RBA, BOC and BOJ meetings but only RBA is expected to raise rate will be followed by employment data from the US and Canada as well as inflation data from China and Switzerland.
USD
February ISM manufacturing PMI rose to 47.7 from 47.4 in January. Expectations were for it to go to 48. Employment fell back into contraction while new order, new export orders improved but are still stuck in contraction. Prices paid component garnered the most attention as it rose to 51.3 from 44.5 in January indicating that inflation pressures are still hanging on. This will put pressure on Fed to continue with rate hikes and it gave a solid boost to USD strength.
ISM services PMI came in at 55.1 vs 54.5 as expected and ticked down from 55.2 in January. Employment index showed a healthy rise and return into expansion. New orders showed a big increase indicating that economy is faster expanding. Prices paid component was down but far less than expected showing that, same as in manufacturing sector, inflation is proving resilient.
The yield on a 10y Treasury started the week and year at around 3.96%,, rose toward 4.09% and finished the week at around the 4% level. The yield on 2y Treasury reached 4.94%. Spread between 2y and 10y Treasuries started the week at -88bp and widened to -89bp. FedWatchTool sees the probability of a 25bp rate hike in March at 73.8% while probability of a 50bp rate hike is at 26.2%.
This week we will have NFP data. Headline number is expected to be around 210k with the unemployment rate rising to 3.6%. Additionally, we will get Fed Chairman Powell testimony in front of the Senate Banking Committee.
Important news for USD:
Friday:
NFP
Unemployment Rate
EUR
Sentiment data for the Eurozone in February started to decline. Additionally, January readings were revised down indicating that optimism about Eurozone is starting to wane. Services sentiment dropped to 9.4 from 10.5 the previous month while industrial confidence barely hang above the 0 line with 0.5. On the positive side, consumer confidence improved to -19 from -20.9 the previous month.
French and Spanish inflation readings accelerated in February and contributed to hotter than expected inflation reading for the Eurozone. German inflation came in hotter than expected but unchanged from January. Eurozone inflation came in at 8.5% y/y vs 8.2% y/y as expected, just slightly down from 8.6% y/y the previous month. Core CPI made a sizeable jump as it came in at 5.6% y/y vs 5.3% y/y in January. Markets were already pricing in 50bp rate hike at March meeting, as pre-announced by Lagarde and this will cement it. The door for a surprise 75bp rate hike is opened, but we think it will be a long shot at this moment. Higher for longer scenario is more realistic with rates reaching 4%.
GBP
UK Prime Minister Sunak and EU Commission President von der Leyen outlined a trade deal regarding the situation in Northern Ireland. It has been named Windsor Framework and it will enable smooth transport of goods between Great Britain and the European Union by substantially reducing customs checks. Goods going from Great Britain to Northern Ireland will pass through a “green lane” requiring minimal paperwork and will be labelled “Not for EU”. On the other hand, goods heading for the EU single market in the Republic of Ireland will undergo full EU customs checks in Northern Ireland’s ports under a “red lane.” BOE Governor Bailey was unclear regarding the path of future rate hikes in his latest speech by saying that nothing is decided yet and leaving all options open.
AUD
Q4 GDP posted a big miss as it came in at 0.5% q/q vs 0.8% q/q as expected. Household consumption rose by mere 0.3% while government consumption rose by 0.6%. Net trade was positive with exports rising 1.1% while imports fell -4.3%. On the other hand, both private and public investment decreased.
Monthly CPI reading for the month of January came in at 7.4% y/y vs 8.1% y/y as expected, The print was at 8.4% y/y in December so faster than expected drop may give positive signals that inflation is peaking. Be mindful that this is not a complete reading as it covers around 60% of price changes. Better measure is quarterly print, but this is more timely print. Building permits saw a huge drop in January of 27.6% m/m. Housing is a huge part of Australian economy and with RBA hiking interest rates it is taking its toll on their business. Also, higher input costs are not helping as well.
Official PMI data from China for the month of February came in very strong. Manufacturing was at 52.6, up from 50.1 in January. Services jumped to 56.3 from 54.4 the previous month composite was at 56.4, up from 52.9 in January. Caixin manufacturing PMI returned to expansion in February with a 51.6 print, up from 49.2 the previous month. AUD benefited greatly from improved China data regardless of misses on growth and inflation. ING analyst Iris Pang sees that Chinese authorities will set GDP target at incoming Two Sessions (March 4) in the range of 5.5-6%. High PMI numbers support the case.
This week we will have RBA meeting where a 25bp rate hike is pencilled in. We should get messages that inflation is too high and that more rate hikes are needed. We will also have inflation data from China.
Important news for AUD:
Tuesday:
RBA Interest Rate Decision
Thursday:
CPI (China)
NZD
Retail sales for the Q4 came in at -0.6% q/q vs 0.6% q/q in Q3 and -4% y/y vs 4.9% y/y the previous quarter. The biggest decrease was seen in sales at electrical and electronic goods retailing while the biggest increase was seen for food and beverage services. Core retail sales were down -1.3% q/q vs 0.5% q/q in Q3. The massive drop shows that households are struggling to keep up with price increases and that their disposable income is massively falling. Business confidence in February improved to -43.3 from -52 in January. ANZ commented on report “Pricing intentions continue to inch lower but inflation expectations remain stuck around 6%”.
CAD
Canada managed to escape a down quarter with GDP in Q4 coming in flat vs 1.5% q/q as expected. Household consumption was up 0.5% q/q while government consumption was up 0.1% q/q. Net foreign demand contributed positively to GDP with exports growing 0.2% while imports fell 3.2% December monthly reading printed -0.1% m/m. Advanced January GDP reading sees a decent 0.3% m/m print.
This week we will have a BOC meeting. Pause has been telegraphed up front so this will be the base case scenario. We will also get employment data.
Important news for CAD:
Tuesday:
BOC Interest Rate Decision
Friday:
Employment Change
Unemployment Rate
JPY
Retail sales in January provided a good beat on the estimates as they came in at 1.9% m/m and 6.3% y/y vs 0.4% m/m and 4% y/y as expected. The biggest increases were seen in general merchandise and food and beverage categories. Industrial production, on the other hand, missed expectations in January as it dropped -4.6% m/m. Q4 CAPEX came in at healthy 7.7% q/q as firms are continuing with investments in plant and equipment.
February CPI data for Tokyo area plunged to 3.4% y/y from 4.4% y/y in January. BOJ members were repeating that inflation is transitory and they must feel vindicated by this report. Ex fresh food component also fell to 3.3% y/y from 4.3% y/y the previous month. On the other hand, ex fresh food, energy (considered a core-core measure) ticked up to 3.2% y/y from 3.1% y/y in January. So inflation may prove to be stickier than expected. The unemployment rate ticked down to 2.4% to the lowest level since February of 2020.
This week we will get a final Q4 GDP reading as well as BOJ meeting where no change to rate or monetary policy will take place as this is Governor Kuroda’s last meeting.
Important news for JPY:
Thursday:
GDP
Friday:
BOJ Interest Rate Decision
CHF
Another week, another decline for SNB total sight deposits which came in for the week ending February 24 at CHF520.7bn vs CHF526.8bn the previous week. Q4 GDP came in flat q/q and up 0.7% y/y vs 0.2% q/q and 0.9% y/y in Q3. The economy grew 2.1% in 2022.
This week we will get inflation data.
Important news for CHF:
Monday:
CPI
