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 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.
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!