Monday

The PBoC left the LPR rates unchanged as expected:

• 3.45% for the one year.
• 4.20% for the five year.

The US Leading Economic Index (LEI) fell by less than expected:

• LEI -0.1% vs. -0.3% expected and -0.5% prior.

From the Conference Board: “The US LEI fell slightly in December, continuing to signal underlying weakness in the US economy. Despite the overall decline, six out of ten leading indicators made positive contributions to the LEI in December. Nonetheless, these improvements were more than offset by weak conditions in manufacturing, the high interest-rate environment, and low consumer confidence. As the magnitude of monthly declines has lessened, the LEI’s six-month and twelve-month growth rates have turned upward but remain negative, continuing to signal the risk of recession ahead.”

Tuesday

The New Zealand December Services PMI fell back into contraction:

• Services PMI 48.8 vs. 51.2 prior.
• Long-term average is 53.4.

BNZ Comments: “The softening in the PSI, alongside the weakness in the PMI, is bad news for both near term growth and employment in New Zealand. Tourism has been a key driver of the services sector and will continue to support the economy, but it can’t do all the heavy lifting by itself”.

The BoJ left interest rates and the YCC setting unchanged as expected:

• Short-term interest rate target -0.1%.
• 10-year bond yield around 0% with 1% as a reference cap.
• Makes no changes to forward guidance on monetary policy.

No change to core-core inflation forecasts:

• Core-core CPI fiscal 2023 median forecast at 3.8 vs. 3.8% forecast in the October Outlook Report.
• Core-core CPI fiscal 2024 median forecast at 1.9% vs. 1.9% in October.
• Core-core CPI fiscal 2025 median forecast at 1.9% vs. 1.9% in October.

But core forecasts trimmed:

• Core CPI fiscal 2023 median forecast at 2.8% vs. 2.8% in October.
• Core CPI fiscal 2024 median forecast at 2.4% vs. 2.8% in October.
• Core CPI fiscal 2025 median forecast at 1.8% vs. 1.7% in October.

GDP forecasts:

• FY 2023 1.8% vs. 2.0% in October.
• FY 2024 1.2% vs. 1.0% in October.
• FY 2025 1.0% vs. 1.0% in October.

BoJ quarterly report:

• Risks to economic activity generally balanced.
• Need to closely monitor whether virtuous cycle between wages and prices will intensify.
• Will continue with QQE with YCC as long as needed.
• Won't hesitate to take additional easing steps if needed.
• BoJ will patiently continue with monetary easing while nimbly responding to developments.
• Japan's financial system has maintained stability on the whole.

• Uncertainty remains but likelihood of achieving sustained 2% inflation continues to gradually heighten.
• Japan's economy likely to continue recovering moderately.
• Must be vigilant to financial, FX market moves and their impact on Japan’s economy, prices.
• Inflation expectations gradually heightening.
• Core consumer inflation moving below 2.5%, partly reflecting moderate rise in service prices.
• Consumption continues to rise moderately.
• Inflation likely to gradually accelerate toward BoJ's target through end of projected period in quarterly report.
• Japan's output gap improving, likely to gradually expand ahead.
• Medium and long-term inflation expectations heightening gradually.
• Positive cycle of rising wages, inflation to strengthen.

Moving on to the Governor Ueda Press Conference:

• Likelihood of achieving 2% inflation target is gradually rising.
• Japanese economy to gradually pick up moving forward.
• Must carefully watch financial, FX market moves and their impact on prices.
• Will not hesitate to take additional easing measures if necessary.
• Heard encouraging comments from big firms on wage hikes.
• Closely watching the outcome of the spring wage negotiations.
• Want to confirm virtuous cycle of wages and prices is in place.
• Economy is progressing in line with our forecast.
• Our confidence has grown in the achievement of price target.
• This confirms economy is proceeding based on existing price outlook.
• There is no change in our stance to carefully examine price trends.
• Cannot fully grasp impact of earthquakes in Western Japan region just yet.
• Uncertainty is still high about how widespread wage hikes will be.
• But it is not as high as uncertainty seen last year.
• Can't deny side effects to negative interest rate policy.
• Will foresee further rate hikes when exiting negative interest rate policy.
• More firms have decided on wage hikes this year compared to last year.

Following the free fall in the stock market, Bloomberg reported on Tuesday, citing people familiar with the matter that Chinese policymakers are seeking to mobilise about 2 trillion yuan ($278.53 billion), mainly from the offshore accounts of Chinese state-owned enterprises, as part of a stabilisation fund to buy shares onshore through the Hong Kong exchange link. Bloomberg said Chinese officials have allotted at least 300 billion yuan of local funds to invest in onshore shares through China Securities Finance Corp or Central Huijin Investment Ltd. They are also weighing other options and may announce some of them as soon as this week if approved by the top leadership of the country, according to the report.

Wednesday

The New Zealand Q4 CPI came in line with expectations:

• CPI Q4 Y/Y 4.7% vs. 4.7% expected and 5.6% prior.
• CPI Q4 Q/Q 0.5% vs. 0.5% expected and 1.8% prior.

The Australian Manufacturing and Services PMIs improved in January:

• Manufacturing PMI 50.3 vs. 47.6 prior.
• Services PMI 47.9 vs. 47.1 prior.

The Japanese Manufacturing and Services PMIs improved in January:

• Manufacturing PMI 48.0 vs. 47.9 prior.
• Services PMI 52.7 vs. 51.5 prior.

The PBoC Governor Pan delivered some supporting remarks and announced a 50 bps RRR cut (the last two RRR cuts in 2023 were both of 25 bps):

• Will use various policy tools to keep liquidity reasonably ample.
• Will keep yuan exchange rate basically stable.
• Will steadily promote yuan internationalisation.
• Financial risks are generally under control.
• Monetary policy is mainly based on domestic conditions.
• There is still sufficient room for monetary policy.
• China's economy faces some difficulties, but there are also positive factors.

The Eurozone January Manufacturing PMI beat expectations while the Services PMI missed forecasts:

• Manufacturing PMI 46.6 vs. 44.8 expected and 44.4 prior.
• Services PMI 48.4 vs. 49.0 expected and 48.8 prior.

The UK Manufacturing and Services PMIs beat expectations in January:

• Manufacturing PMI 47.3 vs. 46.7 expected and 46.2 prior.
• Services PMI 53.8 vs. 53.2 expected and 53.4 prior.

The US Manufacturing and Services PMIs beat expectations in January:

• Manufacturing PMI 50.3 vs. 47.9 expected and 47.9 prior.
• Services PMI 52.9 vs. 51.0 expected and 51.4 prior.

The BoC left interest rates unchanged at 5.00% as expected and dropped the language about being prepared to hike if needed:

• Still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation.
• Statement no longer says it "remains prepared to raise the policy rate further if needed".
• The Canadian economy stalled since the middle of 2023 and growth will likely remain close to zero through the first quarter of 2024.
• Economic growth is expected to strengthen gradually around the middle of 2024.
• BoC forecasts GDP growth of 0.8% in 2024.
• BoC expects inflation to remain close to 3% during the first half of this year before gradually easing, returning to the 2% target in 2025.
• Core measures of inflation are not showing sustained decline.
• Consumers have pulled back their spending in response to higher prices and interest rates.
• Economy now looks to be operating in modest excess supply.
• Labour market conditions have eased, with job vacancies returning to near pre-pandemic levels and new jobs being created at a slower rate than population growth.
• Growth in the United States has been stronger than expected but is anticipated to slow in 2024.
• Inflation rates in most advanced economies are expected to come down slowly, reaching central bank targets in 2025.
• Forecast for 2.8% inflation this year is down from 3.0% in October.
• There was a clear consensus to maintain our policy rate at 5%.
• We are trying to balance the risks of over- and under-tightening.
• We need to see further and sustained easing of core inflation.

Moving on to the Governor Macklem Press Conference:

• We are not forecasting a deep recession.
• We don't need to think that we need to get a recession to get inflation back to target.
• Inflation is still somewhat broad-based. That we become the persistence of underlying inflation.
• It's important that we don't give Canadians a false sense of precision as regards to timing of a rate cut.
• Risk of a rate hike is not at 0%, but raising rates is not the base case.
• We are at a point where there is a lot of push and pull. There are mixed signals. When have confidence we will open the door toward easing policy.
• Need more progress on inflation before discussing cutting rates.
• Asked if anyone wanted to cut, said the focus was 'very much on holding'.
• Repeats there was a 'clear consensus' to hold.
• Our latest forecasts have increased our confidence that we've raised rates enough.
• We're concerned about persistence in underlying inflation.
• It's premature to discuss reducing our policy rate.
• We need to see more progress on inflation before having a discussion about cutting rates.
• On QT, will take it one decision at a time; we're still 'some ways' from too tight.
• We're trying to balance the risks of too-high rates with too-low rates.
• We need to give monetary policy "a bit more time" to let it do its work.

Thursday

The Federal Reserve announced that its bank term funding program will cease making new loans as scheduled on March 11. The central bank adjusted interest rate on new BTFP loans to be no lower than interest rate on reserve balances on day loan was made. The new rate on BTFP loans effectively increases rate by nearly 50 bps; change is effective immediately. Says change to BTFP rate ensures the program continues to support its goals in current rate environment.

The German January IFO Business Climate Index missed expectations:

• IFO 85.2 vs. 86.7 expected and 86.3 prior (revised from 86.4).
• Current conditions 87.0 vs. 88.6 expected and 88.5 prior.
• Outlook 83.5 vs. 84.8 expected and 84.2 prior (revised from 84.3).

The ECB left interest rates unchanged at 4.00% as expected:

• Incoming information has broadly confirmed previous assessment of the medium-term inflation outlook.
• Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued.
• Tight financing conditions are dampening demand, and this is helping to push down inflation.
• Future decisions will ensure that policy rates will be set at sufficiently restrictive levels for as long as necessary.
• Stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium-term.
• Based on current assessment, interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.
• Intends to continue to reinvest, in full, principal payments from maturing securities purchased under PEPP during 1H 2024.

Moving on to President Lagarde Press Conference:

• Risks to economic data remain tilted to the downside.
• Economy likely stagnated in Q4.
• Some surveys point to a pickup in 2024.
• Demand for labour is slowing.
• Upside risks to inflation include heightened geopolitical tensions, including in Middle East.
• Market interest rates have moved broadly sideways since our last meeting.
• We are determined to ensure inflation returns to our 2% target in a timeline manner.
• We will continue to follow a data-dependent approach.
• The consensus was that it was premature to discuss rate cuts.
• I stand by my comments (regarding possible summer rate cuts).
• We are data dependent, not date-dependent.
• We're watching shipping cost increases and delays.
• Seeing some stabilization in wage tracker.
• Seeing slight reduction of vacancies advertised.
• Wage growth is already declining.
• Not seeing second round effects.
• We are trying to be a little simpler in our words, so don't pay too much attention to word changes in our statement.
• 80% of our survey respondents say they are happy to work at the ECB.
• I'm honoured to lead the ECB.
• It's often said that wage data is backwards looking.
• PMI numbers are a small signal of stabilization and that a pickup is coming into place.
• In terms of data, we're seeing hard data that's weak (notes industrial production and retail sales). If we look at PMIs, we're seeing some encouraging numbers.

The US Advance Q4 GDP beat expectations:

• Q4 GDP 3.3% vs. 2.0% expected.
• Consumer spending 2.8% vs. 3.1% prior.
• Consumer spending on durables 4.6% vs. 6.7% prior.
• GDP final sales 3.2% vs. 3.6% prior.
• GDP deflator 1.5% vs. 2.3% expected and 3.3% prior.
• Core PCE 2.0% vs. 2.0% expected and 2.0% prior.
• Business investment 2.1% vs. 10.0% prior.

The US Jobless Claims missed expectations across the board:

• Initial Claims 214K vs. 200K expected and 189K prior (revised from 187K).
• Continuing Claims 1833K vs. 1828K expected and 1806 prior.

Friday

The Tokyo January CPI saw all the measures easing further:

• CPI Y/Y 1.6% vs. 2.4% prior.
• Core CPI Y/Y 1.6% vs. 1.9% expected and 2.1% prior.
• Core-Core CPI Y/Y 2.2% vs. 2.7% prior.

ECB’s Vujcic (hawk – voter) seemed to suggest that he prefers to wait patiently for clear signs and if something breaks before that they can always cut more aggressively:

• There was no dovish tilt on Thursday.
• It is possible to cut rates later but with bigger steps.
• Personally prefer 25 bps rate cuts to begin with though.
• Economy is more in a stagnation phase rather than recession.
• The overall picture is good at the moment.

ECB’s Simkus (hawk – voter) shared his scepticism on market’s expectations:

• I am confident that the data will not support a rate cut in March.
• Rate cuts will be more likely as the year progresses.
• We are still less optimistic than markets are on rate cuts at the moment.

ECB’s Kazaks (hawk – voter) continues to support a patient approach:

• Confident about monetary policy but preaches patience for now.
• Interest rates should start to go down.
• But ECB is in no rush to begin the process for now.
• Cutting rates too early would be by all mean worse than waiting just a bit.
• There’s the risk that inflation starts to come back and then one would need to raise rates much more.

The US December PCE came in line with expectations:

• PCE Y/Y 2.6% vs. 2.6% expected and 2.6% prior.
• PCE M/M 0.2% vs. 0.2% expected and -0.1% prior.
• Core PCE Y/Y 2.9% vs. 3.0% expected and 3.2% prior.
• Core PCE M/M 0.2% vs. 0.2% expected and 0.1% prior.

Consumer spending and income:

• Personal income 0.3% vs. 0.3% expected and 0.4% prior.
• Personal spending 0.7% vs. 0.4% expected and 0.4% prior (revised from 0.2%).
• Real personal spending 0.5% vs. 0.5% prior (revised from 0.3%).

The highlights for next week will be:

• Tuesday: Japan Unemployment Rate, Eurozone Q4 GDP, US Job Openings, US Consumer Confidence.
• Wednesday: BoJ Summary of Opinions, Japan Industrial Production and Retail Sales, Australia CPI, Chinese PMIs, Switzerland Retail Sales, US ADP, Canada GDP, US ECI, FOMC Policy Decision.
• Thursday: China Caixin Manufacturing PMI, Switzerland Manufacturing PMI, Eurozone CPI, Eurozone Unemployment Rate, BoE Policy Decision, US Challenger Job Cuts, US Jobless Claims, Canada Manufacturing PMI, US ISM Manufacturing PMI.
• Friday: Australia PPI, US NFP.

That’s all folks. Have a nice weekend!