Weekly Market Recap (04-08 March)

Over the weekend
we got the news that OPEC+ will extend the voluntary output cuts for another
quarter. Saudi Arabia will extend its voluntary cut of 1 million bpd through
the end of June as well with cuts to be reversed ‘gradually’, according to
market conditions. Russia’s Novak said cuts of 471k bpd will continue through
Q2. This was expected after a Reuters report earlier in the prior week.

Crude Oil

The Switzerland
February CPI beat expectations slightly although the Core measure fell further:

  • CPI
    Y/Y 1.2% vs. 1.1% expected and 1.3% prior.
  • CPI
    M/M 0.6% vs. 0.5% expected and 0.2% prior.
  • Core
    CPI Y/Y 1.1% vs. 1.2% prior.

Switzerland Core CPI YoY

Fed’s Bostic (hawk
– voter) delivered some hawkish comments as he leans towards 2 rate cuts this
year starting from the 3rd quarter and even pronounced the dreaded
word “exuberance”:

  • Inflation on track
    to fully return to 2% inflation but too early to claim victory.
  • Expect two
    quarter-point cuts this year.
  • Need to see more
    progress and gain confidence on disinflation before reducing rates.
  • Strength in the
    economy and job market means the Fed has luxury of proceeding without
    urgency.
  • Businesses are not distressed.
  • Businesses are ready
    to invest and hire when the time is right.
  • Pent up exuberance
    in the economy is an upside risk to inflation.
  • Inflation is still widespread.
  • It’s clear in places
    like housing and real estate that monetary policy is having an impact.
  • 3rd-quarter cut
    likely followed by a pause.
  • There is no urgency
    to cut rates given the economy strength.
  • Return to price
    stability is not assured.

Fed’s Bostic

The Tokyo February
CPI came in line with expectations with positive revisions to the prior
figures:

  • CPI Y/Y 2.6% vs. 1.8%
    prior (revised from 1.6%).
  • Core CPI Y/Y 2.5%
    vs. 2.5% expected and 1.8% prior (revised from 1.6%).
  • Core-Core CPI Y/Y
    2.5% vs. 2.5% prior (revised from 2.2%).

Tokyo Core-Core CPI YoY

The Chinese
February Caixin Services PMI missed expectations:

  • Caixin Services PMI
    52.5 vs. 52.9 expected and 52.7 prior.

China Caixin Services PMI

The Eurozone
January PPI missed expectations by a big margin:

  • PPI
    Y/Y -8.6% vs. -8.1% expected and -10.7% prior (revised from -10.6%).
  • PPI
    M/M -0.9% vs. -0.1% expected and -0.9% prior (revised from -0.8%).

Eurozone PPI YoY

The US February
ISM Services PMI missed expectations:

  • ISM Services PMI
    52.6 vs. 53.0 expected and 53.4 prior.

Key details:

  • Employment 48.0 vs. 50.5 prior.
  • New orders 56.1 vs. 55.0 prior.
  • Prices paid 58.6 vs.
    64.0 prior.

Other components:

  • Inventories 47.1 vs. 49.1 last month.
  • Supplier deliveries
    48.9 vs. 52.4 last month.
  • Backlog of orders
    50.3 vs. 51.4last month.
  • New export orders
    51.6 vs. 56.1 last month.
  • Imports 54.3 vs. 59.9 last month.
  • Inventory sentiment
    56.7 vs. 59.3 last month.

US ISM Services PMI

RBNZ’s Conway supports
the central bank patient stance:

  • Says the falls in
    inflation are encouraging.
  • Interest rates will
    need to stay restrictive for a sustained period of time.
  • If the Fed, for
    example, did start to cut toward the end of this year and we didn’t, then
    that would show up first and foremost in the exchange rate.
  • The exchange rate
    would start to appreciate, which would bring down inflationary pressures.
    So, then you have to think about what are the flow-on effects of that
    inflation, and would that mean that we would end up cutting more quickly
    than what we are currently considering?
  • There’s a bit of
    wiggle room in there for us, I think in terms of charting our own course.

RBNZ Conway

The Australian Q4 2023 GDP missed expectations
slightly:

  • Q4 2023 GDP Q/Q 0.2%
    vs. 0.3% expected and 0.2% prior.
  • Q4 2023 GDP Y/Y 1.5%
    vs. 1.4% expected and 2.1% prior.

Australia Q4 2023 GDP

Jiji Press reported that BoJ policymakers will likely
say that lifting negative interest rates would be reasonable. This has boosted
speculation of a rate hike as early as March.

Jiji Press

The Eurozone January Retail Sales came in line with
expectations with positive revisions to the prior figures:

  • Retail Sales M/M
    0.1% vs. 0.1% expected and -0.6% prior (revised from -1.1%).
  • Retail Sales Y/Y
    -1.0% vs. -1.3% expected and -0.5% prior (revised from -0.8%).

Eurozone Retail Sales YoY

The US February ADP missed expectations with a
positive revision to the prior figure:

  • ADP 140K vs. 150K
    expected and 111K prior (revised from 107K).

The
median change in annual pay
:

  • Job stayers 5.1% vs.
    5.2% last month.
  • Job changers 7.6% vs.
    7.2% last month.

US ADP

The Bank of Canada kept
interest rates unchanged at 5.00% as expected:

  • Still concerned
    about risks to the outlook for inflation, particularly the persistence
    in underlying inflation
    .
  • Want to see further
    and sustained easing in core inflation.
  • Global economic
    growth slowed in the fourth quarter but US remained surprisingly robust.
  • In Canada, the
    economy grew in the fourth quarter by more than expected.
  • There are now some
    signs that wage pressures may be easing.
  • Year-over-year and
    three-month measures of core inflation are in the 3% to 3.5% range.
  • BoC continues to
    expect inflation to remain close to 3% during the first half of this year
    before gradually easing.

BoC

Moving on to the Governor
Macklem Press Conference:

  • In the six weeks
    since our January decision, there have been no big surprises.
  • We need to give
    higher rates more time to do their work.
  • It’s still too early
    to consider lowering the policy interest rate.
  • Future progress on
    inflation is expected to be gradual and uneven, and upside risks to
    inflation remain.
  • We don’t want to
    keep monetary policy this restrictive for longer than we have to
    .
  • Shelter price
    inflation is certainly weighing on our decisions.
  • If we look beyond
    shelter, we’re seeing underlying inflation persist.
  • There are other
    underlying inflationary pressure beyond shelter.
  • We’re looking for
    further evidence of sustained downward pressure in underlying inflation.
  • We will take our
    April decision in April.
  • We most likely won’t
    get 2% inflation this year.
  • The labour market
    has come into better balance, vacancies are now at ‘more normal’ levels.
  • We don’t want
    inflation to get stuck materially above our target.
  • We are comfortable
    with our measures of core inflation.
  • Our message is: It’s
    working, inflation is coming down.
  • There was ‘clear
    consensus’ not to cut rates now at Governing Council.
  • There are some risks
    the housing market could re-accelerate, we’ve built some rebound into our
    projections.
  • We are taking each
    decision one meeting at a time.
  • We’re not going to
    be lowering rates at the pace we raised them.
  • If core inflation
    stays put, we won’t hit our inflation forecast.
  • We will take our
    April decision with the benefit of more data.
  • We are seeing
    progress in inflation fight, need to see more progress.
  • I continue to
    believe that inflation risks are reasonable balanced.
  • Inflation
    expectations have remained well anchored.

BoC’s Macklem

The US January Job
Openings missed expectations with negative revisions to the prior figures:

  • Job Openings 8.863M
    vs. 8.900M and 8.889M prior (revised from 9.026M).
  • Quits rate 2.1% vs. 2.2% prior.
  • Layoffs and
    discharges unchanged at 1.6 million.
  • Hires unchanged at 5.7 million.
  • Separations 5.3M vs.
    5.4M prior.

US Job Openings

Fed Chair Powell testified
to Congress and basically reaffirmed the patient stance:

  • Will likely be
    appropriate to begin cutting rates some time this year.
  • Do not expect to cut
    until we have greater confidence inflation moving toward 2%.
  • Policy rate likely
    at its peak for the cycle.
  • We will carefully
    assess incoming data, evolving outlook, balance of risks.
  • Labor market remains
    relatively tight.
  • Labor demand still
    exceeds supply; nominal wage growth has been easing.
  • Risks to achieving
    dual mandate coming into better balance.
  • While inflation is
    above 2%, it has eased substantially.
  • We would like to
    have more confidence on inflation, we have some confidence but want more.
  • Incoming data will
    determine when rate cuts begin.
  • Number of cuts this
    year will depend on the economy.
  • We are seeing solid
    signs of growth, which should continue.
  • I don’t think the
    risk of a recession is elevated right now.
  • We are on a good
    path so far in being able to achieve dual mandate.
  • We are making sure
    banks with commercial real estate sector exposure can manage any losses.
  • This fallout will
    last over next several years.
  • Wants to see ‘some
    good inflation readings’.
  • Not looking for
    better inflation readings that we’ve had, looking for more of what we have
    seen.

Fed Chair Powell

Fed’s Daly (neutral –
voter) reaffirmed the central bank patient stance as well:

  • Rising housing costs
    have been a key driver of higher inflation.
  • Higher interest
    rates do raise housing costs temporarily but are needed to bring down
    inflation.
  • We are committed to
    finishing the job on price stability.
  • Fed is focused,
    resolute on getting inflation down.
  • Policy is in a good
    place, there is more work to do.
  • Encouraged we been
    able to bring inflation down with labour market solid.
  • We are on path to
    bring inflation down as gently as we can.
  • Fed is facing
    calibration exercise on policy.
  • Holding on too long
    with rates could create unforced error for the economy.
  • We are waiting and
    watching economy to fine-tune our decision-making.

Fed’s Daly

The Federal Reserve released
the Beige Book with neutral to slightly negative findings:

  • Consumer spending,
    particularly on retail goods, inched down in recent weeks.
  • Several reports
    cited heightened price sensitivity by consumers.
  • Demand for
    restaurants, hotels, and other establishments softened due to elevated
    prices
    , as well as to unusual weather conditions in
    certain regions.
  • Manufacturing
    activity was largely unchanged.
  • Several reports
    highlighted a pickup in demand for residential real estate in recent weeks.
  • Commercial real
    estate activity was weak, particularly for office space.
  • Loan demand was
    stable to down.
  • The outlook for
    future economic growth remained generally positive.

Beige Book

Fed’s Kashkari (uber hawk – non voter) maintains his
view of less rate cuts than the market is currently expecting:

  • Base case is no more
    rate hikes.
  • If inflation seems
    more entrenched than we think, the first thing Fed would do is hold for
    longer.
  • If inflation flares
    again that could justify rate hike.
  • In December had
    expected two rate cuts in 2024.
  • Hard to see that I
    would now expect more rate cuts.
  • Decision on rate
    cuts will depend on inflation data.
  • If economy continues
    to be healthy, why would we cut rates.
  • We want to avoid a
    downturn, have a soft landing.
  • US labour market is
    coming into better balance.
  • It is hard for me,
    with the data that have come in, that I would be saying more cuts than I
    said in December.
  • It seems the base
    case: I’d be where I was in December, or potentially one fewer. But I haven’t
    decided.

Fed’s Kashkari

The Japanese February Wage data beat expectations by a
big margin sparking a further rally in the Yen:

  • Average Cash Earnings
    Y/Y 2.0% vs. 1.3% expected and 1.0% prior.
  • Real wages Y/Y -0.6%
    vs. -1.5% expected and -2.0% prior.

Japan Average Cash Earnings YoY

BoJ’s Nakagawa sounded a bit more neutral compared to
other members but remains optimistic on the achievement of the inflation
target:

  • Given risks,
    uncertainties, gathering information to make monetary policy decision amid
    risks and uncertainties.
  • Japan’s economy
    making steady progress toward achievement of price target.
  • If we judge that
    sustained achievement of price goal foreseen, we will decide whether or
    not to tweak YCC, risk assets buying, and other policy means.
  • Some weak signs seen
    in consumption data but no big change to trend of moderate increase.
  • Capex continues to
    increase moderately as a trend.
  • There is heightening
    chance this year’s wage revision will result in fairly high levels
    compared with last year.
  • Japan’s economy
    likely to continue recovering moderately.
  • Inflation
    expectations likely to gradually heighten to levels that align with our
    price target.
  • We can foresee
    Japan’s economy achieving a positive wage-inflation cycle.
  • It is important that
    consumer inflation does not sour and pull Japan back to deflation.
  • Main scenario is
    that expectations of rising wages will underpin consumer sentiment, but
    there is risk that real income will undershoot and weigh on demand,
    economy and prices.
  • Prospects of
    sustainably achieving 2% price target gradually heightening.
  • It
    will take until autumn or longer if we were to wait until smaller firms’ wage
    talks outcome.
  • Will
    scrutinise if and how long we should analyse data in deciding policy shift.
  • Consumption remains weak in both nominal and real terms, warrants
    attention.

BoJ’s Nakagawa

BoJ’s Ueda continues to see the achievement of their
target:

  • Possible to exit
    stimulus measures while striving to achieve 2% price target.
  • Likelihood of
    achieving 2% inflation goal is gradually rising.
  • Will consider
    rolling back stimulus measures once positive cycle of wages and inflation
    is confirmed.

BoJ Ueda

The ECB left interest rates unchanged at 4.00% as
expected with lower inflation projections:

  • Main
    refinancing rate 4.50% vs. 4.50% expected.
  • Deposit
    facility rate 4.00% vs. 4.00% expected.
  • Marginal
    lending facility 4.75% vs 4.75% expected.
  • Since
    last policy meeting in January, inflation has declined further.
  • Core inflation projections revised lower to 2.6% for 2024, 2.1% for 2025
    and 2.0% for 2026.
  • Economic growth projection revised lower for 2024 to 0.6%.
  • Economy
    to then grow at 1.5% in 2025 and 1.6% in 2026.
  • Determined
    to ensure that inflation returns to 2% medium-term target in a timely manner.
  • Interest
    rates are at levels that, maintained for a sufficiently long duration, will
    make a substantial contribution to this goal.
  • Future
    decisions will ensure rates will be set at sufficiently restrictive levels for
    as long as necessary.
  • To
    continue data-dependent approach to determining the appropriate level and
    duration of restriction.

ECB

Moving on to the President Lagarde’s Press Conference:

  • Economy remains weak
    but surveys point to a pick-up this year.
  • Demand for labour is
    slowing.
  • We will continue to
    follow a data-dependent path.
  • Measures of
    longer-term inflation expectations are stable.
  • Risks to economic
    growth remain tilted to the downside.
  • We are more
    confident on inflation but not sufficiently confident.
  • We will know a
    little more in April but a lot more in June.
  • Governing Council
    agreed on new statement on capital market union, to be released later.
  • There was a broad
    consensus that we will get more data in June.
  • There was a broad
    agreement that we won’t change our view based on one single data point.
  • The data so far
    isn’t durable enough at the moment to give us sufficient confidence.
  • Decision was unanimous.
  • I’m not saying we
    need to get to 2% inflation to take a decision on cutting rates.
  • Market expectations
    seem to be converging better to ECB projections.
  • We did not discuss
    cuts for this meeting, but we are just beginning to discuss the dialling
    back of interest rates.

ECB’s President Lagarde

The US Jobless Claims missed expectations:

  • Initial Claims 217K
    vs. 215K expected and 217K prior (revised from 215K).
  • Continuing Claims
    1906K vs. 1889K expected and 1898K prior (revised from 1905K).

US Jobless Claims

Fed’s Bowman (hawk –
voter) reaffirmed the patient stance:

  • January inflation
    suggests inflation progress may be slower going forward.
  • Latest jobs data
    continued to show a tight job market.
  • Current policy
    stance appears appropriately calibrated.
  • Baseline is for
    continued decline in inflation but see a number of upside inflation risks
    to my outlook.
  • Fiscal stimulus,
    tight jobs market might be keeping core services inflation elevated.
  • Will remain cautious
    in approach to considering any monetary policy stance change, especially
    given data revisions.

Fed’s Bowman

Fed’s Mester (hawk – voter)
reaffirmed the patient stance as they take in more data:

  • If economy meets
    forecasts, rate cuts are likely later this year.
  • Monetary policy is
    currently in a good place given outlook.
  • Expects Fed will be
    able to lower rates gradually.
  • Inflation may prove
    to be more persistent this year.
  • Biggest mistake
    would be premature Fed rate cuts.
  • Fed has luxury of
    holding steady while taking in more data.
  • Open question where
    neutral rate currently stands.
  • Open question how
    restrictive monetary policy is right now.
  • Labor markets have
    been very resilient.
  • January inflation
    reports were a wake-up call.

Fed’s Mester

ECB Villeroy (neutral –
non voter in April) seems to be suggesting a cut in April:

  • Rate cut in the
    spring is ‘very likely’.
  • There is a large
    consensus that rate cut will come.
  • Timing remains a
    ‘minor issue’.

ECB’s Villeroy

ECB’s Simkus (hawk –
voter) prefers a rate cut in June but didn’t rule out a move in April:

  • A rate cut in June
    is very likely.
  • The conditions are
    in place to move to a less restrictive monetary policy.
  • A rate cut in April
    cannot be ruled out but probability of that is low.
  • There are no reasons
    for cuts of more than 25 bps at a time.

ECB’s Simkus

ECB’s Holzmann (uber hawk
– voter) said that a rate change was in preparation, which is very compelling
since it comes from the most hawkish ECB member.

ECB’s Holzmann

We got some reports that
further boost the Yen across the board. The first was from JiJi Press saying
that the BoJ will review its YCC policy. The second one came from Reuters
saying that the BoJ might not wait until April to exit negative rates.

Yen

Fed’s Williams (neutral –
voter) just delivered some general comments:

  • Inflation
    expectations have come down quite a bit.
  • Demand has cooled
    amid restrictive monetary policy.
  • Fed is responsible
    for achieving price stability.
  • Nobody thinks high
    inflation is a good thing.
  • The Fed is focused
    on its mission, does not consider politics in deliberations.

Fed’s Williams

The US February NFP
report beat expectations on the headline figure, but the unemployment rate
reached a new cycle high:

  • NFP 275K vs. 200K
    expected and 229K prior (revised from 353K).
  • Two-month net
    revision -167K vs. 126K prior
  • Unemployment rate
    3.9% vs. 3.7% expected and 3.7% prior.
  • Participation rate 62.5% vs. 62.5% prior.
  • U6 underemployment
    rate 7.3% vs. 7.2% prior.
  • Average hourly
    earnings M/M 0.1% vs. 0.3% expected and 0.5% prior (revised from 0.6%).
  • Average hourly
    earnings Y/Y 4.3% vs. 4.4% expected and 4.4% prior (revised from 4.5%).
  • Average weekly hours
    34.3 vs. 34.3 expected and 34.2 prior (revised from 34.1).
  • Change in private
    payrolls 223K vs. 160K expected.
  • Change in
    manufacturing payrolls -4K vs. 10K expected.
  • Household survey -184K
    vs. -31K prior.

US Unemployment Rate

The Canadian Jobs data
beat expectations, but wage growth (which is what the BoC cares about the most)
slowed notably:

  • Employment change
    40.7K vs- 20.0K expected and 37.3K prior.
  • Unemployment rate
    5.8% vs. 5.8% expected and 5.7% prior.
  • Full-time employment
    70.6K vs. -11.6K last month.
  • Part-time employment
    -29.9K vs. 48.9K last month.
  • Average hourly wages
    permanent employees 4.90% vs. 5.30% last month.
  • Participation rate
    65.3% vs. 65.3% last month.

Canada Unemployment Rate

The
highlights for next week will be
:

  • Tuesday: Japan PPI, UK Labour
    Market report, US NFIB Small Business Optimism Index, US CPI.
  • Wednesday: UK GDP, UK Industrial
    Production, Eurozone Industrial Production.
  • Thursday: US PPI, US Retail
    Sales, US Jobless Claims, New Zealand Manufacturing PMI.
  • Friday: US Industrial
    Production, US University of Michigan Consumer Sentiment Survey, PBoC MLF.

That’s all folks. Have a
nice weekend!

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