UPCOMING EVENTS:
Tuesday: S&P Global US PMIs.
Wednesday: RBNZ Policy Decision, FOMC Minutes.
Thursday: US Jobless Claims.
Friday: US PCE.
Last week we’ve got another set of hot economic data with US Retail Sales and PPI showing big beats to the expected numbers and the US CPI, although in line with expectations, showing too high M/M readings to hope for a fast return to the Fed’s target and the Y/Y disinflationary trend slowing.
All of the above, contributed to the market pricing a higher terminal rate than what the Fed has projected. The repricing in expectations in the last 2 weeks has been really strong. Below you can see the market pricing.
Image by @biancoresearch on Twitter
This repricing was the culprit for the US Dollar appreciation we’ve started to see since the incredibly strong NFP report 2 weeks ago. It’s likely that we will keep on seeing the USD appreciating with more beats in economic data as we head into the March FOMC meeting. Below you can see the recent major catalysts that pushed the US Dollar up.
Recent catalysts on the US Dollar Index
Tuesday: The S&P Global US Manufacturing PMI is expected to increase to 47.3 vs. 46.9 prior and the Services PMI is expected to show an uptick to 47.2 vs. 46.8 prior. We’ve been seeing beats in many economic data since the last FOMC meeting when the markets were pricing a lower terminal rate and bigger cuts by the end of this year. The pricing now of course flipped with the markets pricing a higher terminal rate and almost no cuts by the end of the year. Although the markets focus more on the ISM PMIs, another beat in these PMIs wouldn’t be good news.
Wednesday: The RBNZ is expected to hike by 50 bps bringing the official cash rate to 4.75%. The central bank will slow pace from the previous 75 bps moves as they are trying to balance the disinflationary trend with the uptick in unemployment.
The FOMC Meeting Minutes shouldn’t give much to the markets to digest as it’s outdated given the recent hot data and Fedspeak.
Thursday: Since the Fed is targeting a softer labour market as signalled by Fed Chair Powell, labour market data is very important. Initial Jobless Claims are expected at 200K vs. 194K prior. Big deviations from the expected number should be market moving.
Friday: The US Core PCE is the Fed’s preferred measure of inflation. The Y/Y reading is expected at 4.3% vs. 4.4% prior and the M/M data is expected at 0.4% vs. 0.3% prior. The market won’t take well beats in the data as it now prices a higher terminal rate.
This article was written by Giuseppe Dellamotta.
