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.

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.

Fed’s Bostic (hawk
– voter) delivered some hawkish comments as he leans towards 2 rate cuts this
year starting from the 3^rd 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.

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%).

The Chinese
February Caixin Services PMI missed expectations:

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

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%).

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.

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.

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.

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.

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%).

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.

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.

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.

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.

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’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.

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.

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.

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.

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 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.

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.

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.

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).

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 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.

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 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 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.

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.

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.

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.

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.

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!