the week and year at around 3.38%, rose toward 3.59% and finished the week at around the 3.4% level. The yield on 2y Treasury reached at around 4.17%. Spread between 2y and 10y Treasuries started the week at -47bp then widened further to -60bp. FedWatchTool sees the probability of no change in May at 58.5% while probability of a 25bp hike is at 41.5%.
This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected to print around 250k while the unemployment rate should tick down to 3.5%.
Important news for USD:
Monday:
ISM Manufacturing PMI
Wednesday:
ISM Non-Manufacturing PMI
Friday:
NFP
Unemployment Rate
EUR
German Ifo index in March showed improvement across all three categories, current conditions, business climate and expectations. Ifo economist Klaus Wohlrabe stated that winter recession became more unlikely. The number of companies that were planning to raise prices is declining. Sentiment data for the Eurozone in the month of March saw slight declines and consumer confidence ticked down for the first time after five consecutive months of improvement.
German inflation in March declining due to base effects, Russia invasion of Ukraine sent energy prices through the roof in March of 2022, it came in at 7.4% y/y vs 8.7% y/y in February. More attention should be paid to monthly figures and there the number was unchanged from February 0.8% m/m indicating that there are still strong price pressures brewing. French inflation reading declined to 5.6% y/y from 6.3% y/y the previous month with monthly figure slipping to 0.8% m/m from 1% m/m in February. Eurozone inflation dropped to 6.9% y/y vs 7.1% y/y as expected and down from 8.5% y/y the previous month but monthly reading still printed an increase of 0.9% m/m. Core inflation is of concern, it ticked up to a new high of 5.7% y/y as expected. This data should keep ECB firm on the rate hike path.
GBP
Final reading of Q4 GDP saw a slight improvement to 0.1% q/q from being flat. GDP rose 0.6% y/y vs 0.4% y/y as preliminary reported. The services sector grew by 0.1% and the construction sector grew by 1.3%, while the production sector growth was flat. Real household consumption was revised up to 0.2% and it helped improve the overall reading as business investment and government consumption were down.
AUD
February CPI data showed a much welcomed decline. CPI came in at 6.8% y/y vs 7.1% y/y as expected and down from January figure of 7.4% y/y. This is not official data point, but it will be incorporated in RBA’s decision next week and we think they will see weakening in inflation as a sign to pause with rate hikes.
Chinese official PMI data for March saw manufacturing beating expectations and coming in at 51.9, down from 52.6 in February. Non-Manufacturing rose to astonishing 58.2 from 56.3 the previous month and it lifted composite to 57 from 56.4 in February. The economy continues to expand.
This week we will have RBA meeting. Markets are split 50/50 whether there will be no change or a 25bp rate hike. We think that RBA will use this opportunity to be the second major central bank to take a pause. Inflation is still very high but it seems to be peaking and housing market looks like it could do with a pause.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
NZD
ANZ survey for March showed business confidence ticking down to -43.4 from -43.3 in February while activity outlook improved to -8.5 from -9.2 the previous month. ANZ comments state “Retail, construction and agriculture respondents were generally more upbeat, while manufacturing and services firms became more pessimistic.” Additionally, although inflation seems to ease with inflation expectations coming lower the report shows that “The net proportion of firms experiencing higher costs remains extremely high.” Residential construction saw improvement while employment when compared to year ago declined significantly. Inflation expectations jumped to 5.4% from 5.2% which will concern RBNZ.
This week we will have RBNZ meeting. We think that RBNZ will follow RBA and BOC and announce pause. Their Official Cash Rate is at 4.75% making it second highest in the developed world, behind only Fed. There is also a possibility of a 25bp rate hike.
Important news for NZD:
Wednesday:
RBNZ Interest Rate Decision
CAD
Canadian budget published growth forecasts and it sees GDP at 0.3% in 2023, 1.5% in 2024 and 2.3% in 2025. CAD has benefited this week from surge in oil prices as well as the fact terminal rate for other central banks seems to be smaller than markets have been pricing in. This has caused repricing in CAD as it strengthened around 150 against USD.
This week we will have employment data.
Important news for CAD:
Thursday:
Employment Change
Unemployment Rate
JPY
We had a slew of data from Japan with Tokyo area CPI for the month of March being the most prominent. Headline number came in at 3.3% y/y vs 3.4% y/y in February while ex-fresh food came in at 3.2% y/y vs 3.3% y/y the previous month. Both numbers fell by less than expected. On the other hand, ex-fresh food, energy came in at 3.4% y/y, up from 3.2% y/y in February. It has been rising every month since February of 2022 and it indicates that price pressures are much stickier. The unemployment rate in February rose to 2.6% from 2.4% it may pose cause for concern, but it is still at an incredibly low level.
CHF
SNB total sight deposits for the week ending March 24 came in at CHF567bn vs CHF515.1bn the previous week. This is the second consecutive week of rising sight deposits as SNB reverts to buying USD and EUR. This may be influenced by Credit Suisse debacle.
This week we will have inflation data.
Important news for CHF:
Monday:
CPI
