ECB meeting, inflation and consumption data from the US will be the highlights of the week ahead of us followed by employment data from Australia and the UK.
USD
Fed Chairman Powell testified in front of the Congress and came out with hawkish message. He stated that terminal rate is likely to be higher than previously expected and that “If totality of incoming data indicates faster tightening is warranted, we are prepared to increase pace of hikes”. He added that there are little signs of disinflation in core services ex housing, that is inflation measure most closely watched by the Fed. Additionally, he stated that “inflationary pressures are running higher than expected at the time of our previous Federal Open Market Committee”. His hawkish comments signal that dot plot will be revised up at the upcoming March 22 meeting. On the second day of his testimony he said that 50bp is not planned at March meeting and that they remain data dependent.
NFP data for February saw headline number come in at 311k vs 205k as expected. This is eleventh straight month that headline number beats expectations. The unemployment rate jumped to 3.6% from 3.4% in January while participation rate ticked up to 62.5%. Average hourly earnings continued to rise 0.2% m/m and 4.6% y/y which was less than 0.3% m/m and 4.7% y/y as expected. Average weekly hours slipped lower as well and the underemployment rate rose to 6.8%. With unemployment rate rising and wages rising slower than expected this will nudge Fed toward the 25bp rate hike.
The yield on a 10y Treasury started the week and year at around 3.95%,, rose toward 4.1% and finished the week at around the 3.75% level. The yield on 2y Treasury reached the 5.1% level post Powell testimony. It was the first time that yield on a 2y note was higher than 5% since 2007. After initial claims, SVB meltdown and NFP the 2y yield fell almost 45bp, well bellow 5%. Spread between 2y and 10y Treasuries started the week at -91bp and widened to -110bp for the highest it has been since 1981. Post NFP report the spread tightened back to -91bp. FedWatchTool sees the probability of a 25bp rate hike in March at 19.2% while probability of a 50bp rate hike jumped to 80.8% post Powell testimony. Post NFP probability of a 25bp rose to 53.1% while probability of a 50bp rate hike fell to 46.9%.
This week we will get inflation and consumption data. Given Powell’s recent comments importance of data points cannot be overstated.
Important news for USD:
Tuesday:
CPI
Wednesday:
Retail Sales
EUR
January retail sales were up 0.3% m/m vs 1% m/m as expected but with December reading being revised up it cam be said that January was in line with expectations. Biggest increase was seen in food, drinks and tobacco while on-line trade posted the biggest decline. Final reading of Q4 GDP for the Eurozone saw it come flat vs 0.1% q/q as reported in the second reading. Downward revisions to German and Irish readings were the main cause. Household consumption saw a biggest negative print since 1999 when the Eurozone started while investment fell 3.5% q/q. Net exports were positive followed by government consumption and inventories. The area managed to barely avoid recession but it did not generate any growth for the entire quarter.
This week we will have ECB meeting where 50bp rate hike is certain. Investors will be watching closely for signs of what ECB will do at their future meetings.
Important news for EUR:
Thursday:
ECB Interest Rate Decision
GBP
January GDP reading came in at 0.3% m/m vs 0.1% m/m as expected. A nice beat on a monthly figure was overshadowed by flat figure on 3m/3m basis. Services sector is holding the economy as it grew by 0.5%. Construction sector was particularly weak, dropping by the largest amount in last 6 months (-1.7% m/m).
This week we will have employment data and spring budget on Wednesday.
Important news for GBP:
Tuesday:
Claimant Count Change
Unemployment Rate
AUD
RBA delivered another 25bp rate hike as expected and lifted the cash rate to 3.6%. The message was less hawkish than expected as it stated that RBA will continue rate hikes but in assessing how much rates will need to go up the board will closely follow developments in the global economy. Basically, they are moving from strong rate hike path and suitable forward guidance to more data dependent approach. Monthly inflation data suggest that inflation has peaked and central projections are for inflation to come down in this and next year and be around 3% in mid-2025. Governor Lowe stated in a speech that they are getting closer to the point where it will be appropriate to pause rate hikes and that the timing of pause will be determined by incoming data.
Two sessions parliamentary meeting has started over the weekend in China and authorities stated that GDP for 2023 will be around 5%. This is lower than markets were expecting which led to AUD and NZD being taken down on the open. Trade balance surplus for the January-February period increased to $116.8bn but it was done on the back of large drop in imports (-10.2%) indicating a very weak domestic demand. CPI in February more than halved to 1% y/y from 2.1% y/y in January. Expectations were for a rise of 1.9% y/y. PPI also fell and printed -1.4% y/y vs -0.8% y/y the previous month. With inflation declining there will be no obstacles to further monetary stimulus.
This week we will have employment data from Australia as well as production and consumption data from China.
Important news for AUD:
Wednesday:
Industrial Production (China)
Retail Sales (China)
Thursday:
Employment Change
Unemployment Rate
NZD
Electronic card retail sales for February were flat m/m and up 11.7% y/y. They comprise almost 70% of total retail sales reading so they are used as a good indicator. January was a nice positive month, but with February being flat we can see another weak quarterly reading as consumption is slowing down.
This week we will have Q4 GDP data.
Important news for NZD:
Wednesday:
GDP
CAD
BOC has left rates unchanged at 4.5%. After a year of rate hikes at every meeting this is the first meeting where no change was made. They concluded that monetary policy is showing effects as it weighs in on household spending and investment and that inflation will come down to 3% by mid-2023. They are moving towards data dependent stance and if data continues to come in as expected by their projections they will keep rates steady. The statement finishes with “Governing Council will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return inflation to the 2% target.” It shows that they are keeping the door open toward future rate hikes if inflation starts increasing.
February employment report brought another, third in a row, beat on the estimates with headline number printing 21.8k jobs added vs 10k as expected. The unemployment rate and participation rate remained unchanged at 5% and 65.7% respectively. All of the jobs added were full-time jobs (31.1k) while part-time jobs saw loses of 9.3k. BOC just paused with rates and wages jumped by 5.4% y/y which will certainly add to inflation pressures. Increasing inflation pressures will force BOC to reconsider their pause stance.
JPY
Over the weekend it was announced that Spring wage negotiations, better known as “Shunto”, will see Japan Trade Unions ask for a pay raise in average of 4.49%. This will be the highest wage increase since 1998. BOJ thinks this will cause demand-pull inflation, which is much more sustainable and stable. Final Q4 GDP reading was revised down to flat q/q from 0.2% q/q as preliminary reported.
Governor Kuroda did not go out with a bang as at the last meeting under his leadership BOJ left the rate and monetary policy unchanged. The statement shows assessment of economy as picking up as pandemic and supply chain issues fade away. Core consumer inflation is seen around 4% and inflation expectations are heightening.
CHF
SNB total sight deposits for the week ending March 3 came in at CHF519.4bn vs CHF520.7bn the previous week. February inflation data came in hotter than expected. Headline number was at 3.4% y/y vs 3.1% y/y as expected and up from 3.3% y/y in January. A 25bp rate hike is pencilled in for the March meeting.
