Monday

ECB’s Knot (hawk – voter) over the weekend reaffirmed the central bank’s focus on wage growth to decide when and by how much tweak their monetary policy:

• We now have a credible prospect that inflation will return to 2% in 2025.
• The only piece that's missing is the conviction that wage growth will adapt to lower inflation.
• As soon as that piece of the puzzle falls in place, we will be able to lower interest rates a bit.

Over the weekend three US troops got killed in Jordan in a drone attack. The US blamed Iran-backed militias and later in the week Kataib Hezbollah, the group that attacked the US base, said that it will suspend military and security operations against US forces. Crude Oil opened higher on Monday, but the gains were quickly erased.

ECB’s de Guindos (neutral – voter) expressed his confidence in reaching their 2% target as he sees inflation risks tilted to the downside:

• We will cut interest rates when we are sure of meeting 2% inflation goal.
• There is good news on inflation recently.
• Sooner or later, that will be reflected in monetary policy.
• Optimistic about inflation dynamics, even on core inflation.
• Inflation risks are to the downside.
• Latest bank lending survey shows certain stabilization.
• I think the disinflation process can continue.
• China doesn't worry US due to financial contagion but through indirect impact on growth.
• I think that inflation will be slightly lower than we have predicted.
• Inflation figures have mostly brought positive surprises recently.
• Does not want to put a figure on what "slightly lower" means.
• Monetary policy has played its part in bringing inflation down.
• Euro area growth prospects have deteriorated in the meantime.
• Growth could even be slightly below 0.8%, as projected in December.

ECB’s Centeno (dove – voter) is one of the most dovish members and he’s calling for sooner than expected rate cuts:

• Inflation is decreasing in a sustained manner.
• Almost all factors that drove prices up have dissipated.
• Should start cutting rates sooner rather than later but avoid abrupt moves.
• No need to wait for wages data in May to make rate decisions.
• There are no visible second-round effects of wage hikes.

ECB’s Kazimir (hawk – non voter in March) pushed back against the market’s pricing as he sees the first rate cut coming in June rather than April:

• The next move will be a rate cut and it is within our reach.
• A rate cut in June is more probable than April, but exact timing is secondary to the decision's impact.
• Patience is essential before making pivotal decisions.
• ECB is not behind the curve; it is markets getting ahead of the event.
• Disinflation signs are positive but not yet enough to make a confident conclusion.

SNB’s Jordan expects inflation to rise a bit in the short term but still end the year below their 2% target:

• Our expectation is that inflation will again rise a little.
• Regarding inflation, the situation has improved, it looks relatively good.
• Inflation should be below 2% in 2024.
• Inflation probably accelerated January.

The US Treasury released its Q1 quarterly refunding estimates, and it was below the prior forecast:

• Last year, the Treasury estimated Q1 borrowing needs at $816 billion, now expects to borrow $760 billion.
• Expects to borrow $202 billion in the April-June quarter, assuming end-June cash balance of $750 billion.
• Says it borrowed $776 billion in Q4 -- in line with estimates -- and
• Ended with cash balance of $769 billion, which was $19 billion higher than estimated due to discount on borrowing.

The Treasury said that it sees increased net fiscal flows and a higher cash balance.

Tuesday

The Japanese December Unemployment Rate fell to 2.4% vs. 2.5% expected and 2.5% prior.

The Australian December Retail Sales missed expectations by a big margin:

• Retail Sales M/M -2.7% vs. -0.9% expected and 2.0% prior.
• Retail Sales Y/Y 0.8% vs. 2.20% prior.

The Eurozone Q4 Preliminary GDP slightly beat expectations:

• Q4 GDP 0.0% vs. -0.1% expected and -0.1% prior.

ECB’s Vujcic (hawk – voter) is open for a rate cut either on April or June but he cautions against expecting rate cuts at every meeting:

• April or June timing for a rate cut is not a big difference.
• Rate cuts by 25 bps amount is preferable.
• But it is not a given that rate cuts would happen at every meeting, pauses are possible.
• GDP data supports view that Eurozone economy is facing soft landing scenario.

The US December Job Openings beat expectations with an upward revision to the prior figure:

• Job Openings 9.026M vs. 8.750M expected and 8.925M prior (revised from 8.790M).
• Quits rate unchanged at 2.2%
• Hires rate 3.6% vs. 3.5% prior.

The US January Consumer Confidence came in basically in line with expectations but the Present Situation index jumped above the 2021 level and the labour market details improved considerably:

• Consumer Confidence 114.8 vs. 115.0 expected and 108.0 prior (revised from 110.7)
• Present situation index 161.3 vs. 148.5 prior.
• Expectations 83.8 vs. 81.9 prior.
• 1 year Inflation 5.2% vs. 5.6% prior - lowest since 2020.
• Jobs hard-to-get 9.8 vs. 13.2 prior.

ECB’s Lagarde (neutral – voter) stressed the importance of wage growth for their decisions:

• We are not there yet' on rate cuts, need more data.
• We need to be further into the disinflationary process before cutting rates.
• The next move will be a cut.
• Wage data is critically important.

Wednesday

The Japanese December Industrial Production missed expectations:

• Industrial Production Y/Y -0.7% vs. -1.4% prior.
• Industrial Production M/M 1.8% vs. 2.4% expected and -0.9% prior.

The Australian Q4 CPI missed across the board:

• CPY Y/Y 4.1% vs. 4.3% expected and 5.4% prior.
• CPI Q/Q 0.6% vs. 0.8% expected and 1.2% prior.
• Trimmed Mean CPI Y/Y 4.2% vs. 4.3% expected and 5.2% prior.
• Trimmed Mean CPI Q/Q 0.8% vs. 0.9% expected and 1.2% prior.

The Chinese January PMIs came in line with expectations:

• Manufacturing PMI 49.2 vs. 49.2 expected and 49.0 prior.
• Services PMI 50.7 vs. 50.6 expected and 50.4 prior.

ECB’s Lane (dove – voter) echoed his colleagues by reaffirming that they want to see more evidence that inflation is heading back to their 2% target.

The US January ADP missed expectations:

• ADP 107K vs. 145K expected and 158K prior (revised from164K).

The median change in annual pay:

• Job stayers 5.2% vs. 5.4% last month.
• Job changers 7.2% vs. 8.0% last month.

The US Treasury announced its quarterly refunding borrowing:

• 2 year $63b vs. $63 billion expected.
• 3-year $54b vs. $53-$54 billion expected.
• 5-year $64b vs. $64 billion expected.
• 7-year vs. $40 billion expected.
• 10-year $42b vs. $42 billion expected.
• 20-year $16b vs. $16 billion expected.
• 30-year $25b vs. $25 billion expected.
• Supply for next week $121b vs. $121 billion expected.
• Given current fiscal forecasts, Treasury expects to maintain bill auction sizes at current levels into late-March.

The Canadian November GDP beat expectations:

• November GDP 0.2% vs. 0.1% expected.
• Service producing industries 0.1% vs. 0.1% prior.
• Goods producing industries 0.6% vs. 0.0% prior.
• December advance reading 0.3%.
• Preliminary Q4 estimate 0.3%.
• Preliminary 2023 estimate 1.5%.

The US Q4 Employment Cost Index missed expectations:

• ECI Q4 0.9% vs. 1.0% expected and 1.1% prior.
• Wages Q4 0.9% vs. 1.2% last quarter.
• Benefits Q4 0.7% vs. 0.9% last quarter.

The Federal Reserve left interest rates unchanged at 5.25-5.50% as expected:

• Recent indicators suggest that economic activity has been expanding at a solid pace.
• Removes reference to 'additional policy firming'.
• The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.
• Inflation has eased over the past year but remains elevated.
• Entire paragraph about banking system and tighter financial conditions removed.
• Says risks to employment and inflation goals are "moving into better balance".

Moving on to Fed Chair Powell’s Press Conference:

• It will likely be appropriate to cut at some point this year.
• The economy has made 'good progress' towards dual mandate.
• Payroll growth over past three months is averaging 165K, which is still healthy but well below a year ago.
• Inflation remains above longer run goal of 2%.
• Lower inflation in H2 2023 were welcome but we will need to see continuing evidence to get confidence that inflation moving to target.
• Longer-term inflation expectations appear well anchored.
• FOMC highly attentive to risks inflation poses to both sides of mandate.
• Our policy rate is likely at its peak.
• Reducing policy too soon or too late poses risks.
• We continue to make decision meeting-by-meeting.
• We want to see a continuation of good inflation data to gain confidence.
• Six month data on inflation is good enough but we have to have confidence it will continue.
• We had very strong growth last year.
• A lot of the improvement in data has been from goods, eventually that will level out and we'll need to see more from services.
• We need to see more evidence that confirms what we think we're seeing.
• "We want to see more good data... not looking for better data... more good data..."
• Almost every participant on the committee does believe it will be appropriate to lower rates.
• An unexpected drop in employment would 'absolutely' argue for cutting sooner.
• There was no proposal to cut rates today. There's a wide disparity about when to cut.
• The jobs market is rebalancing, it will probably take a couple years for wages to normalize.
• We're not looking for inflation to anchor below 2%.
• We want to finish the job on inflation while keeping the labour market strong.
• Overall, it's a pretty good picture on the economy.
• I don't think it's likely we will have enough confidence to cut in March, I don't think that's the base case.
• We won't keep it a secret when we have confidence on inflation.
• I really like anecdotal data, and in chats with business there are signs of re-acceleration.
• I'm not so worried that growth is too strong, and inflation could come back.
• Continued declines in inflation are what we're looking at.

Thursday

The Chinese January Caixin Manufacturing PMI beat expectations:

• Caixin Manufacturing PMI 50.8 vs. 50.6 expected and 50.8 prior.

Key findings highlighted in the report:

• Production continues to expand modestly, but total sales growth softens.
• New export business rises for first time in seven months.
• Business confidence improves to nine-month high.

The Switzerland January Manufacturing PMI missed expectations:

• Manufacturing PMI 43.1 vs. 44.5 expected and 43.0 prior.

The Eurozone January CPI came in line with expectations although the M/M measures were both deeply negative:

• CPI Y/Y 2.8% vs. 2.8% expected and 2.9% prior.
• CPI -0.4% vs. 0.2% prior.
• Core CPI Y/Y 3.3% vs. 3.2% expected and 3.4% prior.
• Core CPI M/M -0.9% vs. 0.5% prior.

The BoE left the Bank Rate unchanged at 5.25% as expected dropping the tightening bias:

• Bank rate vote 6-2-1 vs. 8-1-0 expected (Haskel, Mann voted for 25 bps rate hike; Dhingra voted for 25 bps rate cut).
• Monetary policy will need to remain restrictive for sufficiently long.
• Prepared to adjust monetary policy as warranted by economic data to return inflation to 2% target sustainably.
• Labour market has continued to ease but remains tight by historical standards.
• GDP growth is expected to pick up gradually.
• Risks to inflation are more balanced.
• Risks around CPI inflation projection is skewed to the upside.
• Although services price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remain elevated.
• The Committee will keep under review for how long Bank Rate should be maintained at its current level.

Moving on to BoE Governor Bailey’s Press Conference:

• We are not yet at a point where we can lower rates.
• The level of bank rate remains appropriate.
• It isn't as simple as seeing inflation return to target in the spring and calling the job done.
• But things are moving in the right direction.
• We have to keep monetary policy sufficiently restrictive for sufficiently long.
• How long that will be and how high rates have to stay depends on incoming data.
• We need to see evidence of the most persistent elements of inflation, services inflation in particular, easing back.
• In terms of policy-setting, we need to look past short-term trends.
• Services inflation might be much stickier in the months ahead.
• Hopes lower inflation will influence expectations in the real economy.
• But we need to see more evidence of that.
• Inflation moving back to around 2.7% is not an acceptable level as a resting point.
• Needing to get inflation back to 2% mark is the best thing for households.
• We will not maintain policy stance any longer than we need to.
• If we follow market path inflation would be above target for three years.
• Good news on economy has taken away need for warning that rates could rise again.
• Don't agree with the idea that we've done easy bit on bringing wage growth down.
• We don't need to see inflation back at target to cut rates, we need to see evidence that it's heading there.

The US Challenger Job Cuts showed plans to cut 82.31K jobs in January vs. 34.82K in December:

Excluding last January, this is the highest number of job cuts announced in January since January 2009. In most cases, companies point to cost-cutting as the main driver for layoffs.

The US Jobless Claims missed expectations for the second consecutive week:

• Initial Claims 224K vs. 212K expected and 215K prior (revised from 214K).
• Continuing Claims 1898K vs. 1840K expected and 1828K prior (revised from 1833K).

The Canadian Manufacturing PMI improved in January although it remains in contractionary territory:

• Manufacturing PMI 48.3 vs. 45.4 prior.
• Production was sub-50 for a sixth month in a row during January.
• Confidence in the future improved in January, hitting its highest level in six months.

The US January ISM Manufacturing PMI beat expectations by a big margin with the New Orders index jumping back into expansion:

• ISM Manufacturing PMI 49.1 vs. 47.0 expected and 47.4 prior.

Details:

• Prices paid 52.9 vs. 45.2 prior.
• Employment 47.1 vs 48.1 prior.
• New orders 52.5 vs. 47.1 prior.
• Inventories 46.2 vs 44.3 prior.
• Production 50.4 vs 50.3 prior.

Al Jazeera reported on a ceasefire in Gaza sending Crude Oil price lower, but later deleted the tweet with the market erasing the losses. Later on, Reuters reported that a Qatari official told them there is no ceasefire deal yet for Gaza and Crude Oil started to drift lower again. The official said that Hamas 'received the proposal positively' but it has not responded yet.A Hamas official told Reuters they have received the truce proposal but haven't given response to any parties and it is still being studied. They added 'we cannot say current state of negotiations is zero and at the same time, we cannot say that we have reached an agreement'.

Friday

The Australian Q4 PPI slowed although the Y/Y measure remained elevated:

• PPI Y/Y 4.1% vs. 3.8% prior.
• PPI Q/Q 0.9% vs. 1.8% prior.

BoE’s Pill (neutral – voter) reaffirmed his patient approach when it comes to rate cuts:

• The time when rate cuts will be possible is some way off for me.
• Different votes on MPC is symptomatic of a healthy discussion.
• Need for restrictive policy doesn't mean rates need to stay at current levels indefinitely.
• Need to look through any temporary achievement of inflation target in the coming months.

The US NFP beat expectations by a big margin:

• NFP 353K vs. 180K expected and 333K prior (revised from 216K).
• November revised to 173K from 164K.
• Two-month net revision 126K vs. -71K prior.
• Unemployment rate 3.7% vs. 3.8% expected and 3.7% prior.
• Participation rate 62.5% vs. 62.5% prior.
• U6 underemployment rate 7.2% vs. 7.1% prior.
• Average hourly earnings M/M 0.6% vs. 0.3% expected.
• Average hourly earnings Y/Y 4.5% vs. 4.1% expected.
• Average weekly hours 34.1 vs. 34.3 expected.
• Change in private payrolls 317K vs. 164K expected.
• Change in manufacturing payrolls 23K vs. 5K expected.
• Household survey -31K vs. -683K prior.
• Birth-death adjustment -121K vs. -52K prior.

The highlights for next week will be:

• Monday: China Caixin Services PMI, Eurozone PPI, Canada Services PMI, US ISM Services PMI.
• Tuesday: Japan Wage data, RBA Policy Decision, Eurozone Retail Sales, New Zealand Jobs data.
• Wednesday: Switzerland Unemployment Rate.
• Thursday: China Inflation data, US Jobless Claims.
• Friday: Canada Jobs data.

That’s all folks. Have a nice weekend!