Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Feb 19 – Feb 23)

Inflation data from the Eurozone and Canada coupled with PMIs from the Eurozone and the UK along with FOMC minutes will be highlights of the week ahead of us. NVDA will report earnings on Wednesday. Please be mindful that Monday is President’s day. Stock market will be closed so there will be lower liquidity in the markets which may cause increased volatility.

USD

January CPI saw inflation declining slower than expected with headline number printing 3.1% y/y vs 3.4% y/y in December, but expectation was for a drop to 2.9% y/y. CPI rose 0.3% m/m vs 0.2% m/m as expected with shelter rising 0.6% m/m vs 0.4% m/m in December. Services ex shelter, “super core”, rose 0.85% m/m. Core CPI came in at 3.9% y/y, unchanged from December reading while markets were bracing for a 3.7% y/y reading. Additionally, there was a 0.4% m/m increase in core reading vs 0.3% m/m as expected. The report indicates that inflation is proving to be stickier than market expected. This report will dissuade Fed from cutting rates prematurely and USD surged on the back of it.

Retail sales came in negative across all categories in January. Headline number fell 0.8% m/m with ex autos declining by 0.6% m/m. Control group, it is used for GDP calculation as it excludes all of the volatile measures, declined by 0.4% m/m. It seems that pandemic savings are running out and it is putting pressure on consumers that have to contend with higher prices. Additionally, note that retail sales amount to around 45% of total private consumption.

The yield on a 10y Treasury started the week at 4.17%, rose to 4.34% post-CPI and finished the week at around 4.29%. The yield on 2y Treasury started the week at 4.48% and reached the high of 4.73%. Spread between 2y and 10y Treasuries started the week at -32bp then widened to -37bp as curve inverted further. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 92% while probability of a 25bp rate cut is at 8%. Probability of a May rate cut is around 32%.

This week we will get January meeting minutes.

Important news for USD:

Wednesday:​

• FOMC Minutes​

EUR

Second reading of Q4 GDP was unchanged and showed that economy was flat on the quarter. The economy grew by measly 0.1% y/y. December industrial production helped Eurozone economy to avoid negative growth as it grew by 2.6% m/m and 1.2% y/y. The yearly figure printed negative readings since April of 2023.

ECB President Lagarde reiterated that they will follow data-dependent approach and added that although recent data showed subdued activity they were broadly in line with ECB’s projections. Importance of bringing inflation down to 2% was emphasized as Madame Lagarde stated that they do not want to make hasty decisions on inflation as currently there are not enough evidence that point to inflation returning to the 2% target. ECB policymaker Schnabel, a well-known hawk, warned about premature adjusting of monetary policy. She also warned that in an environment of low growth there is a danger that companies will pass costs to consumers thus rekindling inflation.

This week we will get preliminary PMI and inflation data for the month of February.​

Important news for EUR:

Thursday:​

• S&P Global Manufacturing PMI (Eurozone, Germany, France)​
• S&P Global Services PMI (Eurozone, Germany, France)​
• S&P Global Composite PMI (Eurozone, Germany, France)​
• CPI​

GBP

The employment report showed payrolls change increasing by 48k in January. December ILO unemployment rate dropped to 3.8% from 4.2% in November. It has been at 4.2% since August and economists were expecting a decline to 4%. Wages declined at a smaller pace than expected with average weekly earnings coming in at 5.8% 3m/y vs 5.6% 3m/y as expected and down from 6.7% 3m/y in November. Ex bonus wages came in at 6.2% 3m/y vs 6% 3m/y as expected, down from 6.7% 3m/y the previous month.

January CPI data was unchanged with headline number printing 4% y/y and core number printing 5.1% y/y. Numbers came in below what was expected (4.2% y/y for headline and 5.2% y/y for core). Digging into the details of the report goods inflation ticked down to 1.8% y/y from 1.9% y/y in December but services inflation ticked up to 6.5% y/y from 6.4% y/y the previous month. Inflation remains incredibly high and BoE will not feel pressured to act and cut rates. We expect first rate cuts to come in August.

Preliminary Q4 GDP reading surprised to the downside and came in at -0.3% q/q vs -0.1% q/q as expected. UK dipped into technical recession as Q3 GDP printed -0.1% q/q thus making this a second consecutive quarter of negative growth. The report shows that “...there were falls in all three main sectors in the latest quarter with declines of 0.2% in services, 1.0% in production, and 1.3% in construction output.” Real household consumption fell 0.1%, while government spending fell by 0.3%. Business investment increased by 1.5% while net trade detracted from the GDP as exports fell by more than imports. Although economy slipped into technical recession there are signs that the only move from here is up as evidenced by January PMI numbers. Retail sales posted a great rebound in January with headline number rising 3.4% m/m and and ex autos rising 3.2% m/m.

This week we will get preliminary PMI and inflation data for the month of February.

Important news for GBP:

Thursday:​

• S&P Global Manufacturing PMI​
• S&P Global Services PMI​
• S&P Global Composite PMI​

AUD

January employment report showed that the entire country added 0.5k jobs (500!) vs 30k as expected. The unemployment rate rose to 4.1% from 3.9% in December while participation rate remained at 66.8%. One positive in the report is that all of the jobs added were full-time jobs (11.1k). Part-time jobs fell by 10.6k. RBA will not be comfortable with this report and will take off from the table any future considerations of a rate hike.​

NZD

RBNZ survey data for the Q1 of 2024 showed 1 year inflation expectations at 3.22% vs 3.6% previously and 2 year at 2.5% vs 2.76% previously. This is the lowest reading in over two years and it will significantly lower the chances of another rate hike. As of now it seems that there will be no changes to rate in 2024.

CAD

Wholesale trade in December rose by 0.3% m/m vs 0.8% as expected. It rose 0.9% m/m in November. Manufacturing sales dropped 0.7% m/m but from the upwardly revised 1.5% m/m increase in the previous month. CAD has managed to make some gains against USD this week but it was the weakest of commodity currencies as it lost ground against both AUD and NZD.

This week we will have February inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Preliminary Q4 GDP report came in at -0.1% q/q vs -0.7% q/q in the previous quarter thus plunging Japan’s economy into technical recession, meaning two consecutive quarters of negative growth. Private consumption has declined 0.2% q/q while business investment fell by 0.1% q/q. Net trade added 0.2pp to the GDP reading as exports led by exports of services outpaced imports. GDP deflator, a measure of inflation, came in at 3.8%. High inflation and low growth may deter BoJ from hiking and move first hikes into June. Still, expectations are for Q1 GDP to rebound led by exports and improvement in private consumption.

CHF

SNB total sight deposits for the week ending February 9 came in at CHF482.3bn vs CHF481.2bn the previous week. Just a small change pushing the sight deposits toward the upper bound of multi month range. CPI plunged in January with headline printing 1.3% y/y, down from 1.7% y/y in December and core printing 1.2% y/y, down from 1.5% y/y the previous month. SNB should be comfortable since inflation is positioned nicely so they have a green light if they decide to ease and cut rates.​

 

[katetrades]

Forex Major Currencies Outlook (Feb 26 – Mar 1)

RBNZ meeting, PCE from the US and CPI from Eurozone will highlight the week ahead of us that will also contain Q4 GDP data from the US, Canada and Switzerland as well as official PMI data from China.

USD

The main message from the FOMC minutes is reluctance of members to ease rates prematurely. They are not comfortable yet with progress on inflation and would not like to risk lowering rates and potentially reigniting inflation. There was also a talk on QT tapering. Members seem to be willing to adjust it at the March meeting.

The yield on a 10y Treasury started the week at 4.28%, rose to 4.33% and finished the week at around 4.26%. The yield on 2y Treasury started the week at 4.48% and reached the high of 4.67%. Spread between 2y and 10y Treasuries started the week at -36bp then widened to -41bp as curve continued to invert. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 90% while probability of a 25bp rate cut is at 10%. Probability of a May rate cut is around 34%.

This week we will get second reading of Q4 GDP, Fed’s preferred inflation metric PCE and ISM manufacturing PMI.

Important news for USD:

Wednesday:​

• GDP​

Thursday:​

• PCE​

Friday:​

• ISM Manufacturing PMI​

EUR

Wages in the Eurozone for the Q4 came in at 4.5% y/y, slightly lower than 4.7% y/y in Q3. ECB members, notably Lagarde and Lane, have emphasized that they are closely watching wages data. They were referring to Q1 2024 wages data that will come out in April but this welcoming slight drop may be a sign of things to come in April. Due to inflation falling faster than wages, we had first quarter of real wage growth in a long time.

Preliminary February PMI for the Eurozone saw manufacturing PMI slide to 46.1 form 46.6 in January on the back of horrendous German reading (42.3, down from 45.5). On the other hand, services returned to expansion with a 50 reading. Composite improved to 48.9. Apart from divergence between manufacturing and services sector there seems to be a divergence forming between German and French economies. France is showing stronger signs of recovery while Germany is stumbling. The report shows drags on new orders in manufacturing sector. Employment in the services sector is improving. Output prices continued to increase, now at a faster pace, and that will pose a problem for the ECB. Rate cuts will likely be delayed for the June meeting.

This week we will get preliminary March CPI data.

Important news for EUR:

Friday:​

• CPI​

GBP

BoE Governor Bailey stated that they may start cutting rates even before inflation drops to their target thus echoing Fed’s message. There is the need to see steady progress on inflation returning to target. Bailey added that it is not possible to say when and by how much rates will be cut at this period in time.

UK economy is on a solid path according to preliminary PMI data for the month of February. Manufacturing PMI ticked up to 47.1 from 47 in January while services was unchanged at 54.3, it was expected for them to slide down to 54.1. Composite was lifted up to 53.3 from 52.9 in January. The report shows that business activity showed the biggest rise in nine months indicating strong demand. Selling prices for services have continued to increase as inflationary pressures remain persistent.​

AUD

RBA meeting minutes showed that board was considering a 25bp rate hike or keeping rates steady. Due to balanced risks to outlook they opted for the latter. They see inflation coming down to their target but it could “take some time”, therefore future rate hikes cannot be ruled out. Board members added that if the economy weakens they are prepared to cut. Hawkish sounding minutes gave a push to AUD. Q4 wages rose 4.2% y/y, up from 4% y/y in the Q3 and putting them over the current inflation rate. The wage increase was highest since Q1 of 2009.

PBOC has kept MLF rate unchanged at 2.5% as was widely expected but cut 6-year LPR rate to 3.95% from 4.20%. This 25bp rate cut is the biggest ever cut to 5-year LPR. The 5-year LPR is used as a benchmark for new mortgages so this move is intended to make mortgages more accessible and thus help property developers. On the other hand, this move will put additional strain to already low bank margins.

This week we will get official PMI and Caixin manufacturing PMI data from China.

Important news for AUD:

Friday:​

• Manufacturing PMI (China)​
• Services PMI (China)​
• Composite PMI (China)​
• Caixin Manufacturing PMI (China)​

NZD

Q4 PPI data continued to increase but at a lower pace than in Q3. Input prices rose 0.9% q/q vs 1.2% q/q the previous quarter while output prices rose by 0.7% q/q compared to 0.8% q/q increase in Q3. Slower pace is a good sign but the fact that prices are still rising will be worrisome for the RBNZ. Chances of a rate hike at next week’s meeting are increasing. GDT price index showed yet another increase in dairy prices, sixth consecutive auction of rising prices, as it printed 0.5%. This is yet another boost to NZD which was the strongest currency of the week.

This week we will have RBNZ meeting. Markets are unsure whether we will get hike or no change, but with recent string of data we are leaning slightly toward a 25bp rate hike.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

January CPI report was helped by big numbers in January of 2023 so we got a big drop in headline which printed 2.9% y/y from 3.4% y/y the previous month. Airfares recorded the biggest monthly drop followed by gasoline prices. Core readings also declined compared to December and printed 3.3% y/y for median and 3.4% y/y for common and trim. BoC will be satisfied with the fact that monetary policy is giving results and lower than expected reading will spark dovish tone from them. CAD has plunged after the inflation reading.

This week we will get Q4 GDP data.

Important news for CAD:

Thursday:​

• GDP​

JPY

December core machinery orders rebounded nicely and beat expectations printing a 2.7% m/m increase vs 4.9% m/m decrease in November. Core machinery orders are seen as a good proxy for CAPEX 6-9 months ahead so this was a very encouraging reading. Be mindful that the data series is very volatile so it is better to use some three or six month averages when analysing expectations for future investments. Japanese government assessed economy as “recovering moderately though it appears to be stalling recently". They see consumer spending weakening and that in turn is causing economy to stumble. The view on industrial production was also downgraded and in combination with lower expected consumer spending it raises the question about potential normalization of monetary policy.

Preliminary PMI data for the month of February showed slowdown in economic activity. Manufacturing PMI printed 47.2, down from 48 in January as new order and employment indexes showed rapid declines. Services declined to 52.5 from 53.1 the previous month which dragged composite to 50.3, barely in expansion. The report also shows that "Firms were also the least upbeat since January 2023, reflecting reduced optimism with regards to future output". Nikkei has managed to print a new all time high reading with previous high being in 1989 before the housing bubble burst.

CHF

SNB total sight deposits for the week ending February 16 came in at CHF477.1bn vs CHF482.3bn the previous week. Total sight deposits return into the well-established range after threatening to breach it previous week.

This week we will get Q4 GDP data.

Important news for CHF:

Thursday:​

• GDP​

 

[katetrades]

Forex Major Currencies Outlook (Mar 4 – Mar 8)

ECB and BoC meetings, NFP and Canadian employment coupled with Q4 GDP, Swiss inflation, UK spring budget and ISM Services PMI will dominate the week ahead of us.

USD

Second reading of Q4 GDP was revised down to 3.2% from 3.3% as reported in advanced reading. Private inventories were the main culprit for the downward revision as they subtracted 0.27pp from the growth. Consumer spending was revised higher and it printed 3% vs 2.8% in advanced reading and it added 2pp to the reading. Government spending was also revised up and contributed 0.73pp while net exports were revised down and contributed 0.32pp to the reading. Gross private domestic investment added just 0.17pp as business investment declined, which is a cause for concern going forward.

Headline PCE for the month of January came in at 2.4% y/y as expected and down from 2.6% y/y in December. Core PCE printed 2.8% y/y as expected and down from 2.9% y/y the previous month. Personal spending rose 0.2% m/m while personal income jumped 1% m/m. Big increase in personal income can prove to be troublesome for inflation.

ISM manufacturing for the month of February printed 47.8 vs 49.5 as expected, down from 49.1 in January. New orders and production components fell into contraction. Positives are small decline in prices paid component as well as return of employment and new export orders into expansion. USD has noticeably weakened on the news and weaker than expected UMich consumer confidence reading added to the USD worries.

The yield on a 10y Treasury started the week at 4.22%, rose to 4.32% and finished the week at around 4.19%. The yield on 2y Treasury started the week at 4.66% and reached the high of 4.73%. Spread between 2y and 10y Treasuries started the week at -45bp then tightened to -35bp as curve proceeded to steepen. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 97% while probability of a 25bp rate cut is at 3%. Probability of a May rate cut is around 25%.

This week we will have ISM services and NFP data. Headline number is expected to come at around 190k after two months of 300+k jobs with unemployment rate staying unchanged at 3.7%.

Important news for USD:

Tuesday:​

• ISM Services PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

ECB President Lagarde stated that "the current disinflationary process is expected to continue” but that more data is needed to confirm that inflation is returning to target. Sentiment data for the month of February showed improvement in Consumer Confidence but all three sentiment indicators (economic, services and industry) declined compared to January. Final French Q4 GDP was revised to show a growth of 0.1% q/q from being flat as preliminary reported.

Preliminary Eurozone CPI slipped to 2.6% y/y from 2.8% y/y while a decline to 2.5% y/y was expected, Core reading dropped to 3.1% y/y from 3.3% y/y while a drop sub 3% to 2.9% y/y was expected. Base effects were the main culprit for a drop in inflation. French CPI for the month of February came in at 2.9% y/y vs 2.7% y/y as expected. CPI is down from 3.1% y/y in January, but the decline was smaller than expected hinting that getting inflation all the way down to 2% will be much harder task than bringing it from highs to current levels. In addition, monthly reading printed a massive 0.8% increase. Spain CPI printed 2.8% y/y vs 2.7% y/y as expected and down from 3.4% y/y in January showing all the same signs as Eurozone and French inflation. German reading came in at 2.5% y/y, down from 2.9% y/y the previous month.

This week we will have ECB meeting. There will be no change to the rate as ECB waits wage data, however we do not expect any push to June rate cut. Additionally, we will get new macroeconomic projections.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

Final February manufacturing PMI was revised up to 47.5 from 47.1 as preliminary reported and it is up from 47 in January. Although the reading is highest in the last ten months the details show that output, new orders and new export orders continue to decline. The report states that “UK manufacturers faced challenging circumstances in February, as the ongoing impact of the Red Sea crisis delayed raw material deliveries, inflated purchase prices and impacted production capabilities.” Additionally, supply chain disruptions caused input prices to increase significantly and thus lead to further increases in selling prices. Any potential increase in inflation will be troublesome for the BoE. BoE Chief Economist Pill stated that cutting rates is some way off and that maintaining restrictive stance does not mean no change to rates.

AUD

CPI for the month of January showed inflation at 3.4% y/y vs 3.6% y/y as expected. Monthly inflation readings do not encompass entire economy, as quarterly reading does, they measure more of goods inflation than services inflation. Goods inflation is coming down nicely but RBA is more focused on services. Therefore, they will not give too much attention to monthly readings and will wait for quarterly reading to decide on how to proceed with monetary policy. AUD was pushed down after the report. Q4 CAPEX data saw increase of 0.8% q/q vs 0.5% q/q as expected, with the biggest jump in the construction industry. Jump in investment will be a nice boost for next week’s GDP reading and economy going forward.

Official PMI data from China saw manufacturing tick down to 49.1 from 49.2 in January while services jumped to 51.4 from 50.7 the previous month. Composite was unchanged at 50.9. Caixin manufacturing PMI, the one measuring private SMEs, ticked up to 50.9 from 50.8 in January while markets were expecting a slide to 50.6. The repo shows production and new orders grew at a faster pace with new export orders also expanding. Employment is of concern as it fell fort sixth consecutive month.

This week we will get Q4 GDP data.

Important news for AUD:

Wednesday:​

• GDP​

NZD

RBNZ has left OCR (Official Cash Rate) unchanged at 5.5%. There was a large number of market participants who were positioned for a rate hike, so when RBNZ did not deliver it caused a big drop in NZD. The statement shows that OCR needs to remain at restrictive levels. Bank’s forecast see OCR at 5.33% in June of 2025. Inflation measures have declined and risks around it are becoming more balance. Recent drops in core inflation are encouraging. Still, projections see annual CPI by March of 2025 at 2.6% y/y, up from 2.4% y/y as previously expected.

CAD

January estimates by statistics Canada see wholesale trade declining by 0.6% m/m while manufacturing sales rose by 0.4% m/m. Q4 GDP came in at 0.2% q/q, rebounding from -0.1% q/q in the previous quarter. Positive reading was helped by net exports.

This week we will have BoC meeting and employment data. No change to monetary policy is expected but statement should reverberate with dovish tones.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

National CPI data for the month of January continued to decline. Headline number came in at 2.2% y/y vs 2.6% y/y in December while ex fresh food category came in at 2% y/y, down from 2.3% y/y the previous month. Ex fresh food, energy category, “core-core”, came in at 3.5% y/y vs 3.7% y/y in December. All three readings came in higher than expected so it may be a sign that inflation is proving to be more resilient. BoJ is talking about inflation needing to be sustainably above 2% target for them to raise interest rates and this reading may be the first sign of that. Preliminary January industrial production data plunged 7.5% m/m for the biggest monthly drop in almost four years.

BoJ policymaker Takata stated that spring wage negotiations are in full swing and that many companies are offering higher increases than in 2023. He added that “achievement of 2% inflation target is becoming in sight despite uncertainty of economic outlook”. Additionally, he stated that he would call for a change in monetary policy adding that it he would not be the one looking backwards. These comments are unquestionably hawkish and they are giving clear hints of monetary policy normalization. Currently, these are the strongest hints we have of a potential April rate hike.

CHF

SNB total sight deposits for the week ending February 23 came in at CHF480.5bn vs CHF477.1bn the previous week. Still within a well-established range but pushing to make a break to the upside. Q4 GDP showed that economy grew by 0.3% q/q vs 0.1% q/q as expected and at same pace as in Q3. Swiss industry has warned that strong CHF could be a detriment to economic growth in 2024.

SNB Chairman Jordan has announced that he will retire at the end of September 2024. He was the chairman of SNB since 2012 and was presiding over the decision to remove the EURCHF 1.20 peg which caused massive volatility and losses in the market. SNB vice chairman Martin Schlegel is seen as the most-likely successor.

Important news for CHF:

Monday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Mar 11 – Mar 15)

Inflation and consumption from the US and employment from the UK will dominate in the rather quiet week ahead of us.

USD

ISM services 52.6 vs 53 as expected and down from January when it printed 53.4. Digging into the details we can see some encouraging signs, such as increases in business activity and new orders which printed healthy 57.2 and 56.1. Additionally, prices paid index declined indicating easing of price pressures in the services sector. On the other hand, employment index declined into contraction and printed just 48 making it the second time in the last three readings that it was below the break even 50 level.

Fed Chairman Powell testified before the Congress and the prepared statement showed that they will likely start to cut rates at some point during the year and that rate cuts will not happen until they have greater confidence that inflation is moving down towards their 2% target. At the testimony he stated that more data is needed for rate cuts to commence and added that "believe that our policy rate is likely at its peak for this tightening cycle".

February NFP number printed 275k vs 190k as expected. Good news stop there. Digging into details we can see that the unemployment rate jumped to 3.9% from 3.7% in January while participation rate remained at 62.5%. There was a big revision to the previous reading which now showed 229k jobs added vs 353k as preliminary reported. Average hourly earnings rose by 0.1% m/m, much slower increase than 0.3% m/m as was expected and 0.5% m/m in January. The details are pointing to a June rate cut.

The yield on a 10y Treasury started the week at 4.19%, rose to 4.23% and finished the week at around 4.07%. The yield on 2y Treasury started the week at 4.54% and reached the high of 4.62%. Spread between 2y and 10y Treasuries started the week at -35bp then widened to -39bp as curve continued to invert. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 97% while probability of a 25bp rate cut is at 3%. Probability of a May rate cut is around 26% while probability of a June rate cut is around 78%.

This week we will have inflation and consumption data. Inflation is expected to rise 0.3% m/m and 3.1% y/y which is unchanged from January reading.

Important news for USD:

Tuesday:​

• CPI​

Thursday:​

• Retail Sales​

EUR

Final PMI services for the month of February for the Eurozone was revised higher to 50.2 from 50 as preliminary reported. Positive revisions were made both to the German and French readings. It helped lift composite PMI to 49.2. Final reading of Q4 GDP for the Eurozone confirmed that economy came in flat on the quarter and rose measly 0.1% y/y.

ECB has left key interest rates unchanged as widely expected. New economic projections saw both inflation and GDP revised lower. CPI is now seen at 2.3% for 2024 (down from 2.7% previously), 2% for 2025 and 1.9% for 2026. GDP is seen at 0.6% in 2024, 1.5% in 2025 and 1.6% in 2026. At the press conference President Lagarde emphasized data dependent approach and added that although economy remains week there is a pick up seen in recent surveys. She clarified that they are more confident on inflation but not sufficiently confident and added that more will be known in April and even more in June thus hinting that, for now, June remains most realistic meeting for the first rate cut. She reiterated that it is not necessary for inflation to fall to 2% before starting to cut rates and stated that decision to keep rates unchanged was unanimous.

GBP

Final services PMI was revised down to 53.8 from 54.3 as preliminary reported and as was in January. New orders posted a healthy growth which is very encouraging and general number although weaker than in January is at a still high level. Composite printed 53, a tick up from 52.9 the previous month.

This week we will have employment data.

Important news for GBP:

Tuesday:​

• Payroll Change​
• Unemployment Rate​

AUD

Q4 GDP number printed a growth of 0.2% q/q and 1.5% y/y. Government expenditure contributed to growth with former printing 0.6% increase and contributing 0.1pp to the GDP. The report shows “Household spending rose 0.1% in December quarter as a rise in spending on essentials (0.7%) was offset by a fall in discretionary spending (-0.9%).” This is concerning as cost-of-living crisis is dampening consumption and thus negatively impacting growth. Exports declined 0.3% while imports declined by 3.4% thus net trade contributed positively to the GDP. Terms of trade rose by 2.2% for the quarter but fell 3.9% for the 2023 while household saving to income ratio grew by 3.2% from 1.9% in the previous quarter.

The latest “Two Sessions” from China saw 2024 GDP growth target set at 5%, unchanged from 2023. The fiscal deficit-to-GDP target was set at 3%, no changes compared to the previous year and it is below expectations. Markets were expecting a bigger fiscal stimulus in order to support the economic growth. Helping consumer spending increase will be given a high priority. Trade will also be given great significance.

NZD

Terms of trade in the final quarter of 2023 plunged 7.8% led by a big drop in export prices (-4.2% q/q vs -0.4% q/q as expected). Import prices rose by 3.8% q/q vs expected drop of 0.2% q/q to put a further stain on the reading. A decrease in terms of trade could have a negative impact on the economy overall as purchasing power of exports declines. First GDT auction in March saw dairy prices fall 2.3%. This is the first decline in dairy prices after last six auctions saw price increases.

CAD

BoC has left the policy rate unchanged at 5% as was widely expected but statement did not sound as dovish as expected. The economy grew in Q4 by more than expected. They have acknowledged that inflation continues moderating, that shelter is the biggest contributor to inflation and that inflation should remain close to 3% in H1 of 2024 and then gradually ease in the second part of the year. The statement shows “The Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation. Governing Council wants to see further and sustained easing in core inflation…” indicating that BoC is not in a hurry to cut rates, so market needed to readjust its positioning which led to CAD strength. Governor Macklem affirmed this by stating that it is still too early to consider lowering the policy rate.

February employment report saw employment change come in at 40.7k vs 20k as expected. This is the highest employment change in seventeen months. The unemployment rate ticked up to 5.8% as expected with participation rate staying unchanged at 63.5%. Wages have risen at slower pace printing 4.9% increase, down from 5.3% increase in January. One of the highlights of the report was the fact that all of the jobs added, and then some, were full-time jobs (70.6k). Part-time jobs, on the other hand, declined by 29.9k. Labour market remains strong and a drop in wages will be welcomed by the BoC.

JPY

Q4 CAPEX data smashed expectations as it rose by 16.4% y/y vs 2.9% y/y as expected and up from 3.4% y/y in the previous quarter. This huge jump in investment should reflect positively on GDP in 2024. Company profits were affected as they rose 13% y/y vs 21.3% y/y as expected.

Tokyo CPI rose strongly in February after a drop in January and saw headline number print 2.6% y/y vs 1.8% y/y the previous month. Ex fresh food printed 2.5% y/y, up from 1.8% y/y in January. Ex fresh food, energy, “core-core”, was the only one that declined as it printed 3.1% y/y vs 3.3% y/y the previous month. Both final services and final composite PMI readings were revised up to show smaller decline than preliminary reported (52.9 and 50.6 respectively).

January wages rose by 2% y/y after a 1% y/y increase in December. When we take inflation into account real wages dropped 0.6% y/y making it a 22nd month of declining real wages. Japan’s largest trade union stated that wage hikes this year are bigger than last year. BoJ is looking for results of spring wage negotiations as valuable input for their policy setting. BoJ member Nakagawa stated that prospects of sustainably reaching inflation target of 2% are gradually increasing and MUFG now sees BoJ moving rates from negative territory in March. Governor Ueda echoed Nakagawa’s statement on inflation and added that it is possible to exit stimulus while striving to achieve 2% inflation target. JPY has had a great trading week and strengthened further on these comments.

CHF

SNB total sight deposits for the week ending March 1 came in at CHF478.5bn vs CHF480.5bn the previous week. No significant changes, just moving through the well-established range.

Inflation in Switzerland continued to decline as evidenced by February CPI reading which saw headline number tick down to 1.2% y/y from 1.3% y/y in January. Slower price increases were seen in prices of food and non-alcoholic beverages as well as in restaurants and hotels, transport, healthcare and household goods and services. Core CPI reading also ticked down to 1.1% y/y from 1.2% y/y the previous month.​

 

[katetrades]

Forex Major Currencies Outlook (Mar 18 – Mar 22)

Fed, BoE, RBA, BoJ and SNB (no less than 5 central banks) meetings, inflation from the UK and Canada, employment from Australia, preliminary PMI data from the Eurozone and the UK as well as industrial production and retail sales from China will highlight the massive week ahead of us. Caution is advised as markets will be very volatile.

USD

February CPI report saw headline number come in a tad hotter as it printed 3.2% y/y, up from 3.1% y/y in January. Core CPI continued to tick down and it printed 3.8% y/y vs 3.9% y/y in the previous month. Energy prices rose 2.3% m/m as oil prices had risen in February while gasoline prices increased by 3.8% m/m. Core services ex energy, shelter rose by 0.5% m/m vs 0.8% m/m increase in January. Core goods prices rose for the first time in three months.

Retail sales rebounded in February but by less than expected as headline number printed 0.6% m/m vs 0.8% m/m as expected. Control group was flat on the month and when taken into account a drop in January it means that consumption contribution to Q1 GDP will most likely be negative. Retail sales report was overshadowed by PPI release which saw big jump as it printed 0.6% m/m and 1.6% y/y vs 0.3% m/m and 1.1% y/y as expected. Price pressures are sticky and are not going away easily which lowered Fed’s chance of cuts and thus gave USD strength.

The yield on a 10y Treasury started the week at 4.08%, rose to 4.32% and finished the week at around 4.31%. The yield on 2y Treasury started the week at 4.48% and reached the high of 4.76%. Spread between 2y and 10y Treasuries started the week at -40bp then widened to -41bp as curve inverted further. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 99% while probability of a 25bp rate cut is at 1%. Probability of a May rate cut is around 6% while probability of a June rate cut is around 58%.

This week we will have FOMC meeting. Markets are pricing no chance of a rate cut and we will get new dot plot and Summary of Economic Projections. Additionally, we will get to hear Fed’s decision on potential QT taper. Incoming data has been mostly on the strong side so the Fed might deliver a hawkish message.

Important news for USD:

Wednesday:​

• Fed Interest Rate Decision​

EUR

Final German CPI unchanged at 2.5% y/y while final French CPI reading was revised up to 3% y/y. Talks about June rate cut are growing louder as some ECB policymakers even call for two rate cuts by July. ECB will wait for wages report and then decide when their next move be and markets are pricing June as a start or rate cutting cycle.

This week we will have preliminary March PMI readings.
​

Important news for EUR:

Thursday:​

• S&P Global Manufacturing PMI (Eurozone, Germany, France)​
• S&P Global Services PMI (Eurozone, Germany, France)​
• S&P Global Composite PMI (Eurozone, Germany, France)​

GBP

Employment report for the month of February saw payrolls increase by 20k after increasing by 15k in January. ILO unemployment rate for the month of January ticked up to 3.9% from 3.8% in January. There was a drop in wages as average weekly earnings rose 5.6% 3m/y vs 5.8% 3m/y the previous month and ex bonus component of earnings printed 6.1% 3m/y, down from 6.2% 3m/y in January. A slowdown in wage increases will be welcomed by the BoE which should start cutting rates in August. January GDP reading increased 0.2% m/m as expected due to services increasing 0.2% and construction sector increasing by 1.1% m/m.

This week we will have inflation data, preliminary March PMI and BoE meeting. No change to the policy rate is expected as markets are positioned for an August rate cut.

Important news for GBP:

Wednesday:​

• CPI​

Thursday:​

• BoE Interest Rate Decision​
• S&P Global Manufacturing PMI​
• S&P Global Services PMI​
• S&P Global Composite PMI​

AUD

February inflation from China saw a big jump as it printed 0.7% y/y from – 0.8% y/y in January. The report shows big jump in demand for food and services. Additionally, there were some weather issues that affected supply and thus contributed further to price increases. PPI, on the other hand, continued to decline as it printed -2.7% y/y, down from -2.5% y/y the previous month. PBOC has held 1-year MLF rate unchanged at 2.5% as was widely expected.

This week we will have employment data and RBA meeting. No change to policy is expected and many analyst see RBA staying pat for a prolonged period of time. We will also get production and consumption data from China.

Important news for AUD:

Monday:​

• Industrial Production (China)​
• Retail Sales (China)​

Tuesday:​

• RBA Interest Rate Decision​

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

Electronic card retail sales, they cover around 70% of retail sales, dropped in February by 1.8% m/m after they rose 2% m/m in January. Over the year they have grown by 2.5%. The report showed declines in purchases of consumables, fuel, durables and apparel while purchases of motor vehicles increased.

This week we will get Q4 GDP data.

Important news for NZD:

Wednesday:​

• GDP​

CAD

January manufacturing sales rebounded by 0.2% m/m from -1.1% m/m drop in December, but markets were expecting a 0.4% m/m increase. Sales were up in 11 of the 21 sub sectors, with transportation equipment and chemicals adding the most to the result. The biggest decline was seen in aerospace products and parts. Housing starts in January jumped 14% as the report printed 253.5k, up from 223.6k in December.

This week we will get inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Final Japan Q4 GDP reading saw it improve to 0.1% q/q from -0.1% q/q as preliminary reported. The revision helped Japan avoid technical recession, but expectations were for a 0.3% q/q growth. There was a big jump in non-residential investment, it grew by 2% vs 0.1% as preliminary reported, but private consumption was revised down to -0.3%. A drop in private consumption poses a concern but BoJ is focused solely on wages, so we expect them to move rates out of negative territory after the results of Shunto wage negotiations.

This week we will have a BoJ meeting and latest reports suggest that we will finally see a rate hike and end of negative interest rate policy.

Important news for JPY:

Tuesday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending March 8 came in at CHF477.4bn vs CHF478.5bn the previous week. Sight deposits go back into the well-established range after a miniscule change from week to week.

This week we will have SNB meeting. SNB is seen as the first major central bank that could cut due to inflation being below their target, but with other central banks opting for June as a start of rate cutting cycle we could see SNB deliver no change at their March meeting.

Important news for CHF:

Thursday:​

• SNB Interest Rate Decision​

 

[katetrades]

Forex Major Currencies Outlook (Mar 25 – Mar 29)

The week ahead of us will provide us a breather from the massive week we just head which will give investors time to digest implications of recent central bank decisions and economic data. Most important news event will be on Friday when we will get PCE inflation data.

USD

Fed has kept funds rate unchanged at 5.25-5.50% range as was widely expected but delivered a more dovish message. The statement showed that economy and labour markets are strong and that inflation has eased although it remains elevated. The stance on monetary policy was unchanged with "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".

Dot plot continued to show three rate cuts in 2024 but rates were moved up for the other years. We now have 3.9% median for the End of the Year (EoY) 2025, compared to 3.6% in December plot. Median rate for 2026 has been lifted to 3.1% EoY vs 2.9% EoY in December and longer run rate is seen at 2.6% vs 2.5% in December. GDP projection was revised up and it now shows real GDP at 2.1% in 2024 and 2% in 2025 and 2026 effectively removing any talks about recession as growth will be above the trend for the next three years. Core PCE inflation was revised up for 2024 to 2.6% from 2.4% previously and headline PCE is revised up for 2025 to 2.2% from 2.1% in December. In the longer run it is still expected to be at 2%.

At the press conference Chairman Powell stated that path forward remains uncertain and that risks are moving into better balance. Inflation has eased, although still high but longer-term inflation appear to remain well anchored. He reiterated that they will likely be cutting rates at some point this year. Powell dismissed January and February inflation increases as just bumps in the road on the way to 2% and stated that January number was possibly influenced by the seasonal adjustment effects. When asked about financial conditions he stated that they are restrictive and are weighing on economic activity. Additionally, he added that peak rates are achieved and hinted that QT tapering could show up as early as next meeting.

The yield on a 10y Treasury started the week at 4.29%, rose to 4.34% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.71% and reached the high of 4.75%. Spread between 2y and 10y Treasuries started the week at -42bp then tightened to -37bp as bull steepening of curve took place after Fed left three cuts in dot plot for 2024. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at May meeting at 88% while rate cut probability is at 12%. Probability of a June rate cut is around 74% and has jumped after the Fed meeting.

This week we will have Fed’s preferred inflation measure, PCE, as well as personal income and spending data.

Important news for USD:

Friday:​

• PCE​

EUR

Final February CPI was unchanged at 2.6% y/y, down from 2.8% y/y in January. Core CPI was also unchanged at 3.1% y/y, down from 3.3% y/y the previous month. Inflation is moving in the right direction, but the pace is slowing down. Compensation data showed that wage growth in Q4 was 3.1% y/y, down from 5.2% y/y in the previous quarter. Wages continue to increase, although at a slower pace and still show strong growth.

Preliminary PMI data for the month of March showed the familiar picture of two economies diverging. Manufacturing continued to decline with 45.7 reading, down from 46.5 in February with both German and French readings declining. Germany printed weak 41.6. Output and new orders continued on their downward path in the Eurozone. On the other hand, services improved to 51.1 from 50.2 the previous month and better than 50.5 as expected. The report states that price pressures have not increased further in the services sector and have actually eased a bit, which is a nice positive and will make ECB happy. Composite was still lifted up and barely missed breakeven 50 reading as it printed 49.9, up from 49.2 in February.

GBP

Inflation continues to decline in the UK as evidenced by the February reading. Headline CPI dropped to 3.4% y/y, a two-year low, from 4% y/y in January, while 3.5% y/y print was expected, mainly due to a big drop in food prices. Core CPI fell to 4.5% y/y from 5.1% y/y the previous month, while a drop to 4.6% y/y was expected. Services inflation also recorded a nice drop as it printed 6.1% y/y, down from 6.5% y/y in January. Inflation is expected to continue declining due to lower energy costs for households and markets now have fully priced in rate hike for August.

Preliminary March PMI showed a big jump in manufacturing as it printed 49.9, up from 47.5 in February and much better than 47.8 as expected. Services sector eased a bit but still printed a very healthy 53.4 vs 53.8 the previous month. In combination, they caused composite to tick down to 52.9 from 53 in February. The report states that data point to a small positive for Q1 GDP reading. Inflation still remains a problem as it proves more sticky.

BoE left the rate unchanged at 5.25% as was widely expected. There were dovish signals in the voting and in the statement. Result of voting was 8-1 (Dhingra voted for a rate cut). Previously Haskel and Mann, two biggest hawks, voted for rate hikes, now they have moved to neutral position indicating that bank’s next move will be a cut. The statement contained a passage “the Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level" giving another nod to the rate cuts.

AUD

RBA left the cash rate unchanged at 4.35% as was widely expected. The statement left out the part where further rate hikes “cannot be ruled out”, the tightening bias, and changed it with "The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out". That indicates that board is moving toward neutral bias and is prepared to cut if the conditions warrant it. Markets see it as a dovish tilt from the RBA and are pricing in September for the first rate cut.

The statement showed that inflation is moderating but is still at high levels. The decline in inflation is driven by moderating goods inflation while services inflation is declining at a more gradual pace. The outlook remains highly uncertain. “The central forecasts are for inflation to return to the target range of 2–3 per cent in 2025, and to the midpoint in 2026.” At the press conference Governor Bullock stated that progress is being made in fight against inflation and recent data confirms that progress. She added that it is too soon to rule anything in or out and clarified that change in forward guidance was made due to incoming data.

February employment report provided us with some stellar numbers. The economy added massive 116k jobs compared to 40k as expected and up from partly 500 in January. The unemployment rate plunged to 3.7% from 4.1% the previous month while expectations were for it to just tick down to 4%. Participation rate slid to 66.7% from 66.8% in January. Most of the jobs added, 78.2k, were full-time which just adds to the strength of this report. Historically February has always been a month of strong job gains.

Economic activity from China saw strong increase for industrial production in the first two months of the year as it increased 7% y/y beating expectations 5% y/y. Retail sales also beat expectations as it increased by 5.5% y/y vs 5.2% y/y as expected, but came in lower than 7.4% y/y in December hinting that consumer is not doing that good and that its contribution to the 5% GDP target for the 2024 will be questionable. Given the strong industrial production reading it seems that path to GDP target will be through exports. PBOC has left 1 and 5 LPR rates unchanged at 3.45% and 3.95% respectively as was widely expected.

NZD

Q4 GDP showed economy slip into technical recession with two consecutive quarters of falling GDP. The number printed -0.1% q/q vs 0.1% q/q as expected with -0.3% q/q print in Q3. This is fourth negative quarter result in the past five quarters. The yearly figure printed a decline of 0.3%. There is some optimism regarding positive growth in Q1 of 2024. Second dairy auction in March saw prices decline by 2.8%. This is a second in a row auction that saw falling dairy prices.

CAD

February inflation data saw another month of falling inflation. CPI came in at 2.8% y/y vs 3.1% y/y as expected and down from 2.9% y/y in January. Core measures also all declined with median and common printing 3.1% y/y while trim printed 3.2% y/y. This is the second consecutive month of headline inflation declining and coming in below 3% which may nudge BoC to cut before the Fed. Markets were selling CAD after the report in anticipation of faster rate cuts.

JPY

BoJ delivered first rate hike in 17 years as was well telegraphed by the markets and brought the rate to positive territory, in the range of 0-0.10%. The bank decided to remove the upper bend of 1% on 10y JGB yield, thus effectively stopping the Yield Curve Control (YCC). However, the bank will continue purchasing JGB’s “with broadly the same amount as before” and will step up those purchases in nimble manner if yields increase rapidly. Additionally, BoJ will discontinue purchases of ETFs and J-REIT’s as well as reduce purchases of corporate bonds with a plan to discontinue them in one year.

The report shows that wages are expected to continue to increase during the year thus strengthening positive wage-price spiral which means that price target of 2% would be achieved in sustainable manner and was the main reason for a hike. The statement shows “as a virtuous cycle from income to spending gradually intensifies, Japan's economy is projected to continue growing at a pace above its potential growth rate”. The statement also shows that “Given the current outlook for economic activity and prices, the Bank anticipates that accommodative financial conditions will be maintained for the time being” showing that BoJ is still very cautious, leaning dovish and JPY continued to weaken.

Governor Ueda stated at the press conference that negative rates and YCC fulfilled their intended roles but that accommodative financial conditions will stay. He emphasized the virtuous wage-price cycle as the main reason for rate hike. He added that they will consider options for easing policy if it is needed. On the other hand, the pace of future rate hikes will depend on the how economy develops and future price outlook. Ueda stated that reaching 2% price target sustainably looks more and more likely but it is still not fully guaranteed. This last remark sounded dovish.

Preliminary March PMI data showed increases across sectors. Manufacturing printed 48.2, up from 47.2 in February. Moving closer to expansion, but still in contraction since May of 2023. Services surged to 54.9 from 52.9 the previous month indicating a very strong activity and it propelled composite to 52.3 from 50.6 in February. February CPI for the entire country saw jump in headline and ex fresh food to 2.8% y/y from 2.2% and 2% previous month. Ex fresh food, energy component continued to decline as it printed 3.2% y/y compared to 3.5% y/y in January, but it still sits comfortably above the 3% level.

CHF

SNB total sight deposits for the week ending March 15 came in at CHF469.2bn vs CHF477.4bn the previous week. Again no significant moves in the sight deposits as SNB ceases to use them as a monetary policy tool. Swiss government has lowered expected CPI for the 2024 to 1.5% from 1.9% as seen previously. Projected CPI for 2025 was unchanged at 1.1%.

SNB has cut interest rates by 25bp bringing it to 1.50%. The move surprised the markets as Swissy lost around 100 pips against the majors in a minute. The main reason for rate cut was success in fight against inflation. Similarly to the government, the bank cut CPI projection to 1.4% for 2024 from 1.9% and to 1.2% for 2025 from 1.6% previously. “The SNB will continue to monitor the development of inflation closely, and will adjust its monetary policy again if necessary to ensure inflation remains within the range consistent with price stability over the medium term.” This statement indicates that there could be another rate cut at June meeting.​

 

[katetrades]

Forex Major Currencies Outlook (Apr 1 – Apr 5)

NFP data combined with inflation data from the Eurozone will dominate the markets in the week that will also see ISM PMI data from the US, employment data from Canada and inflation data from Switzerland.

USD

Atlanta Fed President Bostic forecast that Fed will deliver only one cut in 2024 and that it will be made later in the year than market is expecting. He stated that as long as GDP is high with strong economy and healthy labour market he is not in a hurry to get inflation down to 2%. He clarified that he is now less confident that inflation will continue dropping to 2% than he was in December, thus a change in number of rate cuts.

Fed Governor Waller stated that Fed is in no rush to cut rates and may need to hold them longer than expected thus echoing some of the remarks by Bostic. He remarked that more progress on inflation is needed before he can support rate cut, more data showing that inflation is heading down to the 2% target. He added that recent data and the economy as a whole allow Fed to approach rate changes cautiously.

PCE data for the month of February showed headline inflation ticking up to 2.5% y/y from 2.4% y/y in January while core PCE printed 2.8% y/y, a tick down from upwardly revised January reading of 2.9% y/y. Personal spending rose by 0.3% m/m after a 1% m/m increase the previous month while personal income jumped 0.8% m/m after a 0.2% m/m increase in January. Higher income will not help Fed in fight against inflation. Durable goods rebounded in February printing 1.4% m/m increase after a plunge of 6.9% m/m in January. Core orders, non-defense capital goods orders ex aircraft, have a good lead quality for business investment grew by 0.7% m/m vs 0.1% m/m as expected.

The yield on a 10y Treasury started the week at 4.19%, rose to 4.25% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.59% and reached the high of 4.63%. Spread between 2y and 10y Treasuries started the week at -39bp then widened to -42bp as curve inverted further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 96% while rate cut probability is 4%. Probability of a June rate cut is around 64%.

This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected around 200k while the unemployment rate should remain at 3.9%.

Important news for USD:

Monday:​

• ISM Manufacturing PMI​

Wednesday:​

• ISM Services PMI

Friday:​

• NFP​
• Unemployment Rate​

EUR

ECB Chief Economist Lane stated that wage data show wage growth returning to normal. He clarified it by saying that it is desirable for wage growth to be above normal in the next several years but it is important that it returns to normal over time.

Preliminary March CPI data from Spain came in line with expectations at 3.2% y/y but a big jump from 2.8% y/y seen in February. Core CPI went in the other direction and declined to 3.3% y/y from 3.5% y/y the previous month. Italy CPI jumped as well to 1.3% y/y from 0.8% y.y in February. French CPI, on the other hand, plunged by more than expected to 2.3% y/y from 3% y/y in February.

This week we will have preliminary March CPI reading.

Important news for EUR:

Wednesday:​

• CPI​

GBP

BoE policymaker Catherine Mann, one of the biggest hawk in the MPC and voter for a 25bp rate hike, explained her decision for no change in rate at the March meeting as necessary. She said it is time to move away from rate hikes as discretionary services inflation started to soften. She added that markets are pricing too many rate cuts and that market curve in the UK is impacted by decisions made by Fed and ECB. Boe policymaker Haskel, another hawk who also voted for a 25bp rate hike in February and then changed to no change in March, stated that declines in inflation are very welcoming and that persistence and underlying inflation is what BoE pays most attention to. He added that he thinks that rate cuts are a long way off.

AUD

February monthly CPI reading showed inflation unchanged at 3.4% y/y vs 3.5% y/y as expected. Monthly inflation reading does not encapsulate all of the CPI components. It includes around 70 percent of total CPI basket used for quarterly measuring. The next quarterly reading will come on April 24.

Bloomberg survey is projecting two more RRR cuts by PBOC by the end of the year. Additionally, they see rate cuts to both 1 and 5-year LPR. Industrial profits for the January – February period showed increase of 10.2% y/y thus making it the first positive reading since June of 2022. A jump in manufacturing profits was the main contributor followed by utilities. When looking at industries, "computer, communications and other electronic equipment manufacturing" category showed staggering jump in profits of 210.9% y/y!

NZD

New Zealand Treasury has cut their inflation and growth projections. They now see inflation at 3.3% for fiscal year (FY) of 2024 vs 4.1% as previously seen. GDP for FY of 2024 is seen coming in at meager 0.1%, down from 1.5% as previously forecast. They then see GDP rebounding in FY of 2025 to 2.1% from 1.5% as seen in previous forecast. Business confidence in March recorded a big drop as it printed 22.9, down from 34.7 in February.

CAD

Preliminary wholesale trade data for the month of February showed an increase of 0.8% m/m. Strong increases are seen in machinery and equipment sectors as well as in motor vehicles and motor vehicle parts. January GDP rose by 0.6% m/m vs 0.4% m/m as expected. Services industries rose by 0.7% while manufacturing led by transportation equipment rose by 0.9%. CAD has strengthened across the board during the week.

This week we will have employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

Tokyo area CPI for the month of March saw headline number come in unchanged at 2.6% y/y. Ex fresh food ticked down to 2.4% y/y from 2.5% in February while ex fresh food, energy declined to 2.9% y/y from 3.1% y/y the previous month. This is the first sub 3% reading for the category since December of 2022. Inflation still stays above 2% target but it is not rising. Preliminary industrial production for February fell further by 0.1% m/m while a rebound of 1.4% m/m was expected. The reading showed further decline in the yearly number as it printed -3.4% y/y, down from -1.5% y/y in January. These bleak data are overshadowed by the very positive outlook for the March and April readings. Retail sales, on the other hand, posted a very good result, rising 1.5% m/m and 4.6% y/y and showing that consumer is increasing spending.

CHF

SNB total sight deposits for the week ending March 22 came unchanged at CHF469.2bn. Swissy is weakening after SNB cut and the bank is not intervening as markets are doing their job for them.

This week we will have inflation data.

Important news for CHF:

Thursday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Apr 8 – Apr 12)

ECB, RBNZ and BoC meetings combined with inflation from the US and China will dominate the week ahead of us.

USD

ISM manufacturing surprised to the upside in March and returned to expansion for the first time since October of 2022. It printed 50.3 vs 48.4 and up from 48.4 in February. Digging into the details we see that both production and new orders indices jumped into expansion. There was also improvement in the employment index. On the other hand, jump in prices paid is concerning as it signals that inflationary pressures are not subsiding.

ISM services went in another direction from manufacturing and printed 51.4 vs 52.7 as expected and down from 52.6 in February. Business activity improved slightly and sits at a very healthy 57.4 level. New orders declined but are still well in the expansion while new export orders strengthened more and moved further into expansion. Employment showed a marginal improvement and is sitting at 48.5. Prices paid fell heavily to 53.4, lowest in four years, from 58.6 indicating that although price pressures are still rising they are doing that at a slower pace. Backlog of orders was concerning as it showed a big drop from expansion into deep contraction.

FOMC Committee members Daly and Mester, both voting members this year, stated that three rate cuts are reasonable for 2024 but it is a close call. Chairman Powell stated that if economy continues to evolve as expected most members see it appropriate to start cutting rates during the year. Gold has reached new record of $2300 during the week.

Another month and another scorching jobs report. Headline number for March saw 303k jobs added vs 200k as expected. The unemployment rate ticked down to 3.8% while participation rate jumped to 62.7% from 62.5% in February. Wages data saw positive revision to February reading (0.2% m/m vs 0.1% m/m) and on on top of that wages rose 0.3% m/m (0.347% m/m, which is almost 0.4% m/m). Year over year they were unchanged at 4.1%. Majority of jobs came from government with leisure and hospitality coming in second place. Fed will not be able to ignore such a strong report and rate cuts will most likely be pushed even further.

The yield on a 10y Treasury started the week at 4.20%, rose to 4.42% which is the high for the year and finished the week at around 4.39%. The yield on 2y Treasury started the week at 4.63% and reached the high of 4.74%. Spread between 2y and 10y Treasuries started the week at -42bp then tightened to -34bp as curve proceeded to bear steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 99% while rate hike has been priced in after strong NFP with miniscule probability of 1%. Probability of a June rate cut is around 59%.

This week we will get March inflation data and minutes from the March FOMC meeting.

Important news for USD:

Wednesday:​

• CPI​
• FOMC Minutes​

EUR

Final March manufacturing PMI was revised up to 46.1 from 45.7 as preliminary reported but it was still down from 46.5 in February. Improvements were seen across all countries with Italy even printing above 50. The report shows that new orders and output declined at a lower pace and that business confidence showed highest reading almost a year. Final services reading was revised up to 51.5 from 51.1 as preliminary reported. New business recorded growth after eighth months of declines and as report states on inflation “Service providers are still in a position to pass on at least some of the rise in input costs to customers in the form of higher prices. In March, however, the pace of inflation slowed slightly both in terms of costs and sales prices." German services inflation returned to expansion. Composite for the Eurozone returned to expansion after May of 2023 with a 50.3 reading.

Preliminary inflation data for the month of March saw headline number decline to 2.4% y/y from 2.6% y/y with core reading declining to 2.9% y/y from 3.1% y/y. German preliminary inflation came in at 2.2% y/y. Inflation readings are showcasing prevalent disinflationary pressures, but monthly jump of 0.8% m/m leaves everyone cautious.

This week we will have ECB meeting. No change in rate is expected, markets are pricing over 80% chance of no change, so this meeting will serve for preparing the terrain for a June cut.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

Final manufacturing PMI reading for the month of March was revised up to 50.3 from 49.9 as preliminary reported and up from 47.5 in February. This is the first time manufacturing returned into expansion since July of 2022. The details of report show that increases in output, new orders and business optimism. Final services reading was revised down to 53.1 from 534. as preliminary reported as the sector slowed down a bit. New orders are still growing which is encouraging. On the inflation front the report shows that input prices increased sharply while “Prices charged by service providers increased at the slowest pace since September 2023. However, this index has only edged downwards since last summer and it remains well above the long-run trend, therefore adding to signs of sticky inflationary pressures in the domestic economy so far this year."

AUD

Minutes from the RBA March meeting showed that board did not consider raising rates but they could not rule out possible rate hikes or rate cuts in the future. They see uncertainty around economic outlook but risks seem to be broadly balanced. On the inflation front board members say that it is still high although it is gradually coming down while the labor market is easing. Wages growth had been robust in the Q4 but the data signaled that it may have reached a peak. However, overall wages growth was not expected to decline quickly.

March official PMI data from China showed great improvements. Manufacturing climbed to 50.8 from 49.1 in February thus escaping contraction and returning to expansion for the first time since September. Services PMI moved further up in expansion as it printed 53, up from 51.4 the previous month. Combined they lifted composite to 52.7, highest in ten months. Caixin manufacturing PMI for March climbed to 51.1 from 50.9 as new exports and output continued to increase with improvement in new export orders as well. Caixin services and composite both improved to 52.7 from 52.5 the previous month.

This week we will get inflation and trade data from China.

Important news for AUD:

Thursday:​

• CPI (China)​
• Trade Balance (China)​

NZD

RBNZ Governor Orr stated that most central banks feel they are back on top of the inflation, although RBNZ is not there yet. He added that bigger than expected drop in Q4 GDP was necessary adjustment which helped the bank to be on track to get inflation within their targeted range. First dairy auction in April saw prices increase by 2.8% which comes as a nice rebound after two March auctions of falling prices.

This week we will have RBNZ meeting. No change in rate is expected but RBNZ should follow the lead of other central banks and take on more dovish stance.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

March employment report was a disappointing one. Headline number came in at -2.2k vs 25k as expected. This has led to jump in the unemployment rate to 6.1% vs 5.9% as expected from 5.8% in February. Participation rate has remained the same at 65.3%. Breakdown of jobs saw full-time jobs decline by 0.7k while part-time jobs declined by 1.6k. Wages were unchanged at 5% y/y.

This week we will have BoC meeting. Markets are expecting no change to the rate but with the drop in inflation in recent months and easing in labor market should prompt BoC to take more dovish stance.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

JPY

Final manufacturing PMI for the month of March was unchanged from preliminary reading of 48.2 and it showed improvement from 47.2 in February. The report showed that new orders and output declined at a slower pace than in February but new export orders plunged at the highest pace in over a year as external demand remains very weak. Final services and composite readings were revised down to 54.1 and 51.7 but they both improved compared to previous month. Services have been in expansion since August of 2022 and increase in March was led by rising new export orders.

CHF

SNB total sight deposits for the week ending March 29 came in at CHF456.8bn vs CHF469.2bn the previous week. This is the lowest reading for the year, lowest since July of 2015! and it seems that deposits are going to break the tight range in which they have been since September of 2023. March inflation numbers saw another plunge as the headline reading came in at 1% y/y vs 1.3% y/y as expected and down from 1.2% y/y in February. Core inflation also printed 1% y/y, a tick down from 1.1% the previous month. Inflation is quickly dissipating which increases chances of further rate cut in June and Swissy is not liking it.​

 

[katetrades]

Forex Major Currencies Outlook (Apr 15 – Apr 19)

GDP and activity data from China, inflation data from the UK, Japan, Canada and New Zealand, employment data from the UK and Australia as well as consumption data from the US will highlight the week ahead of us.

USD

March inflation report came in hotter than expected. Headline CPI came in at 3.5% y/y vs 3.4% y/y as expected and up from 3.2% y/y in February. It showed an increase of 0.4% m/m vs 0.3% m/m as expected. This makes it a third consecutive month of 0.4% m/m increases. Rising oil prices caused energy to contribute to growth in inflation. Core reading came unchanged at 0.4% m/m and 3.8% y/y while 0.3% m/m and 3.7% y/y were expected. Shelter component rose 0.4% m/m and was the biggest contributor to the core reading. Supercore, services (services ex energy, ex housing), rose 0.65% m/m. This report basically wiped out June rate cut and now September seems the most likely for a rate cut. However, it is questionable whether Fed will want to cut so close to the election in order to avoid looking politically influenced.

FOMC minutes from the March meeting showed us that members are disappointed with the latest inflation readings. Additionally, the Fed is working on creating the way for a slowing down its Quantitative Tightening programme. Most likely they will reduce the amount of Treasuries and leave the MBS rolling off at the same amount. Gold continued its massive uptrend reaching $2400 level on Friday.

The yield on a 10y Treasury started the week at 4.40%, rose to 4.6%, post CPI and after a horrendous 10y auction that saw a 3bp tail, which is the high for the year and finished the week at around 4.51%. The yield on 2y Treasury started the week at 4.76% and reached the high of 4.98%. Spread between 2y and 10y Treasuries started the week at -35bp then widened to -39bp as curve continued to invert further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 98% while probability of a rate cut is around 2%. Probability of a June rate cut plunged after the strong CPI report and sits at around 26%.

This week we will get consumption data.

Important news for USD:

Monday:​

• Retail Sales​

EUR

ECB has left key interest rates unchanged as was widely expected. The accompanying statement shows that most measures of underlying inflation are easing while wage growth is gradually moderating. Inflation shows lower food and goods inflation while domestic price pressures keep services inflation elevated. ECB plans to stop reinvesting PEPP proceeds at the end of 2024. Governing Council will remain data dependent and if their “updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.” They are laying the ground for a rate cut which will occur if incoming inflation data permits it. President Lagarde stated that some members were in favor of immediate rate cut but majority voted for no change as they wished to see more data.

GBP

The UK economy rose by 0.1% m/m in February as expected. Improvements were seen in manufacturing and in industrial production while construction output reported a decline. Services rose by 0.1% m/m. This is the second consecutive month of rising GDP indicating that economic activity is starting to rebound and that we will get a positive Q1 GDP print.

This week we will get employment and inflation data.

Important news for GBP:

Tuesday:​

• Payroll Change​
• Unemployment Rate​

Wednesday:​

• CPI​

AUD

March CPI data from China saw a 0.1% y/y increase vs 0.4% y/y as expected and down from 0.7% y/y in February. The report shows that prices for transportation and household appliance were the biggest drag on inflation. Overall, non-food inflation still stays positive while food prices continue to decline (-2.4% y/y). PPI has continued its downward trajectory as it printed -2.8% y/y.

This week we will get employment data from Australia as well as GDP, production and consumption data from China.

Important news for AUD:

Tuesday:​

• GDP (China)​
• Industrial Production (China)​
• Retail Sales (China)​

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

RBNZ has left the cash rate unchanged at 5.5% as was widely expected but sounded more hawkish. Their stance was revealed at the end of the statement where it said “Committee is confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 percent target range this calendar year.” The committee sees economy developing as anticipated but the growth remains weak. Members agreed that current level of rates is putting restraints on the demand.

This week we will get Q1 inflation data.

Important news for NZD:

Wednesday:​

• CPI​

CAD

BoC has left the overnight rate at 5% as was widely expected. The statement shows that “economic growth stalled in the second half of last year and the economy moved into excess supply.” New projections see 2024 GDP at 1.5%, 2025 at 2.2% and 2026 at 1.9%. Inflation is seen gradually coming down with shelter inflation staying elevated. Inflation is expected to reach 2% target in 2025. Bank members noticed some signs of moderating wage pressures. The statement shows that thee Council will look for evidence that downward momentum in inflation, seen in recent months, is sustained. The statement concludes with “Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

During the press conference BoC Governor Macklem clarified that bank members are satisfied with the progress they are seeing on inflation but they need to see it for a longer period of time in order to be confident that the move down is sustained. He clarified that “We need to be assured this is not just a temporary dip.”

This week we will get inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Wages data for the month of February saw increase of 1.8% y/y as expected. However, when inflation is taken into account, real wages have dropped 1.3% y/y which makes it a 23 consecutive month of falling wages. After the hot US CPI report USDJPY broke 153 level making it the highest level for the pair since 1990.

CHF

SNB total sight deposits for the week ending April 5 came in at CHF460.9bn vs CHF456.8bn the previous week. A move back into the well-established range, nothing out of the ordinary. SNB Vice chairman Shlegel, most likely to succeed Jordan as the new Chairman, stated the role of FX interventions in complementing monetary policy adding that rates would need go higher if there were no forex sales.​

 

[katetrades]

Forex Major Currencies Outlook (Apr 22 – Apr 26)

Inflation data from the US and Australia, BoJ meeting, preliminary PMI data from the Eurozone and the UK and Q1 GDP from the US will highlight the week ahead of us.

USD

March retail sales report was scorching hot. Headline number saw increase of 0.7% m/m vs 0.3% m/m as expected and it comes after a positive revision to February reading which now shows increase of 0.9% m/m. The biggest increase was made in the non-store retailers while biggest drop was seen in sale of sporting goods. Ex autos category rose 1.1% m/m vs 0.5% m/m as expected. Control group, used for GDP calculation, smashed expectations and printed 1.1% m/m increase with February reading being revised higher from 0% to 0.3% m/m. Thanks to great March reading and positive revision to February number, consumption will be a positive input for Q1 GDP.

Fed Chairman Powell spoke during the week and stated that recent data showed a lack of progress on inflation. He added that restrictive policy needs more time to work and that current situation is not the standard case of inflation driven by overheated demand. NY Fed President Williams added to Powell’s hawkish remarks stating that he does not see urgency for Fed cuts and that eventually interest rates will need to be lowered. He the proceeded to state that although Fed hikes are not base case Fed is prepared to hike if data warrants it. S&P500 has dropped below 5000 for the first time since mid-February as risk off mood gripped markets after Israel fired strikes on Iran.

The yield on a 10y Treasury started the week at 4.53%, rose to 4.69%, a new high for the year and finished the week at around 4.60%. The yield on 2y Treasury started the week at 4.91% and reached the reached 5%. Spread between 2y and 10y Treasuries started the week at -38bp then tightened to -37bp as curve proceeded to bear steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 96% while probability of a rate cut is around 4%. Probability of a June rate cut sits at around 17%.

This week we will have preliminary Q1 GDP and Fed’s preferred inflation metric PCE. Headline number is expected to tick up while core number is expected to continue declining. Recent comments made by Fed members coupled with stronger than expected CPI readings this year give additional importance to this PCE report.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

ECB Chief Economist Philip Lane stated that deceleration in wage growth is needed to return inflation back to target. He added that they are seeing moderation in wage growth but they are still elevated. Service inflation is expected to come down but but it will remain elevated during the year. German ZEW Survey for April saw current conditions improve, but at lower rate than expected. Outlook, on the other hand, showed much bigger improvement than it was expected indicating that investors are optimistic when assessing the impact of future rate cuts on the economy.

ECB President Lagarde spoke with CNBC during the week and clarified that barring any major surprises ECB will cut rates soon. She added that disinflationary process is moving according to the estimates but that they are not pre-committing to a path of rate cuts. Lagarde stated that there is still a lot uncertainty surrounding outlook and that is why data-dependent approach is necessary. She emphasized that they are data-dependent and not Fed dependent. ECB Nagel, a hawk, said that price pressures may continue for some time in the Eurozone while ECB Holzmann, also a hawk, stated that geopolitics is the biggest threat to rate cuts adding that increase in oil prices will be considered a “major, major shock”.

This week we will have preliminary April PMI data expected to show further improvements.​

Important news for EUR:

Tuesday:​

• S&P Global Manufacturing PMI (Eurozone, Germany, France)​
• S&P Global Services PMI (Eurozone, Germany, France)​
• S&P Global Composite PMI (Eurozone, Germany, France)​

GBP

The latest employment report showed cracks in the UK labor market. Payrolls change for the month of March saw 67k jobs lost while February reading was revised down and now shows a loss of 18k jobs. February unemployment rate has jumped to 4.2% from 4% the previous month while no change was expected. Wages are still holding high though with average weekly earnings at 5.6% 3m/y and ex bonus at 6% 3m/y. A drop in employment numbers should bring rate cuts closer, but still strong wages will most keep first rate cut in August.

March CPI report showed headline inflation drop to 3.2% y/y from 3.4% y/y in February while core inflation fell to 4.2% y/y from 4.5% the previous month. Both inflation numbers were expected to drop even further 3.1% y/y and 4.1% y/y respectively. Food prices were the main reason for drop in prices while motor fuels saw biggest price increases. Services inflation remains at 6% y/y, It proves to be stickier and in combination with smaller than expected declines in inflation numbers markets are still seeing August as the right timing for the first rate cut.

This week we will have preliminary April PMI data expected to show further improvements.

Important news for GBP:

Tuesday:​

• S&P Global Manufacturing PMI​
• S&P Global Services PMI​
• S&P Global Composite PMI​

AUD

March employment report showed loss of 6.6k jobs which came after a stellar February number of 117.6k jobs added. The unemployment rate ticked up to 3.8% from 3.7% while increase of 3.9% was expected. Participation rate ticked down to 66.6%. Looking into composition of jobs we can get a much brighter picture as full-time jobs increased by 27.9k while all of the decline in jobs came from part-time jobs which recorded a loss of 34.5 jobs.

Q1 GDP data from China showed that economy grew by 5.3% y/y and 1.6% q/q. The report shows investment as the main driver of growth, mainly public investment, while consumption moderated. Economic activity details for the month of March were not encouraging. Industrial production came in at 4.5% y/y vs 5.4% y/y as expected while retail sales printed 3.1% y/y vs 4.8% y/y as expected.

This week we will get Q1 CPI data from Australia. This will be the most important data point influencing further RBA decisions.

Important news for AUD:

Wednesday:​

• CPI​

NZD

Inflation for the first quarter came in at 0.6% q/q and 4% y/y, both as expected. The yearly figure is the lowest since Q2 of 2021. Digging into the details we see that non-tradeable inflation, inflation that is driven by domestic demand, came in at 5.8% y/y which is very elevated. It has prompted some analysts to move first RBNZ rate cut to 2025 from November of 2024. RBNZ sectoral model of inflation eased to 4.3% y/y from 4.7% y/y.

CAD

March headline CPI came in at 2.9% y/y, up from 2.8% y/y in February due to higher gasoline prices. Rent and mortgage interest costs remain biggest contributors to the CPI increase. All three of the core numbers have declined witch common and median below 3% y/y while trim printed 3.1% y/y. Services inflation surprised negatively as it came in at 4.5% y/y, up from 4.2% y/y the previous month. Governor Macklem stated that he wants to see more good data on inflation so the question remains will he be satisfied with core inflation continuing to decline. Manufacturing sales for the month of February showed a 0.7% m/m increase as expected. Wholesale trade was flat on the month in February.

JPY

Core machine orders, a highly volatile data series, rebounded in February and printed 7.7% m/m after a drop of 1.7% m/m in January. They are used as a proxy for CAPEX six to nine months ahead so this bodes very well for business investment and thus GDP. National inflation for the month of March ticked down to 2.7% y/y from 2.8% y/y in February. Ex fresh food slipped to 2.6% y/y while ex fresh food, energy dropped below 3% for the first time since November of 2022 as it printed 2.9% y/y.

This week we will have BoJ meeting and no change to interest rates is widely expected. The bank will publish its quarterly outlook report where an upward revision to inflation is expected.

Important news for JPY:​

Friday:

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending April 12 came in at CHF477.8bn vs CHF460.9bn the previous week. That is a decent jump but still within a well-established range.​