Monday

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.

Tuesday

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.

Wednesday

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.

Thursday

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.

Friday

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!