Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Jan 23 – Jan 27)

BOC meeting, inflation data from the US, Australia and New Zealand, preliminary Q4 GDP from the US and preliminary January PMI data from Eurozone and the UK will highlight the week ahead of us.​

USD

Retail sales disappointed in December and came in at -1.1% m/m vs downwardly revised -1% m/m in November. Control group, the measure that goes into GDP calculation, fell by 0.7% m/m. Ex autos and gas, as well as ex autos categories also fell by 0.7% m/m and 1.1 m/m respectively. Industrial production data for the month of December fell by 0.7% m/m after November’s data was revised down to -0.6% m/m. Negative prints on consumption and production raised fears that US could already be in a recession which lead to USD gains and stock market loses.

The yield on a 10y Treasury started the week and year at around 3.52%, fell below 3.33%, then rebounded and finished the week at around 3.47%. The yield on 2y Treasury reached 4.24% during the week and fell below 4.06%, then rebounded and finished the week at around 4.16%. Spread between 2y and 10y Treasuries started the week at -69bp and widened slightly to -70bp. FedWatchTool sees the probability of a 25bp rate hike after Fed Waller speech in February at 99.8%.

This week we will get preliminary Q4 GDP reading and PCE inflation data.

Important news for USD:

Thursday:

• GDP

Friday:

• PCE

EUR

Rumours started to circulate that ECB is considering to continue with 25bp rate hikes from March meeting. ECB president Lagarde stated in December that we are in for a series of 50bp rate hike so the rumours caused EUR to weaken in the first half of the week. We see this change as premature and we think that ECB will continue with 50bp rate hikes at March meeting. ECB policy maker Villeroy stated that it is still too early to consider what their actions will be in March. Lagarde came out later in the week with a statement that confirms bank’s resolution to continue with further tightening of monetary policy and advised market participants to “revise their positions”.She added that “Staying the course” is the new mantra.

ZEW data for January, first data point of new 2023, showed increasing optimism in both Germany and Eurozone. Current conditions improved slightly to -58.6 from -61.4 in December while sentiment for both Germany and Eurozone returned into positive territory for the first time since the beginning of Russia-Ukraine conflict in February of 2022. Optimism is growing that recession will not be as deep as feared.

This week we will get preliminary January PMI data.

Important news for EUR:

Tuesday:

• S&P Manufacturing PMI (EU, Germany, France)
• S&P Services PMI (EU, Germany, France)
• S&P Composite PMI (EU, Germany, France)

GBP

BOE Governor Bailey appeared in front of the Parliament and stated 3 main risks for the UK economy: 1. China’s sudden lifting of Covid restrictions, 2. Continuing fallout of the war in Ukraine 3. Shrinking of Britain’s labor force. According to Bailey, China reopening will have negative consequences in the short run, but it is not clear how long will they last. Later in the week he stated that BOE is not targeting particular peak in rates and added that inflation will probably start to decline rapidly in late spring.

Claimant count change for December rose by 19.7k while ILO unemployment rate for November remained unchanged at 3.7%. Weekly earnings continued to rise and came in at 6.4% for both earnings including and excluding bonus. It is hard to see how will inflation fall fast with wages steadily rising. Additionally, since inflation is running above wages real wages are falling (2.6% y/y).

December CPI saw headline ease to 10.5% y/y as expected from 10.7% y/y in November. The largest drop was seen in motor fuels, followed by prices for clothing and footwear. Prices for restaurants and hotels continued to rise and there was a historic rise in food and non-alcoholic beverages (16.8%) which makes it the highest increase since 1977. Core rate has stayed the same at 6.3% y/y but core services, excludes components like airfares, package holidays and education, continued to increase. BOE is particularly sensitive to core services component. Rising wages and high inflation will push BOE into continuing with rate hikes and markets are leaning in favor of a 50bp rate hike.

AUD

December employment report started to show cracks appearing in the tight labor market. Employment change came in at -14.6k, down from 58.2k in November. The unemployment rate remained unchanged at 3.5% since previous month’s was revised up. Participation rate dropped to 66.6% from 66.8%. One positive is that full-time employment continued to increase adding 17.6k jobs. All of job loses for the month were in part-time employment. With inflation running hot RBA will be on a pace for another 25bp rate hike and inflation report next week will provide more clarity to the picture.

PBOC kept the 1Y MLF rate at 2.75% but increased the volume of the facility, thus injected liquidity into the system in order to support the economy. Chinese data all beat expectations. Q4 GDP data came in flat vs -0.8% q/q as expected and 2.9% y/y vs 1.8% y/y as expected. Industrial production in December came in at 1.3% y/y vs 0.5% y/y as expected while retail sales fell by 1.8% y/y and the expectations were for a drop of 7.8% y/y.

This week we will get Q4 inflation data.

Important news for AUD:

Wednesday:

• CPI

NZD

NZIER Quarterly Survey of Business Opinion saw business confidence in Q4 deteriorate to -70% from -42% in Q3, with net 73% of businesses expecting deterioration in general economic conditions in the coming months, thus making this the weakest reading in survey’s history. The report shows that companies are becoming much more cautious and are looking to reduce staff numbers and tone down on investment plans. Companies are also reporting shortages of skilled workers, lower demand as well as increasing number of them transferring higher costs to the consumers through price increases which points to inflation staying high in 2023. Second GDT auction of the year saw prices continuing to decline, although by negligible -0.1%.

This week we will get Q4 inflation data.

Important news for NZD:

Tuesday:

• CPI

CAD

December CPI data fell more than expected. Headline CPI came in at 6.3% y/y vs 6.4% y/y and down from 6.8% y/y in November and -0.6% m/m vs -0.5% m/m as expected. The main reason inflation fell is gasoline prices which dropped 13.1 m/m. Core measures saw median and trimmed remain unchanged at 5% and 5.3% y/y respectively, while common slipped to 6.6% y/y. Inflation coming down will nudge BOC into a 25bp rate hike next week.

This week we will have a BOC meeting. Although labor market continues to be tight, weaker than expected inflation reading will lead BOC to raise 25bp and move toward pausing rate hikes in order to protect falling economy and housing market.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

BOJ decided to stand pat at their meeting and caught markets on the wrong side. Change in Japan comes gradually and markets got ahead of themselves. The rate remained at -0.1% and targeted yield on 10y JGB remained within -0.5/0.5% range. BOJ has unveiled their new program for YCC thus showing their strong resolve to protect the targeted range. Needless to say, JPY has tanked over 200 pips on the news on across the markets. Core-core CPI, that is excluding fresh food and energy, is projected to be at 1.8% in FY (fiscal year) 2023. up from 1.6% as seen in October. For FY 2024 it remains at 1.6% as in October. Real GDP has been revised down and is now seen at 1.7% for FY 2023 and 1.1% for FY2024 from 1.9% and 1.5% projected in October.

BOJ Governor Kuroda reiterated that bank will not hesitate to ease monetary policy further if need arises. The goal is to get inflation sustainably at 2% level with rising wages. He sees no issues with recent increases in bond purchases and adds that flexible market operations will be carried by using the fund-supplying operations against pooled collateral, their newly unveiled policy for keeping yields in range. The BOJ has reportedly bought JPY 34tn of JGBs since its decision to raise the targeted yield range in December. Trade minister Nishimura stated that he will advise companies to hike wages in excess of 5%. That way it will lead to a moderate demand-pull inflation which BOJ strives to achieve. Trade deficit for the year 2022 rose to record JPY19.97tn! With energy prices coming down we can see trade balance data starting to improve.

CHF

SNB total sight deposits for the week ending January 13 came in at CHF536.2bn vs CHF533.5bn the previous week. This is a sudden change in the long lasting downward trend, but it may be just a small correction and downside is set to continue. SNB Chairman Jordan stated in Davos that when looking back monetary policy everywhere was too expansionary. He added that price stability and bringing down inflation are top priorities.

 

[katetrades]

Forex Major Currencies Outlook (Jan 30 – Feb 3)

We are up for a massive week where Fed, ECB and BOE will deliver additional rate hikes, we will get employment data from the US and New Zealand, GDP and inflation data from the Eurozone and newest PMI data from China.

USD

Q4 GDP came in at 2.9% annualized vs 2.6% annualized as expected. It was at 3.2% in Q3. The details of the report are less satisfying. Consumer spending rose 2.1% vs 2.9% as expected and contributed with 1.42pp to the overall reading, down from 1.54pp in previous quarter. Net exports showed the biggest drop from previous quarter as they contributed only 0.56pp vs 2.86pp in Q3. The biggest contributor was inventory build (1.46pp) which is never a good sign as it indicates weaker consumer demand. Headline PCE inflation for December came in at 5% y/y, down from 5.5% y.y in November. Core PCE came in at 4.4% y/y as expected and down from 4.7% y/y the previous month.

The yield on a 10y Treasury started the week and year at around 3.49%, fell below 3.43%, then rebounded and finished the week at around 3.54%. The yield on 2y Treasury reached 4.23% during the week and fell below 4.14%, then rebounded and finished the week at around 4.22%. Spread between 2y and 10y Treasuries started the week at -69bp and tightened to -67bp. FedWatchTool sees the probability of a 25bp rate hike in February at 98.1% while probability of a 50bp rate hike is at 1.9%.

This week we will have ISM PMI data, Fed meeting and to cap it all we will get NFP on Friday. Fed is set to deliver 25bp rate hike and markets will be interested if they will signal a pause or more hikes are on the way. Headline NFP is expected to be around 190k with the unemployment rate ticking to 3.6%.

Important news for USD:

Wednesday:

• ISM Manufacturing PMI
• Fed Interest Rate Decision

Friday:

• NFP
• Unemployment Rate
• ISM Non-Manufacturing PMI

EUR

Preliminary PMI data for the month of January showed continued improvements in all three categories in Eurozone. Manufacturing rose to 48.8, inching closer back to expansion territory. Services returned into expansion with 50.7 vs 50.2 as expected and lifted composite back into expansion with 50.2. Input prices continue to fall indicating that inflation will fall substantially in the coming months. Labor shortages continue to dominate which may lead to wage price spiral. Eurozone started the year stronger than expected thanks to the milder than expected weather which led to lower gas consumption and sharp drop in energy prices. German manufacturing and French services though showed small declines which is a cause of concern and questions the health of the economy as a whole.

This week we will have preliminary Q4 GDP and preliminary January CPI report as well as ECB meeting where a 50bp rate hike is widely expected.

Important news for EUR:

Tuesday:

• GDP

Wednesday:

• CPI

Thursday:

• ECB Interest Rate Decision

GBP

Preliminary PMI data in January saw a big drop in services as they cam in at 48 vs 49.7 as expected and down from 49.9 in December. Manufacturing saw improvement to 46.7 from 45.5 and composite dropped to 47.8 from 49. A huge fall in services, the lowest reading since January of 2021, will put BOE at a tough spot next week. Inflation is way high, labor market is tight, all causes for another 50bp rate hike, however PMI numbers indicate that economy is slowing down significantly.

This week we will have BOE meeting. The latest poll sees 29 of 42 economists see a 50bp hike which would bring rates to 4% and see 4.25% as a terminal rate which will be reached at March meeting.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision

AUD

Inflation data showed no signs of slowing down as it came in higher than both expected and in Q3. Headline number was 1.9% q/q and 7.8% y/y vs 1.6% q/q and 7.5% as expected, up from 1.8% q/q and 7.3% y/y in the previous quarter. The yearly increase is highest in almost three decades. Core reading, trimmed mean, came in at 1.7% q/q and 6.9% y/y vs 1.5% q/q and 6.5% y/y as expected. February meeting will see RBA deliver a 25bp rate hike with more to hikes to come. AUD was strong well after the CPI report as markets were positioned for RBA pause in February.

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

Important news for AUD:

Tuesday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

Wednesday:

• Caixin Manufacturing PMI (China)

Friday:

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

NZD

Q4 inflation data continued to run hot as it came in at 1.4% q/q and 7.2% y/y while expectations were for increases of 1.3% q/q and 7.1% y/y respectively. Accommodation services have printed a 14% y/y increase as international tourism returns. RBNZ sectoral model of CPI rose to 5.8% y/y from 5.4% y/y in Q3. Since RBNZ targets that number to be in 1-3% range we can safely say that February meeting will deliver another 50bp rate hike.

This week we will get a Q4 employment report.

Important news for NZD:

Tuesday:

• Employment Change
• Unemployment Rate

CAD

BOC delivered a 25bp rate hike as expected and lifted it to 4.5%. They have signaled their intention to pause as they assess the effects of previous rate hikes on the economy. The bank sees GDP at around 1% in 2023 and around 2% in 2024. Projections are that lower energy prices and higher rates will bring inflation significantly down. It should be at around 3% by the middle of the year and then at targeted 2% in 2024. Bank members acknowledged that "there is growing evidence that restrictive monetary policy is slowing activity". At the accompanying press conference BOC Governor Macklem stated that this pause is conditional and it depends on the incoming data and economic forecast. He added that if they see that inflation is not coming down they are prepared to act further and raise interest rates. He also clarified that they are not thinking about cutting interest rates. CAD has weakened after the interest rate announcement and press conference. BOC is the first major central bank signalling pause and it will weaken investors’ interest in CAD.

JPY

Preliminary January PMI data can be taken as a positive. Manufacturing remained unchanged at 48.9, still in contraction, but services jumped to 52.4 from 51.2 in December and dragged composite back into expansion territory with 50.8 print. Japanese government has downgraded assessment of the Japanese economy in the latest monthly economic report stating “The Japanese economy is picking up moderately, although some weaknesses have been seen recently.” Tokyo area inflation data for January continued to run hot. Headline number came in at 4.4% y/y up from 4% y/y in December. Excluding fresh food category rose by 4.3% y/y which is the highest in over 40 years. Excluding fresh food, energy, the so-called core core, came in at 3% y/y up from 2.7% y/y the previous month.

CHF

SNB total sight deposits for the week ending January 20 came in at CHF531.6bn vs CHF536.2bn the previous week. After a small pause last week, total sight deposits continued to decline as SNB tweaks its policy.

 

[katetrades]

Forex Major Currencies Outlook (Feb 6 – Feb 10)

After a massive week we are in for a quiet week where markets will have time to digest impacts of central bank’s policy decisions. The week ahead of us will bring us RBA meeting, preliminary Q4 GDP from the UK and employment data from Canada.

USD

Fed delivered a 25bp rate hike as expected, lifting the rate to 4.5-4.75%. Statement shows that "ongoing increases in the target range will be appropriate" indicating that they will continue raising interest rates at the future meetings. QT will continue as before, no changes. Statement also showed that for future rate hikes “In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Powell stated at a press conference that there is more work to be done. He added "We're talking about a COUPLE of more rate hikes to get to that level we think is appropriately restrictive." He later added that if inflation starts coming down more quickly it will be incorporated in their policy setting. Powell mentioned that they are not seeing rate cuts in 2023, although markets are positioned for the first rate cuts to come in November. Powell was given opportunity to push back on the looser financial conditions and he did not take it so we had broad USD declines and rise in stock markets. He stated that terminal rate should be between 5-5.25%. According to him, disinflation period has started.

ISM manufacturing PMI continued to decline in January and came in at 47.4 from 48.4 in December. New orders plunged even deeper in contraction indicating weakening of demand. Prices paid index rose indicating that inflation pressures are not fully going away. Most probable reason for increase in prices is widespread rise in commodity prices on the back of China reopening. Employment index remained in expansion territory, although slowed down a bit.

ISM Non-Manufacturing for January smashed expectations by coming in at 55.2 vs 50.4 as expected and returned into expansion after shortly dipping in contraction in December with 49.2 reading. New orders index surged back into expansion with astonishing 60.4 reading with new export orders printing 59. Business activity also printed 60.4. Prices paid continued to decline and employment index ticked up to exactly 50. There are no signs of economy slowing down in the services sector which will allow Fed to continue with rate hikes.

January NFP report smashed expectations by coming in at 517k vs 185k as expected. The unemployment rate slipped to 3.4% while participation rate inched up to 62.4%. Average wages rose 0.3% m/m and 4.4% y/y, down from 0.4% m/m and 4.9% y/y in December. Most jobs were added in leisure and hospitality followed by professional and business services. Wages are easing, but labor market continues running red hot so Fed may feel comfortable continuing with rate hike increases.

The yield on a 10y Treasury started the week and year at around 3.5%, fell below 3.35% after the FOMC meeting and finished the week at around 3.54% thanks to the strong NFP number. The yield on 2y Treasury reached 4.25% during the week and fell below 4.18%, then rebounded and finished the week at around 4.22% post NFP. Spread between 2y and 10y Treasuries started the week at -69bp and tightened to -74bp. FedWatchTool sees the probability of a 25bp rate hike in March at 94.5% while probability of a no change is at 5.5%.

EUR

Preliminary Q4 GDP reading saw Eurozone escape contraction as it came in at 0.1% q/q vs -0.1% q/q as expected. Germany and Italy had negative readings while France and Spain had positive readings. Ireland surprised everyone with 3.5% q/q and it pushed Eurozone reading above zero. Domestic demand is stumbling with household consumption falling.

Although French and Spanish readings showed that inflation reaccelerated, preliminary Eurozone inflation for the month of January declined to 8.5% y/y from 9.2% y/y in December. There was a drop of 0.4% m/m. Falling energy prices have dragged inflation down with it, but core inflation remained stubbornly high at 5.2% y/y. Additionally, when we exclude energy inflation rose 7.3% y/y vs 7.2% y/y previous month on the back of rising food, alcohol and tobacco. One caveat to these numbers is that they do not include inflation numbers from Germany. German data has been postponed until next week. Eurozone inflation reading was calculated using model for German inflation data, so we may see a big revision to the number when final reading is published on February 23.

ECB raised by 50bp as widely expected lifting the interest rate to 3%. The statement showed intent for another 50bp rate hike at March meeting after which there will be evaluation of future path of rates. Future rate hikes will continue to be data-dependent and will be meeting-by-meeting decisions. QT will start from March 1 and last till the end of June and will average €15bn per month.

Risks for growth and inflation were described as more balanced. ECB President Lagarde clarified that today’s decision is not the March decision. She added that peak in rates is not reached and there is more work to be done. However, she did not provide clear direction on rates from March meeting so markets interpreted that as a sign that smaller rate hikes will come after March meeting or it will be outright pause. On Friday ECB policymakers came out with statements that March rate hike will not be the last.

GBP

BOE proceeded as expected and raised interest rate by 50bp to 4%. The vote was 7-2 with Tenreyro and Dhingra voting to keep rates unchanged. Inflation has likely peaked but if the price pressures continue mounting new rate hikes may be required. Inflation is now expected to drop to 3.92% by Q4 of 2023, which is a big downgrade from 5% as seen in December. BOE Governor Bailey reiterated that inflation is expected to fall sharply in second half of 2023 and added that inflation risks are still skewed to the upside. Lower inflation projections combined with higher projected growth should lead BOE toward the pause or if inflation remains stubbornly high to 25bp rate hikes. It could be a final 25bp rate hike of this cycle.

This week we will have a preliminary Q4 GDP reading.

Important news for GBP:

Friday:​

• GDP​

AUD

Australian building permits exploded higher in January 18.5% m/m which pushed AUD higher since housing is a very big part of the economy. In combination with weak USD the data point propelled AUDUSD to a new seven- month high of 0.7158. After FOMC and NFP data AUDUSD was slammed down to almost 0.69.

First full month after economy reopened saw Chinese PMI data return into expansion territory. Manufacturing came in at 50.1 from 47 in December while services made astonishing jump to 54.4 from 41.6 the previous month! This all led to composite coming in at healthy 52.9 from 42.6 in December. Caixin readings also saw improvements across the board with manufacturing coming in at 49.2, services at 52.9 and composite at 51.1.

This week we will have RBA meeting from Australia where another 25bp rate hike is expected. We will also get inflation data from China.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​

Friday:​

• CPI (China)​

NZD

The employment report for Q4 of 2022 showed employment change continue to rise but at a modest 0.2% q/q vs 1.3% q/q in Q3. The unemployment rate ticked up to 3.4% while participation rate remained at 71.7%. On the wages front private wages increased 4.3% y/y while public wages increased 3.6% y/y. RBNZ is seen raising 50bp later in the month after a strong inflation report published previous week, however this report may cause them to slow down with future rate hikes. Analysts are already dialing down their calls for terminal rate to 5%,

CAD

November GDP, a very late data point but still relevant for calculation of Q4 GDP, came in at 0.1% m/m as expected thanks to rise in services of 0.2% m/m. With advanced GDP for December at 0.1% m/m it is projected that Q4 GDP will be 0.4% q/q and 3.8% y/y.

This week we will have employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

BOJ governor Kuroda reiterated that the bank will continue with easy monetary policy in order to reach its inflation target of 2%. Kuroda will finish its term as governor on April 8 so his remarks do not carry the same weight as before. BOJ has bought record amount of JGBs in January, JPY23.69tn ($182bn) in order to defend the yield curve control.

CHF

SNB total sight deposits for the week ending January 27 came in at CHF528bn vs CHF531.6bn the previous week. Total sight deposits continue trending to the downside as SNB continues selling USD and EUR.​

 

[katetrades]

Forex Major Currencies Outlook (Feb 13 – Feb 17)

US CPI will be the most watched data point in the coming week. We will also get inflation from the UK and Switzerland, Q4 GDP data from the Eurozone and Japan, consumption data from the US and the UK as well as employment data from Australia and the UK.

USD

Atlanta Fed President Bostic stated that the tight labour market seen in latest NFP data might mean that the peak in rates could be higher than where the market is currently pricing. Minneapolis Fed President Kashkari stated that the peak in the Fed funds rate is most likely to be around 5.4%. Fed Chairman Powell stated that he was surprised by the strong jobs report and that there is still ground to cover so further rate increases will likely be needed. He added that disinflation is seen in goods inflation and in manufacturing sector which constitutes around a quarter of economy. Core services ex housing remains the metric to be watched. Additionally, he believes that inflation will fall sharply in 2023 but it will get close to 2% target only in 2024.

The yield on a 10y Treasury started the week and year at around 3.54%, rose to 3.68% and finished the week at around 3.74% thanks to the strong NFP number. The yield on 2y Treasury reached 4.48% during the week and fell below 4.18%, then rebounded and finished the week at around 4.3% Spread between 2y and 10y Treasuries started the week at -82bp and widened to -87bp which is a record low. FedWatchTool sees the probability of a 25bp rate hike in March at 93.7% while probability of a 50bp rate hike is at 6.3%.

This week we will have inflation and consumption data. Inflation is expected to continue falling, but with used car prices printing a surprising increase in January the risks to the CPI number are on the upside.

Important news for USD:

Tuesday:​

• CPI​

Wednesday:​

• Retail Sales​

EUR

Retail sales for the Eurozone in the month of December came in weaker than expected -2.7% m/m and -2.8% y/y, but when we take into account positive revisions to the November reading, December data came in line with expectations. Retail sales for food, drinks and tobacco showed biggest decline while automotive fuels were positive. Delayed preliminary German CPI for the month of January ticked up to 8.7% y/y from 8.6% y/y in December but still came in below market expectations of 8.9% y/y.

ECB policymakers were reiterating last week’s decision to raise rate hikes by 50bp in March stating that risk of doing too little is much greater than the risk of overtightening. ECB Executive Board member Isabel Schnabel stated that inflation is coming down due to drops in energy prices, not because of the ECB’s rate hikes and that she is in favour of another 50bp rate hike in March as tackling inflation is their priority. ECB policymakers Klaas Knot and Joachim Nagel talked about stopping the reinvestments of the asset purchase program portfolio as the ultimate goal, adding that the reductions would need to pick up speed.

This week we will have a second reading of Q4 GDP.

Important news for EUR:

Tuesday:​

• GDP​

GBP

BOE Governor Bailey spoke in the Parliament and stated that inflation is expected to come down sharply in 2023. Chief Economist Pill added that there is substantial monetary tightening yet to come and that they expect a prolonged period of weak economic growth in the UK. He warned that there is a danger of overtightening on rates given how monetary policy acts with a lag. Markets are pricing another 25bp rate hike in March and these comments add more certainty to that expectation.

Preliminary Q4 GDP reading saw UK economy come in flat while December GDP number was -0.5% m/m vs -0.3% m/m as expected. In the fourth quarter services output was flat, production was down -0.2% while construction was up 0.3%. Real household consumption grew 0.1% q/q with government expenditure rising 0.8% q/q. The bulk of gains came in from business investment that was particularly strong with a rise of 4.8% q/q.

This week we will have employment and inflation data.

Important news for GBP:

Tuesday:​

• Claimant Count Change​
• Unemployment Rate​

Wednesday:​

• CPI​

AUD

RBA proceeded as expected and delivered a 25bp rate hike thus lifting the cash rate to 3.35%. Board members expect further rate hikes will be necessary to return inflation to target. Inflation is seen falling down this year due to combination of lower global growth and slower domestic demand. Inflation is seen at 4.75% in 2023 and around 3% by mid-2025. Growth will slow down and print around 1,5% in both 2023 and 2024. The unemployment rate should increase to 3.75% by the end of 2023 and 4.5% by mid-2025. The board will continue monitoring developments in labor market as well as with inflation. There are no hints that RBA is closing to the peak interest rates or that it plans to cut interest rates so their hawkish stance should keep AUD supported. Statement of Monetary Policy showed that inflation has likely peaked at the end of 2022 and forecasts for core inflation were revised higher (4.3% y/y at the end of 2023 and 3.1%y/y at the end of 2024) while GDP and the unemployment rate remained unchanged. All of the forecasts were made assuming that rate hike will peak at 3.75% and ease to 3% by June of 2025.

CPI in China rose 2.1% y/y in January vs 2.2% y/y as expected, but up from 1.8% y/y in December. PPI, on the other hand, continued to trend down as it fell by -0.8% y/y vs -0.7% y/y the previous month.

This week we will have employment data and a speech from RBA Governor Lowe.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​
• RBA Governor Lowe Speech​

NZD

January manufacturing PMI returned to expansion with 50.8 print after three consecutive months in restrictive territory and 47.2 print in December. Electronic retail card spending, which covers around 70% of retail sales in New Zealand, started the year strongly with 2.6% m/m and 2.7% y/y increases.

CAD

BOC Governor Macklem stated in his speech that if economy and inflation continue to develop as forecasted there will be no need for more rate hikes. GDP is expected to be 0% in first three quarters of 2023. He says inflation turning the corner and he sees that as result of monetary policy. Inflation is still way to high and it will take time to bring it down to the targeted 2% level. If wage growth does not subside along with inflation expectations more rate hikes will be needed. He added that one of the main reasons for pausing is the debt load. According to him, central bank will need time to assess the impact of higher interest rates on households and businesses before they make further rate hikes.

January employment report was another stellar one. Employment change came in at 150k vs 15k as expected! The unemployment rate stayed at 5% while participation rate returned to pre-pandemic level of 65.7%. Wages rose 4.5% y/y, slower increase than 4.7% y/y seen in December. Full-time employment was staggering with 121.1k while part-time employment rose by 18.9k. BOC is firmly set on pausing rate hikes, but this employment report is impressive and paints a picture of red hot labour market.

JPY

Nikkei newspaper has reported before markets opened on February 6 that deputy Governor Amamiya has the biggest chances to succeed Kuroda on April 8. Amamiya is seen as more dovish than any of the potential candidates and JPY gapped lower on market open. Japanese government will present nominees for new BOJ Governor next week on Valentine’s Day, February 14. Kazuo Ueda seems to have biggest chances to be Kuroda’s successor. He is a professor and has previously served as a BOJ board member. He is more hawkish than Amamiya who refused to take the post.

Total labour cash earnings for the month of December printed a 25-year high coming in at 4.8% y/y. When including inflation, real wages rose 0.1% y/y. BOJ has pointed that wage increases are main component of achieving sustainable inflation. This data print can nudge BOJ to reconsider their loose monetary policy, however it should be note that the bulk of wage increases came from increase in overtime pay which printed 3% y/y. Wage increases did not transfer directly into household spending in December as latter fell by -2.1% m/m and -1.3% y/y.

This week we will have preliminary Q4 GDP reading.

Important news for JPY:

Tuesday:​

• GDP​

CHF

SNB total sight deposits for the week ending February 3 came in at CHF528.1bn vs CHF528bn the previous week. Virtually no change as SNB continues with adjusting its monetary policy with rate hikes from previous year. Seasonally adjusted unemployment rate in January remained at 1.9% showcasing incredible tightness of Swiss labor market.

This week we will have inflation data.

Important news for CHF:

Monday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Feb 20 – Feb 24)

RBNZ meeting with another 50bp rate hike, preliminary February PMI from the Eurozone, the UK and Japan as well as inflation data from the US, Canada and Japan will mark the week ahead of us.

USD

January inflation report saw CPI drop by less than expected. December print was 6.5% y/y, January printed 6.4% y/y but it was expected for it to drop to 6.2% y/y. There were talks about inflation coming higher than expected, as we pointed in our previous week’s outlook, it caused a lot of volatility in the market with GBPUSD going almost 150 pips up only to give it all back. Core CPI also slipped but higher than expected (5.6% y/y vs 5.5% y/y). The report states “The index for shelter was by far the largest contributor to the monthly all items increase, accounting for nearly half of the monthly all items increase, with the indexes for food, gasoline, and natural gas also contributing”. Also the weight of shelter in the CPI basket has been increased from 32.9% to 34.4%, Powell told us repeatedly that services ex shelter inflation is most watched and it came at 7.2%.

January retail sales smashed even elevated expectations. Headline number came in at 3% m/m vs 1.8% m/m as expected and -1.1% m/m in December. Control group, the reading used for GDP reading, rose 1.7% m/m vs 0.8% m/m as expected indicating that consumer started the year strong and it will lead to some positive revisions to Q1 GDP forecast. Ex autos category also smashed expectations by coming in at 2.3% m/m vs 0.8% m/m as expected. Warmer than expected weather has certainly helped the reading. The biggest gains were seen in sales at department stores (17.5%) followed by eating and drinking out (7.2%).

Vice-President of the Fed Lael Brainard, the biggest dove in FOMC, will step down from her position and take a new one as economic advisor to the White House. First reports indicate that Chicago Fed President Austeen Goolsbee has the most chances to succeed her as new Vice-President. With Brainard gone we could see Fed turning more hawkish. Cleveland Fed President Mester confirmed her hawkish stance stating that Fed will need to go above 5% and stay there for a while adding that if inflation surprises to the upside they will have to take more aggressive stance.

The yield on a 10y Treasury started the week and year at around 3.75%, rose to 3.92% and finished the week at around 3.89%. The yield on 2y Treasury reached 4.72% and finished the week at around 4.67%. Spread between 2y and 10y Treasuries started the week at -81bp and widened to -90.8bp which is the lowest it has been since 1980 and then tightened back to -79bp on the back of higher yields in 10y Treasureies. FedWatchTool sees the probability of a 25bp rate hike in March at 79% while probability of a 50bp rate hike is at 21%.

This week we will get FOMC Minutes, second estimate of Q4 GDP and PCE inflation data.

Important news for USD:

Wednesday:​

• FOMC Minutes​

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

ECB policymaker Makhlouf, a well known hawk, stated that he could see rates going above 3.50%. He added that he is open to acting forcefully in order to bring down inflation toward their target level. According to him, trajectory of rates is up and then plateauing there without any considerations about rate cuts. ECB President Lagarde reiterated bank’s decision to raise by 50bp in March as inflation is running way too high. Executive Board member Isabel Schnabel echoed madame Lagarde’s words adding that a 50bp rate hike in March is very much needed.

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

Important news for EUR:

Tuesday:​

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

GBP

The number of unemployment claims in January fell again as it came in at -12.9k vs -3.2k in December. The number of payrolled employees came in at 102k vs 47k the previous month. ILO unemployment rate for December was steady at 3.7% while average weekly wages (ex bonus) continued to rise and printed 6.7% 3m/y, up from 6.5% 3m/y the previous month. Although wages keep growing in nominal terms, inflation is keeping them depressed in real terms. Real wages for that period fell by 2.5% which indicates devastating effects of high inflation in producing cost-of-living crisis. The number of people whore not employed nor actively seeking a job has moved lower.

Inflation in January fell by more than expected 10.1% y/y vs 10.3% y/y. December print was 10.5% y/y. This a third consecutive monthly decline and it was led by a drop in transport category (petrol/diesel prices fell almost 4%) as well as restaurants and hotels. Slower increases were seen in food and non-alcoholic beverages and clothing and footwear while inflation accelerated for housing and utilities, recreation and culture and alcoholic beverages and tobacco. Core CPI also declined to 5.8% y/y from 6.3% y/y the previous month with core services also reporting a decline. BOE will be satisfied with these numbers and will cement their decision to raise by 25bp at the March meeting and increase the probability of a pause in May.

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

Important news for GBP:

Tuesday:​

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

AUD

Employment report in January was a weak one. Employment change came in at -11.5k vs 20k as expected for a second consecutive month of job loses. The unemployment rate rose to 3.7% from 3.5% in December while participation rate inched lower to 66.5% from 66.6% the previous month. Entirety of job loses were full-time (-43.3k) which only adds to the bleakness of report. Part-time employment held with 31.8k jobs added. RBA will have to reevaluate its monetary policy stance as they are now in a tough position with employment falling and inflation rising. We still think that 25bp rate hike is coming in March, but after that there may come a pause.

RBA Governor Lowe stated in his first appearance in front of the Senate and reiterated that inflation is way too high and that they have not reached peak in rates, but that he is unsure how far they will be going with further rate increases. In his second appearance, which came after the employment report was published, he stated that if another weak job report came out they will need to reconsider tight labour market. He added that current assessment is that rates will need to go higher, which prompted some analysts to raise their peak rate forecast to 4.1%. If top in inflation occurs during 2023 then there is a possibility of rates coming down in 2024.

NZD

RBNZ published its 2yr inflation expectations and it was lower than previous (3.3% vs 3.6%). As inflation expectations slide down RBNZ will find itself in more comfortable position and not need to aggressively continue with rate hikes after the February meeting. Kiwi did not like the news and lost some ground.

This week we will get a Q4 consumption data and RBNZ meeting. A 50bp rate hike is fully priced in by markets, therefore if RBNZ does not send a strong hawkish message on future rate hikes and if they only hints at pausing we will get NZD weakness.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

Sunday:​

• Retail Sales​

CAD

BOC Governor Macklem spoke in Parliament and stated that inflation is turning the corner. He said that economy is overheating and is clearly in excess demand and there are some evidence emerging that rate hikes are slowing down demand. He is forecasting inflation to fall to 3% in the middle of 2023 and fall back further to their target in 2024. On labour market he said that it is too tight and it needs to get balanced. Reminder that last employment report showed 150k jobs added while only 15k was expected.

This week we will get inflation data and see if it will confirm Macklem’s words.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Q4 GDP rebounded but much weaker than expected. It came in at 0.2% q/q vs 0.5% q/q as expected with Q3 reading being downwardly revised to -0.3% q/q. Private consumption was the driving force of growth with 0.5% Business investment fell -0.5% while net exports added 0.3pp to the GDP with exports growing 1.4% and imports falling -0.4%. January trade balance printed the biggest deficit in history -JPY3496.6bn. Exports were up 3.5% y/y but imports were at 17.8% y/y. This is the 18th consecutive month of trade deficits.

The government has confirmed nomination of Kazuo Ueda as new Governor of BOJ. Former head of FSA Himino will be a new Deputy Governor. With a weak Q4 reading it is questionable how fast or whether new Governor will be able to move BOJ from its ultra loose monetary policy.

CHF

SNB total sight deposits for the week ending February 10 came in at CHF525.6bn vs CHF528.1bn the previous week. Continuation of well established trend as SNB looks to adjust its monetary policy. January inflation came in hot with 3.3% y/y vs 2.9% y/y as expected and up from 2.8% y/y in December. Core inflation also rose printing 2.2% y/y vs 2% the previous month. SNB will have no option but to raise in March. Markets are pricing a 25bp rate hike but talks of a 50bp rate hike might creep in to give Swissy some push.​

 

[katetrades]

Forex Major Currencies Outlook (Feb 27 – Mar 3)

Preliminary inflation data from the Eurozone, Q4 GDP data from Australia, Canada and Switzerland as well as ISM PMI data from the US will highlight the week ahead of us.

USD

Second Q4 GDP report saw it slide to 2.7% vs 2.9% annualised as preliminary reported. Personal consumption contribution was revised down from 1.42pp to 0.93. Fixed investment improved to -0.81pp from -1.2 as preliminary reported. Net trade attributed 0.46pp to the GDP down from 0.56pp as preliminary reported. Fed’s preferred inflation metric PCE printed an increase in January. Headline number came in at 5.4% y/y vs 5.3% y/y in December while core PCE rose 4.7% y/y vs 4.6% y/y the previous month. Inflation has made a turn up which will cause Fed to step up its hawkish rhetoric. Additionally, personal spending rose 1.8% m/m while personal income rose 0.6% m/m.

The yield on a 10y Treasury started the week and year at around 3.82%, rose to 3.976% and finished the week at around 3.95%. The yield on 2y Treasury finished the week at around 4.79%. Spread between 2y and 10y Treasuries started the week at -80bp, tightened back to -74bp and then widened to -83bp post PCE report. FedWatchTool sees the probability of a 25bp rate hike in March at 58.3% while probability of a 50bp rate hike is at 41.7%.

This week we will get ISM PMI data.

Important news for USD:

Wednesday:​

• ISM Manufacturing PMI​

Friday:​

• ISM Non-Manufacturing PMI​

EUR

Preliminary February PMI for the Eurozone saw manufacturing slip to 48.5 from 48.9 in January on the back of big drops in German and French readings. Services ripped stronger and came in at 53 vs 50.8 the previous month with both German and French readings improving. This has pushed composite to 52.3 from 50.3 in January which is the highest since May of last year. S&P Global notes that: “Business activity across the Eurozone grew much faster than expected in February” and that “February’s PMI is broadly consistent with GDP rising at a quarterly rate of just under 0.3%.” Additionally, signs of inflation pressures are still seen in the services sector and are connected to the rising wages.

Final inflation reading for the month of January came in a bit hotter than previously reported. Headline CPI came in at 8.6% y/y vs 8.5% y/y as preliminary reported with -0.2% m/m vs -0.4% m/m as preliminary reported. Core CPI also ticked higher compared to preliminary report and came in at 5.3% y/y vs 5.2% y/y. Revisions are due to delay of German data that happened before the preliminary inflation reading was reported. Final reading of German Q4 GDP came in at -0.4% q/q vs -0.2% q/q as preliminary reported. Household consumption was down -1% q/q while gross fixed capital formation (capital investment) was down -2.5% q/q. German economy will have a low base for Q1 GDP reading but incoming data (manufacturing PMI, Ifo current situation, consumer confidence) all pointed to a negative growth in the first quarter. This will make two consecutive quarters of negative GDP, a definition of technical recession.

This week we will have preliminary February inflation data.

Important news for EUR:

Thursday:​

• CPI​

GBP

Preliminary PMI data in February smashed expectations and provided us with a very strong report. Manufacturing came in at 49.2 vs 47 in January while services came in at 53.3 vs 48.7 the previous month. Combined together they lifted composite to 53 from 48.5 in January. The report shows great resilience of the economy and business sentiment has been improved due to signs of peak in inflation and lowering of recession fears. GBP has reacted strongly on the news with GBPUSD gaining more than 100 pips. In the end, S&P notes that: ”However, while the data suggest that near-term recession odds have fallen considerably, elevated inflation pressures clearly remain a concern, especially in the service sector. As such, the resilience of the economy and the stickiness of the survey's inflation gauges add to the likelihood of the Bank of England tightening policy further, and potentially more aggressively, which may dampen future growth expectations and suggests that the possibility of recession later in the year should not be ruled out.” BOE member Catherine Mann, a well-known hawk, stated that financial markets have absorbed substantial degree of tightening and added that further tightening and sooner rate hikes will most likely be needed.

AUD

RBA minutes from February meeting revealed that the board considered a 50 bp hike and that pausing was not an option. Falling real incomes persuaded them to go for a 25bp rate hike. Board members agreed that further rate hikes would likely be needed and they have modelled their inflation forecasts based on a 3.75% cash rate. This is a continuation of hawkish message we saw in statement and in Governor Lowe’s speech in parliament. Wage data for Q4 came in at 0.8% q/q vs 1% q/q as expected and as was in Q3 and 3.3% y/y vs 3.5% y/y as expected. Wages rising slower than expected will ease fears of dreaded wage-price inflation dynamic. Q4 CAPEX data was very encouraging as it came in at 2.2% q/q vs 1.3% q/q as expected. Q3 CAPEX was revised up to 0.6% q/q from -0.6% q/q. Building CAPEX was the most prominent with 3.6% q/q increase showing that investments are pouring in into construction sector. CAPEX reading gave AUD a small boost.

PBOC has left 1-Year and 5-Year LPR (Loan Prime Rate) unchanged at 3.65% and 4.3% respectively. 1-Year LPR is used as benchmark for most new and outstanding loans while 5-Year LPR is used as benchmark for most home mortgage rates.

This week we will get Q4 GDP data from Australia and official PMI data from China.

Important news for AUD:

Wednesday:​

• GDP​
• Manufacturing PMI (China)​
• Non-Manufacturing PMI (China)​
• Composite PMI (China)​

NZD

RBNZ delivered a 50bp rate hike as expected and lifted Official Cash Rate (OCR) to 4.75% from 4.25%, Board members have even considered a 75bp rate hike. Monetary conditions will need to tighten further as inflation is too high and employment is beyond maximum sustainable level. Balance of risks surrounding inflation is to the upside while housing and household balance sheets are two main downside risks. RBNZ now see OCR at 5.14% in June 2023 vs 5.41% previously. OCR is seen at 5.5% in March of 2024 as before while annual inflation projection for the same period is lifted to 4.2% from previous number of 3.8%. Hawkish rhetoric coming from RBNZ to give NZD some love after previous weeks’ declines. RBNZ Governor Orr stated that some early signs of inflation abating are starting to form but core inflation is still too high. He added that due to cyclone Gabrielle there will be some increased price pressures to come which may require higher rates for longer. Cyclone Gabrielle has caused floods and landslides in the North Island of New Zealand taking 5 lives and causing massive material damage that is estimated to be north of NZD13bn.

CAD

January inflation numbers came in softer than expected with headline CPI coming in at 5.9% y/y vs 6.1% y/y as expected and 6.3% y/y in December. Median and common core measures were unchanged at 5% y/y and 6.6% y/y while trim came down to 5.1% y/y from 5.3% y/y the previous month. BOC already announced they will pause with rate hikes and with inflation coming down it will only reinforce their stance.

This week we will get Q4 GDP data .

Important news for CAD:

Tuesday:​

• GDP​

JPY

Preliminary PMI data for the month of February was a mixed bag. Manufacturing dropped to 47.4 from 48.9 in January making it fourth consecutive month of contraction and lowest reading since August of 2020. Output and new order components dropped, same as input prices but output prices rose indicating that inflation is being passed on to consumers. Services PMI jumped to 53.6 from 52.3 the previous month with reading being sixth in expansion and highest since June of 2022. New orders continued to grow and business sentiment strengthened. Input and output prices rose as combination of rising fuel and wage costs. Composite remained unchanged at 50.7.

January CPI for the entire country saw headline number come in at 4.3% y/y vs 4.5% y/y as expected and up from 4% y/y in December. CPI ex energy came in at 4.2% y/y as expected, up from 4% y/y the previous month while CPI ex energy, fresh food came in at 3.2% y/y as expected, up from 3% y/y in December. BOJ Governor nominee Ueda spoke at length in the parliament stating that inflation is transitory (driven by the supply side, cost-push) and that it is expected for it to come down to the 2% target in the middle of next fiscal year. Fiscal year starts on April 1 so inflation should hit the target at around October. It is necessary to continue with monetary policy easing in order to realise wage hikes. He added that there are various possibilities for what YCC might look like going forward but he did not want to comment on it now. Targetting short-term yields might be one of the strategies. Monetary normalization will be appropriate if trend inflation improves significantly.

CHF

SNB total sight deposits for the week ending February 17 came in at CHF526.8bn vs CHF525.6bn the previous week. A small increase in sight deposits as SNB further calibrates its policy.

This week we will get Q4 GDP data

Important news for CHF:

Tuesday:​

• GDP​

 

[katetrades]

Forex Major Currencies Outlook (Mar 6 – Mar 10)

RBA, BOC and BOJ meetings but only RBA is expected to raise rate will be followed by employment data from the US and Canada as well as inflation data from China and Switzerland.

USD

February ISM manufacturing PMI rose to 47.7 from 47.4 in January. Expectations were for it to go to 48. Employment fell back into contraction while new order, new export orders improved but are still stuck in contraction. Prices paid component garnered the most attention as it rose to 51.3 from 44.5 in January indicating that inflation pressures are still hanging on. This will put pressure on Fed to continue with rate hikes and it gave a solid boost to USD strength.

ISM services PMI came in at 55.1 vs 54.5 as expected and ticked down from 55.2 in January. Employment index showed a healthy rise and return into expansion. New orders showed a big increase indicating that economy is faster expanding. Prices paid component was down but far less than expected showing that, same as in manufacturing sector, inflation is proving resilient.

The yield on a 10y Treasury started the week and year at around 3.96%,, rose toward 4.09% and finished the week at around the 4% level. The yield on 2y Treasury reached 4.94%. Spread between 2y and 10y Treasuries started the week at -88bp and widened to -89bp. FedWatchTool sees the probability of a 25bp rate hike in March at 73.8% while probability of a 50bp rate hike is at 26.2%.

This week we will have NFP data. Headline number is expected to be around 210k with the unemployment rate rising to 3.6%. Additionally, we will get Fed Chairman Powell testimony in front of the Senate Banking Committee.

Important news for USD:

Friday:​

• NFP​
• Unemployment Rate​

EUR

Sentiment data for the Eurozone in February started to decline. Additionally, January readings were revised down indicating that optimism about Eurozone is starting to wane. Services sentiment dropped to 9.4 from 10.5 the previous month while industrial confidence barely hang above the 0 line with 0.5. On the positive side, consumer confidence improved to -19 from -20.9 the previous month.

French and Spanish inflation readings accelerated in February and contributed to hotter than expected inflation reading for the Eurozone. German inflation came in hotter than expected but unchanged from January. Eurozone inflation came in at 8.5% y/y vs 8.2% y/y as expected, just slightly down from 8.6% y/y the previous month. Core CPI made a sizeable jump as it came in at 5.6% y/y vs 5.3% y/y in January. Markets were already pricing in 50bp rate hike at March meeting, as pre-announced by Lagarde and this will cement it. The door for a surprise 75bp rate hike is opened, but we think it will be a long shot at this moment. Higher for longer scenario is more realistic with rates reaching 4%.

GBP

UK Prime Minister Sunak and EU Commission President von der Leyen outlined a trade deal regarding the situation in Northern Ireland. It has been named Windsor Framework and it will enable smooth transport of goods between Great Britain and the European Union by substantially reducing customs checks. Goods going from Great Britain to Northern Ireland will pass through a “green lane” requiring minimal paperwork and will be labelled “Not for EU”. On the other hand, goods heading for the EU single market in the Republic of Ireland will undergo full EU customs checks in Northern Ireland’s ports under a “red lane.” BOE Governor Bailey was unclear regarding the path of future rate hikes in his latest speech by saying that nothing is decided yet and leaving all options open.

AUD

Q4 GDP posted a big miss as it came in at 0.5% q/q vs 0.8% q/q as expected. Household consumption rose by mere 0.3% while government consumption rose by 0.6%. Net trade was positive with exports rising 1.1% while imports fell -4.3%. On the other hand, both private and public investment decreased.

Monthly CPI reading for the month of January came in at 7.4% y/y vs 8.1% y/y as expected, The print was at 8.4% y/y in December so faster than expected drop may give positive signals that inflation is peaking. Be mindful that this is not a complete reading as it covers around 60% of price changes. Better measure is quarterly print, but this is more timely print. Building permits saw a huge drop in January of 27.6% m/m. Housing is a huge part of Australian economy and with RBA hiking interest rates it is taking its toll on their business. Also, higher input costs are not helping as well.

Official PMI data from China for the month of February came in very strong. Manufacturing was at 52.6, up from 50.1 in January. Services jumped to 56.3 from 54.4 the previous month composite was at 56.4, up from 52.9 in January. Caixin manufacturing PMI returned to expansion in February with a 51.6 print, up from 49.2 the previous month. AUD benefited greatly from improved China data regardless of misses on growth and inflation. ING analyst Iris Pang sees that Chinese authorities will set GDP target at incoming Two Sessions (March 4) in the range of 5.5-6%. High PMI numbers support the case.

This week we will have RBA meeting where a 25bp rate hike is penciled in. We should get messages that inflation is too high and that more rate hikes are needed. We will also have inflation data from China.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision

Thursday:​

• CPI (China)​

NZD

Retail sales for the Q4 came in at -0.6% q/q vs 0.6% q/q in Q3 and -4% y/y vs 4.9% y/y the previous quarter. The biggest decrease was seen in sales at electrical and electronic goods retailing while the biggest increase was seen for food and beverage services. Core retail sales were down -1.3% q/q vs 0.5% q/q in Q3. The massive drop shows that households are struggling to keep up with price increases and that their disposable income is massively falling. Business confidence in February improved to -43.3 from -52 in January. ANZ commented on report “Pricing intentions continue to inch lower but inflation expectations remain stuck around 6%”.

CAD

Canada managed to escape a down quarter with GDP in Q4 coming in flat vs 1.5% q/q as expected. Household consumption was up 0.5% q/q while government consumption was up 0.1% q/q. Net foreign demand contributed positively to GDP with exports growing 0.2% while imports fell 3.2% December monthly reading printed -0.1% m/m. Advanced January GDP reading sees a decent 0.3% m/m print.

This week we will have a BOC meeting. Pause has been telegraphed up front so this will be the base case scenario. We will also get employment data.

Important news for CAD:

Tuesday:​

• BOC Interest Rate Decision​

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

Retail sales in January provided a good beat on the estimates as they came in at 1.9% m/m and 6.3% y/y vs 0.4% m/m and 4% y/y as expected. The biggest increases were seen in general merchandise and food and beverage categories. Industrial production, on the other hand, missed expectations in January as it dropped -4.6% m/m. Q4 CAPEX came in at healthy 7.7% q/q as firms are continuing with investments in plant and equipment.

February CPI data for Tokyo area plunged to 3.4% y/y from 4.4% y/y in January. BOJ members were repeating that inflation is transitory and they must feel vindicated by this report. Ex fresh food component also fell to 3.3% y/y from 4.3% y/y the previous month. On the other hand, ex fresh food, energy (considered a core-core measure) ticked up to 3.2% y/y from 3.1% y/y in January. So inflation may prove to be stickier than expected. The unemployment rate ticked down to 2.4% to the lowest level since February of 2020.

This week we will get a final Q4 GDP reading as well as BOJ meeting where no change to rate or monetary policy will take place as this is Governor Kuroda’s last meeting.

Important news for JPY:

Thursday:​

• GDP​

Friday:​

• BOJ Interest Rate Decision​

CHF

Another week, another decline for SNB total sight deposits which came in for the week ending February 24 at CHF520.7bn vs CHF526.8bn the previous week. Q4 GDP came in flat q/q and up 0.7% y/y vs 0.2% q/q and 0.9% y/y in Q3. The economy grew 2.1% in 2022.

This week we will get inflation data.

Important news for CHF:

Monday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Mar 13 – Mar 17)

ECB meeting, inflation and consumption data from the US will be the highlights of the week ahead of us followed by employment data from Australia and the UK.

USD

Fed Chairman Powell testified in front of the Congress and came out with hawkish message. He stated that terminal rate is likely to be higher than previously expected and that “If totality of incoming data indicates faster tightening is warranted, we are prepared to increase pace of hikes”. He added that there are little signs of disinflation in core services ex housing, that is inflation measure most closely watched by the Fed. Additionally, he stated that “inflationary pressures are running higher than expected at the time of our previous Federal Open Market Committee”. His hawkish comments signal that dot plot will be revised up at the upcoming March 22 meeting. On the second day of his testimony he said that 50bp is not planned at March meeting and that they remain data dependent.

NFP data for February saw headline number come in at 311k vs 205k as expected. This is eleventh straight month that headline number beats expectations. The unemployment rate jumped to 3.6% from 3.4% in January while participation rate ticked up to 62.5%. Average hourly earnings continued to rise 0.2% m/m and 4.6% y/y which was less than 0.3% m/m and 4.7% y/y as expected. Average weekly hours slipped lower as well and the underemployment rate rose to 6.8%. With unemployment rate rising and wages rising slower than expected this will nudge Fed toward the 25bp rate hike.

The yield on a 10y Treasury started the week and year at around 3.95%,, rose toward 4.1% and finished the week at around the 3.75% level. The yield on 2y Treasury reached the 5.1% level post Powell testimony. It was the first time that yield on a 2y note was higher than 5% since 2007. After initial claims, SVB meltdown and NFP the 2y yield fell almost 45bp, well bellow 5%. Spread between 2y and 10y Treasuries started the week at -91bp and widened to -110bp for the highest it has been since 1981. Post NFP report the spread tightened back to -91bp. FedWatchTool sees the probability of a 25bp rate hike in March at 19.2% while probability of a 50bp rate hike jumped to 80.8% post Powell testimony. Post NFP probability of a 25bp rose to 53.1% while probability of a 50bp rate hike fell to 46.9%.

This week we will get inflation and consumption data. Given Powell’s recent comments importance of data points cannot be overstated.

Important news for USD:

Tuesday:​

• CPI​

Wednesday:​

• Retail Sales​

EUR

January retail sales were up 0.3% m/m vs 1% m/m as expected but with December reading being revised up it cam be said that January was in line with expectations. Biggest increase was seen in food, drinks and tobacco while on-line trade posted the biggest decline. Final reading of Q4 GDP for the Eurozone saw it come flat vs 0.1% q/q as reported in the second reading. Downward revisions to German and Irish readings were the main cause. Household consumption saw a biggest negative print since 1999 when the Eurozone started while investment fell 3.5% q/q. Net exports were positive followed by government consumption and inventories. The area managed to barely avoid recession but it did not generate any growth for the entire quarter.

This week we will have ECB meeting where 50bp rate hike is certain. Investors will be watching closely for signs of what ECB will do at their future meetings.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

January GDP reading came in at 0.3% m/m vs 0.1% m/m as expected. A nice beat on a monthly figure was overshadowed by flat figure on 3m/3m basis. Services sector is holding the economy as it grew by 0.5%. Construction sector was particularly weak, dropping by the largest amount in last 6 months (-1.7% m/m).

This week we will have employment data and spring budget on Wednesday.

Important news for GBP:

Tuesday:​

• Claimant Count Change​
• Unemployment Rate​

AUD

RBA delivered another 25bp rate hike as expected and lifted the cash rate to 3.6%. The message was less hawkish than expected as it stated that RBA will continue rate hikes but in assessing how much rates will need to go up the board will closely follow developments in the global economy. Basically, they are moving from strong rate hike path and suitable forward guidance to more data dependent approach. Monthly inflation data suggest that inflation has peaked and central projections are for inflation to come down in this and next year and be around 3% in mid-2025. Governor Lowe stated in a speech that they are getting closer to the point where it will be appropriate to pause rate hikes and that the timing of pause will be determined by incoming data.

Two sessions parliamentary meeting has started over the weekend in China and authorities stated that GDP for 2023 will be around 5%. This is lower than markets were expecting which led to AUD and NZD being taken down on the open. Trade balance surplus for the January-February period increased to $116.8bn but it was done on the back of large drop in imports (-10.2%) indicating a very weak domestic demand. CPI in February more than halved to 1% y/y from 2.1% y/y in January. Expectations were for a rise of 1.9% y/y. PPI also fell and printed -1.4% y/y vs -0.8% y/y the previous month. With inflation declining there will be no obstacles to further monetary stimulus.

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Wednesday:​

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

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

Electronic card retail sales for February were flat m/m and up 11.7% y/y. They comprise almost 70% of total retail sales reading so they are used as a good indicator. January was a nice positive month, but with February being flat we can see another weak quarterly reading as consumption is slowing down.

This week we will have Q4 GDP data.

Important news for NZD:

Wednesday:​

• GDP​

CAD

BOC has left rates unchanged at 4.5%. After a year of rate hikes at every meeting this is the first meeting where no change was made. They concluded that monetary policy is showing effects as it weighs in on household spending and investment and that inflation will come down to 3% by mid-2023. They are moving towards data dependent stance and if data continues to come in as expected by their projections they will keep rates steady. The statement finishes with “Governing Council will continue to assess economic developments and the impact of past interest rate increases, and is prepared to increase the policy rate further if needed to return inflation to the 2% target.” It shows that they are keeping the door open toward future rate hikes if inflation starts increasing.

February employment report brought another, third in a row, beat on the estimates with headline number printing 21.8k jobs added vs 10k as expected. The unemployment rate and participation rate remained unchanged at 5% and 65.7% respectively. All of the jobs added were full-time jobs (31.1k) while part-time jobs saw loses of 9.3k. BOC just paused with rates and wages jumped by 5.4% y/y which will certainly add to inflation pressures. Increasing inflation pressures will force BOC to reconsider their pause stance.

JPY

Over the weekend it was announced that Spring wage negotiations, better known as “Shunto”, will see Japan Trade Unions ask for a pay raise in average of 4.49%. This will be the highest wage increase since 1998. BOJ thinks this will cause demand-pull inflation, which is much more sustainable and stable. Final Q4 GDP reading was revised down to flat q/q from 0.2% q/q as preliminary reported.

Governor Kuroda did not go out with a bang as at the last meeting under his leadership BOJ left the rate and monetary policy unchanged. The statement shows assessment of economy as picking up as pandemic and supply chain issues fade away. Core consumer inflation is seen around 4% and inflation expectations are heightening.

CHF

SNB total sight deposits for the week ending March 3 came in at CHF519.4bn vs CHF520.7bn the previous week. February inflation data came in hotter than expected. Headline number was at 3.4% y/y vs 3.1% y/y as expected and up from 3.3% y/y in January. A 25bp rate hike is penciled in for the March meeting.​

 

[katetrades]

Forex Major Currencies Outlook (Mar 20 – Mar 24)

Fed, BOE and SNB meetings will all deliver rate hikes in the week ahead of us and we will get preliminary March PMI data for the Eurozone and the UK as well as inflation data for Canada.

USD

The US government has guaranteed safety of all deposits in SVB and Signature Bank. They said that this is not a bailout as SVB equity and bond investors will get wiped out, only depositors will be protected. US Treasury announced new Bank Term Funding Program (BTFP) which will allow banks to pledge collateral at par, meaning holdings of long-dated Treasuries or MBS with mark-to-market losses can unlock liquidity based on original value. With Fed hiking interest rates in the past 12 months value of long-dated Treasuries and MBS decreased significantly causing losses and illiquidity. First Republic Bank, another troubled bank, received $30bn in additional funds from a group of 11 big banks with JP Morgan, Citibank, Bank of America and Wells Fargo depositing $5bn each while Goldman Sachs and Morgan Stanley each deposited $2.5bn. Fed document showed that for the week ending on Wednesday March 15, banks borrowed $152.85bn from the lender of last resort which was up from less than $5bn the previous week. The amount borrowed is higher than the previous all-time high of $111bn seen in the 2008.

February inflation report came in at 6% y/y as expected and down from 6.4% y/y in January. Core CPI slipped to 5.5% y/y from 5.6% y/y the previous month. Inflation has been coming down for eighth straight month. Shelter was the biggest contributor as it accounted for over 70% of the increase followed by food prices and energy index. Core services ex. shelter & healthcare rose by 0.8% m/m. Considering falling inflation and potential systematic risks in banking sector Fed will opt for a 25bp rate hike next week.

Retail sales in February declined -0.4% m/m as expected. Retail sales ex autos were down -0.1% m/m while ex autos and gas were flat on the month. A very surprising reading and a positive for the economy was control group, which excludes volatile components such as building materials, gasoline, autos and food service. It rose 0.5% m/m and January reading was revised up to 2.3% m/m from 1.7% m/m.

The yield on a 10y Treasury started the week and year at around 3.7%, rose toward 4.1% and finished the week at around the 3.4% level. The yield on 2y Treasury dropped more than 100bp from last week’s high at 5.08% as it fell to 3.814% and finished the week at around 4.1%. Spread between 2y and 10y Treasuries widened over the weekend and started the week at -75bp then tightened further due to sharp drop in 2y yield to -51bp. It finished the week at around -62bp. FedWatchTool sees the probability of a 25bp rate hike in March at 84.9% while probability of no change is at 15.1%. Probability of a 50bp rate hike is at 0 and it finished the last week at 40%.

This week we will have FOMC meeting. A 25bp rate hike is the most probable outcome. We will get a new Summary of Economic Projections and a revised dot-plot. According to statements from FOMC members that dot-plot will be revised up to show higher terminal rate. Fed members entered a quiet period right as the turmoil in banking sector occurred so we may see some tweaks to the terminal rate.

Important news for USD:

Wednesday:​

• Fed Interest Rate Decision​

EUR

ECB delivered on a 50bp rate hike as announced thus lifting the rate to 3.5%. The statement started with “Inflation is projected to remain too high for too long.” They are switching to data dependent approach with inflationary data and outlook as the main data points. Macroeconomic projections were done prior to the tensions in the financial markets so they should be interpreted with added uncertainty. “ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025.” Core inflation is seen averaging 4.6% in 2023, 2.5% in 2024 and 2.2% in 2025. Growth has been revised to 1% in 2023 due to surrounding uncertainties and is expected to pick up to 1.6% in both 2024 and 2025. APP portfolio will remain declining by €15bn per month until the end of June of 2023.

At the press conference President Lagarde stated that ECB is closely monitoring tensions in the financial markets. She stated that underlying price pressures are staying strong and that wage pressures are gaining strength. Falling energy prices could give a boost to the growth as companies adjust as well. Stronger rebound in China could lead to increase in foreign demand which could also boost growth. She reiterated data dependence stating that it is impossible to determine what the rate path will be. The decision at ECB meeting was adopted by very large majority of members.

This week we will have preliminary March PMI data.

Important news for EUR:

Friday:​

• 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

February payroll change came in at 98k vs 42k in January. ILO unemployment rate for January remained at 3.7% while employment change for 3 months leading to January rose by 65k. Wages are still elevated but came in weaker than compared to the previous month (5.7% 3m/y vs 6% 3m/y for average weekly earnings and 6.5% 3m/y vs 6.7% 3m/y when bonus is excluded). The report underscores tightness in labor market. Even though nominal wages are high, high inflation is keeping real wages in negative territory. Real wages for total pay fell 3.2% 3m/y for the biggest decline since 2009.

This week we will have inflation data, BOE meeting and preliminary March PMI readings. Base case for BOE is still a 25bp rate hike but with the fallout of SVB and wages coming down there is a rise in probability of a no-change.

Important news for GBP:

Wednesday:​

• CPI​

Thursday:​

• BOE Interest Rate Decision

Friday:​

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

AUD

After couple of months of weak employment reports, February jobs report smashed expectations along all of the major components. Employment change came in at 64.6k vs 48.5k as expected. The unemployment rate ticked down to 3.5% while participation rate ticked up to 66.6%. The economy added 74.9k full-time jobs while part-time jobs declined by 10.3k. Majority of declines in part-time jobs can be attributed to their move to full-time jobs which is a great sign for the economy. Underemployment and underutilization declined to their historic lows. Due to the issues with the banking sector around the globe RBA will not feel forced to raise rates at their April meeting but this report underscores how tight labour market in Australia is.

China has cut RRR rate by 25bp in order to stimulate economy. RRR now stands at 10.75%, The cutting of RRR releases huge amount of liquidity in the system which should help cushion it from the turmoil that catches banking system around the world. The cut should also allow easier access to credit.

NZD

Q4 GDP went into negative for the quarter as it printed -0.6% q/q and 2.2% y/y. Q3 reading was revised down to 1.7% q/q from 2% q/q adding more to the weak reading. Digging into details we can see that consumption was flat while investment dropped. Finance minister Robinson stated that despite poor Q4 reading economy remains resilient. Probability of a 25bp rate hike in April is increasing as markets price out another 50bp rate hike and it can be seen in NZD weakening.

CAD

Wholesale sales for January came in at 2.4% m/m, up from -0.7% m/m in December. The increase showed higher sales in the machinery, equipment and supplies and food, beverage, & tobacco products. The declines were seen in motor vehicles & motor vehicle parts & accessories. Housing starts rebounded in February and rose by 244k, up from 215.4k in January.

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI

JPY

Core machinery orders, a good proxy for CAPEX 6-9 months down the line, rebounded heavily in January and printed 9.5% m/m and 4.5% y/y. Japan Center for Economic Research now estimates that wage hikes for this year will be at 3.05% which is up from 2.85% seen in January. This will be the highest yearly increase since 1997. Higher wages should lead to higher consumption and a demand-pull inflation which is much more sustainable and easier to manage.

CHF

SNB total sight deposits for the week ending March 10 came in at CHF510.8bn vs CHF519.4bn the previous week. After a hot CPI reading previous week SNB is selling USD and EUR and buying CHF in order to prop up Swissy strength and keep inflation in check.

Credit Suisse was in trouble this week. Their main shareholder declined to add more financial assistance to the bank and it led to Credit Suisse CDS shooting up higher on concerns that it will be the next bank to go bust. Their stock fell 20%. Later in the week it was announced that bank will borrow CHF50bn from the SNB thus effectively getting a bailout from the central bank.

This week we will have SNB meeting. There is a consensus of a 50bp rate hike in order to subdue rising inflation.

Important news for CHF:

Thursday:​

• SNB Interest Rate Decision​

 

[katetrades]

Forex Major Currencies Outlook (Mar 27 – Mar 31)

Inflation data from the US and the EU will be highlights of the rather quiet week as markets digest latest central bank meetings.

USD

On late Sunday afternoon Fed has announced that they will be improving effectiveness of USD funding abroad by allowing swap facilities to be used daily instead of weekly. “These swap facilities are designed to improve liquidity conditions in global money markets…” Existing home sales in February jumped to 4.58m from 4m in January. They have been falling for twelve consecutive months and as the mortgage rates start coming down the trend will reverse.

Fed has delivered another 25bp rate hike as widely expected and thus lifted the rate to 4.75-5% range. The statement showed that Fed will now switch fully to data dependent mode. The reference to “ongoing increases” in rates was omitted and switched with “some additional policy firming may be appropriate". The accompanying Summary of Economic Projections saw median rate for the end of 2023 unchanged at 5.1%. 2024 rate was revised up to 4.3% from 4.1% while rate for the end of 2025 was kept at 3.1%. Both headline and core PCE inflaton for 2023 were moved higher while GDP and the unemployment rate were moved lower.

Chairman Powell has started the press conference by saying that inflation is too high adding that they will need to closely monitor banking conditions as well as that they have the tools to deal with the issue. In the Q&A section he stated that FOMC members thought they will need a higher terminal rate couple of weeks ago. He acknowledged that crisis in the banking sector could have effects as a rate hike. This means that due to potential bank runs banks will limit loans/credit creation and thus sack the liquidity from the market, creating tighter monetary conditions, which is what Fed is doing with rate hikes. Powell was adamant that there will be no rate cuts.

The yield on a 10y Treasury started the week and year at around 3.45%, rose toward 3.6% and finished the week at around the 3.4% level. The yield on 2y Treasury reached at around 4.15% and then fell sharply post-FOMC to around 3.55%. Spread between 2y and 10y Treasuries tightened over the weekend and started the week at -36bp then widened further to -55bp, tightened again post-FOMC to -36bp. FedWatchTool sees the probability of no change in May at 85% while probability of a 25bp hike is at 15%.

This week we will get Fed’s preferred inflation measure.

Important news for USD:

Friday:

• PCE

EUR

ZEW survey for the month of March showed first declines in four months. Current conditions declined to -46.5 from -45.1 in February while outlook for Germany dropped to 13 from 28.1 the previous month. Outlook for the Eurozone also plunged printing 10, down from 29.7 in February. Turmoil in financial system is destroying optimism among financial participants and it is clearly reflected in this survey.

Preliminary March PMI data for the Eurozone saw further declines in manufacturing sector as headline number printed 47.1, down from 48.5 in March. The reading was dragged down by the weak German sector while French sector posted a small improvement. Services sector, on the other hand, posted a healthy rebound with 55.6, up from 52.7 in February and thus lifted composite to 51. from 52 the previous month. This now makes a new ten-month high in composite reading. Inflationary pressures have continued to moderate.

This week we will have preliminary March inflation data.

Important news for EUR:

Friday:

• CPI

GBP

Inflation in the UK for the month of February accelerated, thus braking the three consecutive months of declines, and remained in double digits as it came in at 10.4% y/y vs 10.1% y/y in January. Expectations were for a drop to 9.9% y/y. Restaurants and cafes, food, and clothing showed the biggest jump in prices while prices for recreational and cultural goods and services and motor fuels declined on the month. Core CPI reading is very concerning as it came in at 6.2% y/y vs 5.7% as expected and up from 5.8% y/y the previous month.

BOE has decided to hike interest rate by 25bp to the 4.25% level. The vote was split 7-2 with two members, Tenreyro and Dhingra, voting to keep rate unchanged. Inflation has unexpectedly turned higher but according to bank’s projections it will fall significantly in Q2 of 2023. Fiscal support should add 0.3% to the GDP. The statement shows “The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.” BOE is turning to data dependent mode as well. Governor Bailey added that they are not certain yet if 4.25% will be the peak in rates. Currently the markets are pricing a 50/50 chance of another 25bp rate hike in May.

Consumption data showed a nice improvement as headline retail sales rose 1.2% m/m while core retail sales rose 1.5% m/m. The details are less rosy with headline retail sales getting a boost from sales at non-food stores such as discount department stores, clothing, second-hand goods stores, such as auction houses and charity shops. Preliminary PMI data in March showed slowdown across the economy. Manufacturing declined further into restriction territory followed by services who are still hanging in expansion at 52.8 which managed to keep composite reading at 52.2.

AUD

Minutes from the latest RBA meeting showed that the Board agreed to reconsider case for pausing at April meeting as pausing would allow time to reassess the outlook for the economy. They are watching data on jobs, inflation, retail sales, business surveys, global developments. Current assessment is that inflation is too high, labour market is tight and business surveys are solid. Recent data were beyond expectations. AUD was sent lower by this as markets are pricing out further rate hikes and pricing in pause from RBA.

After last week’s surprising RRR cut PBOC decided to leave LPR rates unchanged. LPR for 1-year is at 3.65% and this rate is used for a great majority of new and outstanding loans. LPR 5-year is at 4.30% and this rate is used for mortgages, great majority of mortgages are based on a 5-year LPR.

NZD

Westpac quarterly consumer confidence printed 77.7 in Q1, a nice jump from 75.6 in Q4 of 2022. RBNZ speakers were adamant stating their intent to fight against inflation, to bring it down from very high levels. Chief economist Conway added that if inflation expectations do not fall they will be forced to do more.

CAD

February inflation report saw CPI fall more than expected. Headline number came in at 5.2% y/y vs 5.4% y/y as expected and down from 5.9% y/y in January. Food prices were the biggest contributor as they rose by 10.6% y/y. This is the seventh consecutive month of reading printing in double digits. Energy prices declined with gasoline prices leading the way (-4.7% y/y). All of the core readings declined with median coming in at 4.9% y/y vs 5% y/y, trimmed at 4.8% y/y vs 5.1% y/y and common at 6.4% y/y vs 6.6% y/y the previous month. BOC is the first central bank that halted rate hiking cycle and with inflation continuing to fall combined with banking woes around the globe it is very likely that current rate level of 4.5% will represent terminal rate. Additionally, the new move in rate hikes seems to be tilted toward a rate cut.

JPY

February inflation data for the entire country of Japan showed slowdown similar to numbers from Tokyo area. Headline number came in at 3.3% y/y vs 4.3% y/y in January. Ex fresh food category fell to 3.1% y/y from 4.2% y/y the previous month. CPI ex fresh food and energy came in higher then expected at 3.5% y/y vs 3.2% y/y in January. This is a new 40-year high and it showcases that inflationary pressures are stickier than BOJ thought and hoped for. Preliminary March PMI data showed continued improvement along the sectors with manufacturing coming in at 48.6 vs 47.7, services at 54.2 vs 54 and composite at 51.9 vs 51.1 the previous month.

CHF

SNB total sight deposits for the week ending March 17 came in at CHF515.1bn vs CHF510.8bn the previous week. A rare jump in the sight deposits whose trend in last 6 months is clearly to the downside. It is yet to be seen if this is a one-off or beginning of a reversal in trend.

Over the weekend Switzerland’s biggest bank UBS has purchased distressed Credit Suisse bank. The move should bring some peace in the financial markets which are in turmoil after collapse of SVB and Signature banks. The deal is worth around CHF3bn and it will not require approval of shareholders as Swiss government decided to change laws in order to facilitate the deal coming through.

SNB has delivered a 50bp rate hike thus lifting the rate to 1.5%. The main goal of rate hike is to subdue renewed increase in inflationary pressures which are characterized as broad-based. Additional rate hikes cannot be ruled out and bank remains ready to intervene in the financial markets if the need arises. “The new forecast puts average annual inflation at 2.6% for 2023, and 2.0% for 2024 and 2025”. GDP is seen increasing by around 1% in 2023.