ECB and BoC meetings, NFP and Canadian employment coupled with Q4 GDP, Swiss inflation, UK spring budget and ISM Services PMI will dominate the week ahead of us.
USD
Second reading of Q4 GDP was revised down to 3.2% from 3.3% as reported in advanced reading. Private inventories were the main culprit for the downward revision as they subtracted 0.27pp from the growth. Consumer spending was revised higher and it printed 3% vs 2.8% in advanced reading and it added 2pp to the reading. Government spending was also revised up and contributed 0.73pp while net exports were revised down and contributed 0.32pp to the reading. Gross private domestic investment added just 0.17pp as business investment declined, which is a cause for concern going forward.
Headline PCE for the month of January came in at 2.4% y/y as expected and down from 2.6% y/y in December. Core PCE printed 2.8% y/y as expected and down from 2.9% y/y the previous month. Personal spending rose 0.2% m/m while personal income jumped 1% m/m. Big increase in personal income can prove to be troublesome for inflation.
ISM manufacturing for the month of February printed 47.8 vs 49.5 as expected, down from 49.1 in January. New orders and production components fell into contraction. Positives are small decline in prices paid component as well as return of employment and new export orders into expansion. USD has noticeably weakened on the news and weaker than expected UMich consumer confidence reading added to the USD worries.
The yield on a 10y Treasury started the week at 4.22%, rose to 4.32% and finished the week at around 4.19%. The yield on 2y Treasury started the week at 4.66% and reached the high of 4.73%. Spread between 2y and 10y Treasuries started the week at -45bp then tightened to -35bp as curve proceeded to steepen. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 97% while probability of a 25bp rate cut is at 3%. Probability of a May rate cut is around 25%.
This week we will have ISM services and NFP data. Headline number is expected to come at around 190k after two months of 300+k jobs with unemployment rate staying unchanged at 3.7%.
Important news for USD:
Tuesday:
ISM Services PMI
Friday:
NFP
Unemployment Rate
EUR
ECB President Lagarde stated that “the current disinflationary process is expected to continue” but that more data is needed to confirm that inflation is returning to target. Sentiment data for the month of February showed improvement in Consumer Confidence but all three sentiment indicators (economic, services and industry) declined compared to January. Final French Q4 GDP was revised to show a growth of 0.1% q/q from being flat as preliminary reported.
Preliminary Eurozone CPI slipped to 2.6% y/y from 2.8% y/y while a decline to 2.5% y/y was expected, Core reading dropped to 3.1% y/y from 3.3% y/y while a drop sub 3% to 2.9% y/y was expected. Base effects were the main culprit for a drop in inflation. French CPI for the month of February came in at 2.9% y/y vs 2.7% y/y as expected. CPI is down from 3.1% y/y in January, but the decline was smaller than expected hinting that getting inflation all the way down to 2% will be much harder task than bringing it from highs to current levels. In addition, monthly reading printed a massive 0.8% increase. Spain CPI printed 2.8% y/y vs 2.7% y/y as expected and down from 3.4% y/y in January showing all the same signs as Eurozone and French inflation. German reading came in at 2.5% y/y, down from 2.9% y/y the previous month.
This week we will have ECB meeting. There will be no change to the rate as ECB waits wage data, however we do not expect any push to June rate cut. Additionally, we will get new macroeconomic projections.
Important news for EUR:
Thursday:
ECB Interest Rate Decision
GBP
Final February manufacturing PMI was revised up to 47.5 from 47.1 as preliminary reported and it is up from 47 in January. Although the reading is highest in the last ten months the details show that output, new orders and new export orders continue to decline. The report states that “UK manufacturers faced challenging circumstances in February, as the ongoing impact of the Red Sea crisis delayed raw material deliveries, inflated purchase prices and impacted production capabilities.” Additionally, supply chain disruptions caused input prices to increase significantly and thus lead to further increases in selling prices. Any potential increase in inflation will be troublesome for the BoE. BoE Chief Economist Pill stated that cutting rates is some way off and that maintaining restrictive stance does not mean no change to rates.
AUD
CPI for the month of January showed inflation at 3.4% y/y vs 3.6% y/y as expected. Monthly inflation readings do not encompass entire economy, as quarterly reading does, they measure more of goods inflation than services inflation. Goods inflation is coming down nicely but RBA is more focused on services. Therefore, they will not give too much attention to monthly readings and will wait for quarterly reading to decide on how to proceed with monetary policy. AUD was pushed down after the report. Q4 CAPEX data saw increase of 0.8% q/q vs 0.5% q/q as expected, with the biggest jump in the construction industry. Jump in investment will be a nice boost for next week’s GDP reading and economy going forward.
Official PMI data from China saw manufacturing tick down to 49.1 from 49.2 in January while services jumped to 51.4 from 50.7 the previous month. Composite was unchanged at 50.9. Caixin manufacturing PMI, the one measuring private SMEs, ticked up to 50.9 from 50.8 in January while markets were expecting a slide to 50.6. The repo shows production and new orders grew at a faster pace with new export orders also expanding. Employment is of concern as it fell fort sixth consecutive month.
This week we will get Q4 GDP data.
Important news for AUD:
Wednesday:
GDP
NZD
RBNZ has left OCR (Official Cash Rate) unchanged at 5.5%. There was a large number of market participants who were positioned for a rate hike, so when RBNZ did not deliver it caused a big drop in NZD. The statement shows that OCR needs to remain at restrictive levels. Bank’s forecast see OCR at 5.33% in June of 2025. Inflation measures have declined and risks around it are becoming more balance. Recent drops in core inflation are encouraging. Still, projections see annual CPI by March of 2025 at 2.6% y/y, up from 2.4% y/y as previously expected.
CAD
January estimates by statistics Canada see wholesale trade declining by 0.6% m/m while manufacturing sales rose by 0.4% m/m. Q4 GDP came in at 0.2% q/q, rebounding from -0.1% q/q in the previous quarter. Positive reading was helped by net exports.
This week we will have BoC meeting and employment data. No change to monetary policy is expected but statement should reverberate with dovish tones.
Important news for CAD:
Wednesday:
BoC Interest Rate Decision
Friday:
Employment Change
Unemployment Rate
JPY
National CPI data for the month of January continued to decline. Headline number came in at 2.2% y/y vs 2.6% y/y in December while ex fresh food category came in at 2% y/y, down from 2.3% y/y the previous month. Ex fresh food, energy category, “core-core”, came in at 3.5% y/y vs 3.7% y/y in December. All three readings came in higher than expected so it may be a sign that inflation is proving to be more resilient. BoJ is talking about inflation needing to be sustainably above 2% target for them to raise interest rates and this reading may be the first sign of that. Preliminary January industrial production data plunged 7.5% m/m for the biggest monthly drop in almost four years.
BoJ policymaker Takata stated that spring wage negotiations are in full swing and that many companies are offering higher increases than in 2023. He added that “achievement of 2% inflation target is becoming in sight despite uncertainty of economic outlook”. Additionally, he stated that he would call for a change in monetary policy adding that it he would not be the one looking backwards. These comments are unquestionably hawkish and they are giving clear hints of monetary policy normalization. Currently, these are the strongest hints we have of a potential April rate hike.
CHF
SNB total sight deposits for the week ending February 23 came in at CHF480.5bn vs CHF477.1bn the previous week. Still within a well-established range but pushing to make a break to the upside. Q4 GDP showed that economy grew by 0.3% q/q vs 0.1% q/q as expected and at same pace as in Q3. Swiss industry has warned that strong CHF could be a detriment to economic growth in 2024.
SNB Chairman Jordan has announced that he will retire at the end of September 2024. He was the chairman of SNB since 2012 and was presiding over the decision to remove the EURCHF 1.20 peg which caused massive volatility and losses in the market. SNB vice chairman Martin Schlegel is seen as the most-likely successor.
Important news for CHF:
Monday:
CPI
