UPCOMING EVENTS:
- Monday: PBoC LPR, Canada PPI.
- Tuesday: Australia/Japan/Eurozone/UK/US Flash PMIs.
- Wednesday: Australia CPI, Canada Retail Sales, US Durable Goods Orders.
- Thursday: US Q1 GDP Advance, US Jobless Claims.
- Friday: Tokyo CPI, Australia PPI, BoJ Policy Decision, US PCE.
Monday
The PBoC is expected to keep the LPR rates unchanged at 3.45% for the 1-year and 3.95% for the 5-year. The recent data has been weaker than expected with “activity” data disappointing and the latest CPI figures missing expectations by a big margin as the deflationary threat remained present. The PBoC Governor Pan stated that they still have sufficient room for monetary policy, so adjustments to the policy rates cannot be ruled out.
Tuesday
Tuesday will be the Flash PMIs day for many major economies, but the market will focus on the US ones given the recent shift in the Fed’s stance:
- Eurozone Manufacturing PMI 46.5 vs. 46.1 prior.
- Eurozone Services PMI 51.8 vs. 51.5 prior.
- UK Manufacturing PMI 50.2 vs. 50.3 prior.
- UK Services PMI 53.0 vs. 53.1 prior.
There is no consensus for the US figures at the time of writing although the prior release showed Manufacturing PMI ticking lower to 51.9 vs. 52.2 prior and Services PMI falling to 51.7 vs. 52.3 prior.
- US Manufacturing PMI 50.2 vs. 50.7 prior.
- US Services PMI 52.0 vs. 52.5 prior.
Wednesday
The Australian Q1 CPI Y/Y is expected at 3.4% vs. 4.1% prior, while the Q/Q measure is seen at 0.8% vs. 0.6% prior. We will also get the Monthly CPI data with the Y/Y figure seen at 3.4% vs. 3.4% prior. As always, the market will focus mainly on the underlying inflation readings (Trimmed-Mean and Weighted-Mean) as that’s what the RBA is more concerned about. The market has priced out all the rate cuts in 2024 and it’s now looking at 2025 for the first one.
Thursday
The US Jobless Claims continue to be one of the most important releases to follow every week as it’s a timelier indicator on the state of the labour market. This is because disinflation to the Fed's target is more likely with a weakening labour market. A resilient labour market though could make the achievement of the target more difficult. Initial Claims keep on hovering around cycle lows, while Continuing Claims remain firm around the 1800K level. This week Initial Claims are expected at 210K vs. 212K prior, while there is no consensus at the time of writing for Continuing Claims although the prior release showed a slight increase to 1812K vs. 1810K prior.
Friday
The BoJ is expected to keep interest rates steady at 0.00-0.10% with absolutely no change to anything else except possibly some minor tweak to their Real GDP and Core CPI projections. This meeting follows the one where they finally exited the negative interest rates policy raising rates for the first time since 2007. Overall, it will likely be a dull one, so the Tokyo CPI will carry more weight, although the expectations aren’t great since inflation is seen falling further.
The Tokyo CPI Y/Y is expected at 2.6% vs. 2.6% prior, while the Core CPI Y/Y is seen at 2.2% vs. 2.4% prior and the Core-Core CPI Y/Y at 2.7% vs. 2.9% prior. The Tokyo CPI is considered a leading indicator of National CPI trends because Tokyo is the largest city in Japan and is a major economic hub. The BoJ recently has been hinting to a possibility of another rate hike regardless of its inflation forecasts. That will need sustained wage growth and a rebound in consumption though.
The US PCE Y/Y is expected at 2.6% vs. 2.5% prior, while the M/M measure is seen at 0.3% vs. 0.3% prior. The Core PCE Y/Y, which is the Fed’s preferred measure of inflation, is expected at 2.7% vs. 2.8% prior, while the M/M figure is seen at 0.27% vs. 0.26% prior. Forecasters can reliably estimate the PCE once the CPI and PPI are out, so the market already knows what to expect.
Moreover, Fed Chair Powell already hinted that their estimates show the Core PCE to be little changed in March and despite that, Fed’s Williams (neutral) brought rate hikes on the table if inflation progress were to stall, and Fed’s Goolsbee (dove) shifted to a more neutral stance.
The market will need a downside surprise to increase the rate cuts pricing. Given the recent change in the Fed’s stance though, the market’s reaction function should change from now on, and that is, more hot data could start to see the market pricing in slight chances of a rate hike.
