Monday

Over the weekend, the Chinese Inflation data beat expectations by a big margin:

• CPI Y/Y 0.7% vs. 0.3% expected and -0.8% prior.
• CPI M/M 1.0% vs. 0.7% expected and 0.3% prior.
• Core CPI Y/Y 1.2% vs. 0.4% prior.
• Core CPI M/M 0.5% vs. 0.3% prior.

China National Bureau of Statistics (NBS) on the CPI rise:

• "It was primarily food and service prices that rose more".
• "During the Spring Festival period, consumer demand for food products grew, in addition to rainy and snowy weather in some regions affecting supply".

JiJi Press reported that the BoJ was considering scrapping its Yield Curve Control (YCC) program:

• The Bank of Japan is considering scrapping its yield curve control program and instead indicating in advance the amount of government bonds it plans to purchase, Jiji Press reported, without saying where it got the information.
• It will stop its program to guide benchmark 10-year government bond yields to around 0%, as part of its efforts to normalize monetary policy, according to Jiji.
• New framework would target the volume of purchases, rather than the yield, according to Jiji.
• The bank will decide on that and ending negative interest rates as soon as the next policy meeting concluding on March 19, the report said.

The Japanese Final Q4 GDP invalidated the technical recession as the number was revised substantially higher:

• Final Q4 GDP 0.1% vs. 0.3% expected and -0.8% prior.
• Annualised 0.4% vs. -0.4% preliminary.
• Private consumption -0.3% vs. -0.2% preliminary (down for the third straight quarter).
• Capex 2.0% vs. -0.1% preliminary.

ECB’s Kazimir (hawk – voter) reaffirmed his preference for a June rate cut as he awaits more data:

• Should wait until June for first rate cut.
• Rushing the move is not smart nor beneficial.
• Upside risks to inflation are "alive and kicking".
• Need more hard evidence on inflation outlook.
• Only in June will we reach the confidence threshold on that.
• But discussions on easing should ready start, will use the weeks ahead for that.

ECB’s Makhlouf (dove – non voter in April) supports a gradual policy easing:

• Gradual changes are best rather than a sudden decision.
• Large individual cuts "probably unlikely" because "data is never that definitive".

BoE’s Mann (hawk – voter) reiterated that she still sees a long way to go before inflation normalises around their 2% target:

• Our forecast on service inflation looks aggressive.
• We have a long way to go for inflation pressures to be consistent with 2% target.

Tuesday

RBA’s Hunter sees the economy progressing as per their forecasts:

• Q4 GDP largely in line with forecasts.
• Recent inflation data also consistent with forecasts.
• Inflation the biggest drag on household consumption ("For some households, interest rate hikes are also challenging and difficult, but inflation is the single biggest drag.”)
• Households are clearly struggling at present.

BoJ’s Ueda reaffirmed once again that wage growth is of utmost importance for the central bank:

• Japan's economy is recovering moderately, although some weak data are seen.
• Consumption is improving moderately on easing cost-push pressure, with hopes for higher wages.
• Some firms appear to be delaying investment, though capital expenditure plans remain firm.
• We have seen various data since January, and more data will come out this week. We will look at these comprehensively in reaching an appropriate monetary policy decision.
• We are focusing on whether a positive wage-inflation cycle is kicking off, in judging whether sustained, stable achievement of our price target is coming into sight.
• When achievement of 2% inflation is stably and sustainably in sight, we will seek exit from negative rates, yield curve control and other large scale monetary easing steps.
• As for the order of phasing out these various tools, it will depend on the economic, price, and financial conditions at the time.
• It is possible to control short-term rates at appropriate level by paying interest on reserves parked with the BoJ.
• If inflation accelerates and warrants monetary tightening, it is possible to do so by raising rates without scaling back on BoJ bond holdings.

The UK February Jobs data missed expectations across the board:

• Unemployment rate 3.9% vs. 3.8% expected and 3.8% prior.
• January employment change -21K vs. 10K expected and 72K prior.
• January average weekly earnings 5.6% vs. 5.7% expected and 5.8% prior.
• January average weekly earnings (ex bonus) 6.1% vs. 6.2% expected and 6.2% prior.
• February payrolls change 20K vs. 15K prior (revised from 48K).

The US NFIB Small Business Optimism Index fell further in February:

• NFIB 89.4 vs. 90.7 expected and 89.9 prior.

“Twenty-three percent of small business owners reported that inflation was their single most important business problem in operating their business, up three points from last month and replacing labor quality as the top problem. Reports of labor quality as the single most important problem for business owners decreased five points to 16%, the lowest reading since April 2020. “While inflation pressures have eased since peaking in 2021, small business owners are still managing the elevated costs of higher prices and interest rates. The labor market has also eased slightly as small business owners are having an easier time attracting and retaining employees”, said NFIB Chief Economist Bill Dunkelberg.

The US February CPI beat expectations across the board:

• CPI Y/Y 3.2% vs. 3.1% expected and 3.1% prior.
• CPI M/M 0.4% vs. 0.4% expected and 0.3% prior.
• Core CPI Y/Y 3.8% vs. 3.7% expected and 3.9% prior.
• Core CPI M/M 0.4% vs. 0.3% expected and 0.4% prior.
• Shelter M/M 0.4% vs. 0.6% prior.
• Shelter Y/Y 5.7% vs. 6.0% prior.
• Services less rent of shelter M/M 0.6% vs. 0.6% prior.
• Real weekly earnings 0.0% vs. -0.4% prior (revised from -0.3%).
• Food M/M 0.0% vs. 0.4% prior.
• Food Y/Y 2.2% vs. 2.6% prior.
• Energy M/M 2.3% vs. -0.9% prior.
• Energy Y/Y -1.9% vs. -4.6% prior.
• Rents M/M 0.5% vs. 0.4% prior.
• Owner's equivalent rent M/M 0.4% vs. 0.6% prior.

BoE’s Bailey (neutral – voter) reiterated that the question policymakers are facing now is for how long they need to keep rates at the current levels:

• Question of policy restrictiveness is now key.
• Question is now for how long do we need to be restrictive?
• World remains more uncertain place than we have been used to.
• Monetary policy is doing its job.
• Inflation expectations appear to be well anchored.
• We have seen limited evidence so far of rising unemployment as a condition to reduce inflation.
• Concerns about embedding of second-round effects have been reduced.

Wednesday

ECB’s Wunsch (hawk – non voter in April) supports a rate cut soon despite the risks of services inflation and wage growth:

• We are going to have to make a bet at some point.
• Felt the Bank should act "before so long", without specifying a month.
• He said the ECB was getting to a point where it could react to inflation heading in the right direction. But it will remain a cautious move on the basis of what I know today because of the problem that has been commented again and again and again that service inflation and wage developments are still running at levels that are ultimately not compatible with our objective.
• We are not going to wait until we see wage development at 3% before we cut rates. I guess we'll do it before and that's why I say it's important we need to take a bet.

BoJ’s Ueda delivered some vague comments and repeated that policy tweaking will come once their conditions fall into place:

• Says will consider policy changes once achievement of price target is in sight.
• We must scrutinise whether positive wage-inflation cycle emerges.
• That will determine whether conditions for phasing out stimulus are falling into place.
• This year's wage talks is critical in deciding timing on exit from stimulus.
• We will scrutinise wage talks outcome as well as other data in making decision.
• Will consider tweaking negative rates, YCC and other monetary easing tools if sustained achievement of price target comes into sight.

Bloomberg reported that the BoJ was considering scrapping ETF purchases with inflation target in sight. The report says that the Japanese central bank is mulling such a move as policymakers see little need to keep buying ETFs to limit risk premiums in a market that is looking rather frothy.

ECB’s Villeroy (neutral – non voter in April) places higher chances on a June rate cut although he keeps a door open for an earlier move:

• It is more likely a rate cut will happen in June than in April.
• A spring rate cut remains probable.
• We remain vigilant on the inflation front but victory is within sight.
• We are winning the battle against inflation.

The UK January GDP came in line with expectations:

• January GDP M/M 0.2% vs. 0.2% expected and -0.1% prior.
• GDP 3M/3M -0.1% vs. -0.1% expected and -0.3% prior.
• Services M/M 0.2% vs. 0.2% expected and -0.1% prior.
• Industrial output M/M -0.2% vs. 0.0% expected and 0.6% prior.
• Manufacturing output M/M 0.0% vs. 0.0% expected and 0.8% prior.
• Construction output M/M 1.1% vs. -0.1% expected and -0.5% prior.

The Eurozone January Industrial Production missed expectations by a big margin:

• Industrial Production M/M -3.2% vs. -1.5% expected and 1.6% prior (revised from 2.6%).
• Industrial Production Y/Y -6.7% vs. -2.9% expected and 0.2% prior (revised from 1.2%).

Thursday

ECB’s Stournaras (dove – voter) called for the start in rate cuts soon and added that he sees four rate cuts in total as reasonable this year:

• We need to start rate cuts soon.
• Should not exaggerate the risk of a wage-price spiral.
• Does not buy the argument that the ECB cannot cut rates before the Fed.
• Four rate cuts in 2024 seem reasonable.
• We have to cut rates twice before the summer break.

ECB’s Knot (hawk – voter) expressed his preference for a June rate cut as most of other ECB members already did:

• Expect first cut in June.
• Further cuts most likely in September and December.
• Interim meetings would also be available for rate cuts if incoming data tells us we should do more.

The US February PPI beat expectations across the board:

• PPI M/M 0.6% vs. 0.3% expected and 0.3% prior.
• PPI Y/Y 1.6% vs. 1.1% expected and 1.0% prior (revised from 0.9%).
• Core PPI M/M 0.3% vs. 0.2% expected and 0.5% prior.
• Core PPI Y/Y 2.0% vs. 1.9% expected and 2.0% prior.

The US February Retail Sales missed expectations across the board with negative revisions to the prior figures:

• Retail Sales M/M 0.6% vs. 0.8% expected and -1.1% prior (revised from -0.8%).
• Retail Sales Y/Y 1.5% vs. 0.0% prior (revised from 0.6%).
• Ex-autos M/M 0.3% vs. 0.5% expected and -0.8% prior (revised from -0.6%).
• Control group M/M 0.0% vs. 0.4% expected and -0.3% prior (revised from -0.4%).
• Retail sales ex gas and autos M/M 0.3% vs. -0.5% prior.

The US Jobless Claims beat expectations with a huge positive revision to the Continuing Claims figures following the annual BLS revisions and a new model to seasonally adjust the data:

• Initial Claims 209K vs. 218K expected and 210K prior (revised from 217K).
• Continuing Claims 1811K vs. 1900K expected and 1794K prior (revised from 1906K).

JiJi Press reported that the BoJ was arranging to end negative interest rates policy at the next week’s meeting. After a brief spike, the JPY gave back all the gains given the strong US data and the fact that the market has already priced in a March exit.

ECB’s de Guindos (neutral – voter) reaffirmed that the central bank will have more info in June for a rate cut and expressed some concern about the high financial assets valuations:

• I see Europe's economy picking up in H2 2024.
• In June we'll have sufficient level of info to make decisions on monetary policy.
• Financial asset valuations are very high.

Friday

The PBoC left its MLF rate unchanged at 2.50% as expected.

• MLF 2.50% vs. 2.50% expected and 2.50% prior.
• Injects cash via MLF for the 16th month in a row.
• Adds CNY 387bn vs. the 500bn yuan maturing.

The New Zealand Manufacturing PMI improved in February although the index remains in contraction:

• Manufacturing PMI 49.3 vs. 47.3 prior.

BNZ’s Catherine Beard:

• Improved February result showed signs of a gradual turnaround in the sector.
• The key sub-index of Production (49.1) was at its highest level since January 2023, while Deliveries (51.4) was at its highest point since March 2023. However, New Orders (47.8) has now remained in contraction for nine consecutive months and likely needs to get much closer to the 50-point mark to edge the sector back into expansion.

BNZ’s Stephen Toplis:

• New Zealand’s manufacturing sector is still in recession, but this month’s PMI indicates there is light at the end of the tunnel. The 49.3 reading is within a smidgen of “breakeven” and the new orders to inventory differential provides support for an increase in production. Moreover, New Zealand’s underperformance against the rest of the world is narrowing quickly.

Japan’s Rengo, the largest trade union, said that preliminary data showed an average of 5.28% of wage hike this year. That compares with the 3.80% seen in fiscal year 2023. And for added context, the above represents the largest pay hike in more than 30 years. With this data the conditions for the BoJ to exit the NIRP were met.

ECB’s Rehn (neutral – non voter in April) said that the central bank already started to discuss rate cuts but the inflation data will be key for the timing:

• Started discussion about reducing the restrictive dimension of monetary policy.
• Talk relates to when it is appropriate to start cutting interest rates.
• If inflation continues to fall, can slowly start easing the foot off the brake pedal of monetary policy.

The US February Industrial Production beat expectations with negative revisions to the prior figures:

• Industrial Production M/M 0.1% vs. 0.0% expected and -0.5% prior (revised from -0.1%).
• Industrial Production Y/Y -0.2 vs. -0.3 prior (revised from 0.0%).
• Manufacturing production M/M 0.8% vs. 0.3% expected and -1.1% prior (revised from -0.5%).
• Manufacturing production Y/Y -0.7% vs. -1.1% prior (revised from -0.9%).
• Capacity utilization 78.3% vs. 78.5% expected and 78.3% prior (revised from 78.5%).

The US February University of Michigan Consumer Sentiment survey came basically in line with expectations across the board:

• Consumer Sentiment 76.5 vs. 76.9 expected and 76.9 prior.
• Current conditions 79.4 vs. 79.2 expected and 79.4 prior.
• Expectations 74.6 vs. 75.1 expected and 75.2 prior.
• One-year inflation 3.0% vs. 3.0% prior.
• Five-year inflation 2.9% vs. 2.9% prior.

The highlights for next week will be:

• Monday: China Retail Sales and Industrial Production, Canada PPI, US NAHB Housing Market Index.
• Tuesday: BoJ Policy Decision, RBA Policy Decision, Eurozone Wage data, Eurozone ZEW, Canada CPI, US Housing Starts and Building Permits.
• Wednesday: PBoC LPR, UK CPI, FOMC Policy Decision, New Zealand GDP.
• Thursday: Australia/Japan/Eurozone/UK/US Flash PMIs, Australia Labour Market report, SNB Policy Decision, BoE Policy Decision, US Jobless Claims.
• Friday: Japan CPI, UK Retail Sales, Canada Retail Sales.

That’s all folks. Have a nice weekend!