Monday

Over the weekend ECB’s Panetta (dove – voter) said that he prefers to cut rates earlier and gradually then risking waiting more and ending up cutting more aggressively:

• The time for interest rate cut is fast approaching.
• What should be discussed now are the conditions to start monetary easing, while avoiding risks to price stability and unnecessary damage to the real economy.
• Says the policy board will need to consider the pros and cons of cutting interest rates quickly and gradually, as opposed to later and more aggressively, which could increase volatility in financial markets and economic activity.
• Any speculation on the exact timing of monetary easing would be a sterile exercise.
• Inflation is falling as quickly as it rose.
• Strong growth in nominal wages are being offset by declines in other costs to firms.
• Doesn't see a high risk of inflation impacts from Red Sea issues but acknowledged the risk of further escalation in the region.

ECB’s Cipollone (dove – voter) said that there’s “no need for monetary policy to generate further slack to keep inflation in check with demand weak and inflation expectations anchored”. The doves are starting to be more vocal recently.

ECB’s Wunsch (hawk – non voter in March) struck a more neutral tone around the rate cuts expectations and the inflation outlook:

• There is some value to waiting, but it's not like by waiting so many days or weeks or months that we will know everything precisely.
• At some point it becomes a trade-off between the value of continuing to wait and the fact that the economy is not very strong, and that inflation momentum is going down.
• I don't think the risks are that big either way.
• Costs of waiting low because the market is already pricing in cuts.
• The risks on the inflation front are by now quite limited.
• My point is that we're not going to wait - just to exaggerate - a whole year to have absolute certainty about wages.
• At some point we are going to have to decide on the basis of the information we have whether we cut, or we don't cut.

The New York Fed released the monthly consumer inflation expectations data:

• 1-year inflation seen at 3.0% vs. 3.0% prior.
• Three year inflation seen at 2.4% vs. 2.6% prior.
• Five year inflation seen at 2.5% vs. 2.5% prior.
• Median expected home price change 3.0% vs. 3.0% prior.
• Feed rise expected lowest since March 2020.
• Gasoline price expected lowest since Dec 2022.

Tuesday

RBA’s Kohler talked about her views on the current state of the Australian economy:

• Inflation coming down but still too high.
• It will take some time for inflation to get back within the 2-3% target range.
• Expect it to return to target range in 2025, and to the midpoint in 2026.
• Services inflation high and broadly based, likely to decline only gradually.
• Expect economic growth to remain subdued in the near term.
• High inflation, higher tax payments and interest rates have significantly reduced household incomes.
• Most labour market indicators still look ‘tight’ relative to historical norms.
• Seeing signs of easing wage pressures in some industries, particularly in business services.
• Expect much of adjustment in labour market to happen via drop in average hours worked.

The Japanese January PPI missed expectations:

• PPI M/M 0.0% vs. 0.1% expected and 0.3% prior.
• PPI Y/Y 0.2% vs. 0.1% expected and 0.2% prior (revised from 0.0%).

The UK December Labour Market report beat expectations across the board:

• January payrolls change 48K vs. 31K prior (revised from -24K).
• December Unemployment Rate 3.8% vs. 4.0% expected and 3.9% prior.
• December employment change 72K vs. 73K expected and 73K prior.
• December average weekly earnings 5.8% vs. 5.6% expected and 6.7% prior (revised from 6.5%).
• December average weekly earnings (ex bonus) 6.2% vs. 6.0% expected and 6.7% prior (revised from 6.6%).

The Switzerland January CPI missed expectations by a big margin:

• CPI Y/Y 1.3% vs. 1.7% expected and 1.7% prior.
• Core CPI Y/Y 1.2% vs. 1.5% prior.

The German February ZEW missed expectations:

• ZEW -81.7 vs. -79.0 expected and -77.3 prior.
• Expectations 19.9 vs. 17.5 expected and 15.2 prior.

The US January NFIB Small Optimism Index fell back below 90:

• NFIB 89.9 vs. 91.9 prior.

The US January CPI beat expectations across the board with Powell’s preferred measure posting the biggest rise since April 2022:

• CPI Y/Y 3.1% vs. 2.9% expected and 3.4% prior.
• CPI M/M 0.3% vs. 0.2% expected and 0.2% prior.
• Core CPI Y/Y 3.9% vs. 3.8% expected and 3.9% prior.
• Core CPI M/M 0.4% vs. 0.3% expected and 0.3% prior.
• Core Services ex-Housing M/M 0.85%.
• Real weekly earnings -0.3% vs. -0.2% prior.

ECB’s Lane (dove – voter) didn’t say anything new as he just reaffirmed data dependency:

• Next move is a rate cut but timing will depend on data.
• We are moving in the right direction in reducing inflation, price trend is good.
• Our aim is to bring inflation to our 2% target.
• It would be a risk to embark on rate cuts too early or too late.
• The amount of interest rate cuts will depend on how we achieve towards our price goal. We will see how far we go.

Wednesday

The UK January CPI missed expectations across the board:

• CPI Y/Y 4.0% vs. 4.2% expected and 4.0% prior.
• CPI M/M -0.6% vs. -0.3% expected and 0.4% prior.
• Core CPI Y/Y 5.1% vs. 5.2% expected and 5.1% prior.
• Core CPI M/M -0.9% vs. -0.8% expected and 0.6% prior.
• Services inflation Y/Y 6.5% vs. 6.4% prior.

ECB’s de Guindos (neutral – voter) stressed about being patient on the rate cuts side as the central bank is waiting for more information before taking such an important step:

• Disinflation process is continuing.
• While we are heading in the right direction, we must not get ahead of ourselves.
• It will take some more time before we have the necessary information.
• Wage pressures remain high, and we do not yet have sufficient data to confirm they are starting to ease.

The Eurozone December Industrial Production beat expectations by a big margin:

• Industrial Production M/M 2.6% vs. -0.2% expected and 0.4% prior (revised from -0.3%).
• Industrial Production Y/Y 1.2% vs. -4.1% expected and -5.4% prior (revised from -6.8%).

Fed’s Goolsbee (dove – non voter) shared his views on the hot US CPI report and, although it was a surprise for him, he still expects the disinflationary trend to continue:

• Even if inflation comes in a bit higher, it's still consistent with path.
• I don't support waiting until inflation is at 2% on a 12-month basis before cutting.
• Rate cuts should be tied to confidence in being on a path towards our target rate.
• I expect improvements in housing services inflation to resume.
• CPI data yesterday was puzzling, is something I am watching.
• Current policy stance is quite restrictive.
• Supply side may continue to help us this year.
• Higher productivity, if continued, would have profound implications for policymakers.

BoE’s Bailey (neutral – voter) stressed once again that the central bank will remain patient on the policy stance as services inflation continues to be high:

• We are seeing signs of pay growth coming down.
• Latest wage data showed quite a marked reduction but not as far as we thought.
• Services inflation not compatible with 2% inflation.
• We have moved from how restrictive policy needs to be to for how long we need to maintain policy stance.
• Latest inflation data is good news, shows more downward pressure than we expected.
• This week's data does not really change our view from Feb policy decision.
• Downward pressure on inflation quite broad based.
• We are now seeing signs of the beginning of a growth pickup.
• I am quite sceptical about forward guidance and trying to guide market expectations.
• Forward guidance tends to overstay its welcome.
• Staff believe we're about 70% through the transmission of monetary policy.
• We are seeing an uptick in loan impairments but compared to history, this is nothing.
• What happens to inflation in the spring is not what will determine the stance of monetary policy.

Fed’s Barr (neutral – voter) supports the patient approach on policy normalisation as he wants to see more data before starting to cut rates:

• FOMC confident’ it is on path to 2% inflation.
• Need to see continued good data before beginning rate cuts.
• Fully support ‘careful’ approach to policy normalization.
• January CPI report a reminder that path to 2% inflation may be bumpy.
• Banking system sound, resilient; pockets of risk include some office commercial real estate.
• No signs of liquidity problems across financial system; monitoring conditions carefully.
• Fed balance sheet rundown operating smoothly, reserves are plentiful.
• ‘Sizable’ overnight reverse repos a ‘buffer’; pleased at steady growth in signups for standing repo facility.
• FOMC plans in-depth discussions of balance sheet issues ‘soon’.
• January data was stronger than expected for both jobs and inflation.
• Fed is looking at "totality" of the numbers.
• Lack of historical parallels makes current monetary policy decisions "difficult."
• Data suggest Fed is on a "good path," but still early to say there will be a soft landing.
• Still an imbalance between housing supply and demand.
• High interest rates are dampening both sales and purchases of existing homes.
• BTFP was successful in ensuring bank liquidity at a moment of stress.
• Not seeing liquidity pressures in the banking system today.
• CRE pressures seen today are more "old fashioned" risk banks typically face.
• CRE pressures are acute in offices in certain business districts.
• There will be price compression and losses on CRE, but don't expect acute pressure on banks.

Thursday

RBA’s Bullock didn’t add anything new as the central bank maintains its patient stance:

• Global economy held up better than initially expected.
• Had been worried about hard landings and recessions.
• In a good position to get inflation down in a reasonable amount of time.
• Inflation is being persistent, particularly in services, but it’s coming down.

The Australian January Labour Market report missed expectations across the board:

• Employment Change 0.5K vs. 30K expected and -62.8K prior (revised from -65.1).
• Unemployment Rate 4.1% vs. 4.0% expected and 3.9% prior.
• Participation Rate 66.8% vs. 66.9% expected and 66.8% prior.
• Full-time employment 11.1K vs. -109.5K prior (revised from -106.6K).
• Part-time employment 10.6K vs. 46.7K prior (revised from 41.4K).

The Japanese Q4 GDP missed expectations triggering a technical recession:

• GDP Q4 Q/Q -0.1% vs. 0.3% expected and -0.8% prior (revised from -0.7%).
• GDP Q4 Annualised -0.4% vs. 1.4% expected and -3.3% prior (revised from -2.1%).
• Japan Q4 GDP shows private consumption down for third straight quarter.
• Japan Q4 GDP shows capex down third straight quarter.
• Japan Q4 GDP shows exports up for third straight quarter.

The UK Q4 GDP missed expectations triggering a technical recession:

• GDP Q4 Q/Q -0.3% vs. -0.1% expected and -0.1% prior.
• GDP Q4 Y/Y -0.2% vs. 0.1% expected and 0.2% prior (revised from 0.3%).
• GDP M/M -0.1% vs. -0.2% expected and 0.2% prior (revised from 0.3%).

ECB’s Lagarde (neutral – voter) continues to push back against aggressive rate cuts expectations:

• We will continue to follow a data-dependent approach.
• Incoming data continues to signal subdued activity in the near-term.
• But information was broadly in line with December assessment.
• Current disinflation process expected to continue.
• But we need to be confident that it will lead us to sustainably hit 2% inflation target.
• ECB's forward-looking wage tracker continues to signal strong wage pressures.
• The last thing I want is a hasty decision only for inflation to rise again.
• There is not enough evidence yet on inflation returning to 2% target.

The US January Retail Sales missed expectations across the board by a big margin:

• Retail Sales M/M -0.8% vs. -0.1% expected and 0.4% prior (revised from 0.6%).
• Retail Sales Y/Y 0.6% vs. 5.3% prior (revised from 5.6%).
• Ex-autos M/M -0.6% vs. 0.2% expected and 0.4% prior.
• Control group -0.4% vs. 0.3% expected and 0.6% prior (revised from 0.8%).
• Retail sales ex gas and autos M/M -0.5% vs. 0.6% prior.

The US Initial Claims beat expectations while Continuing Claims missed:

• Initial Claims 212K vs. 220K expected and 220K prior (revised from 218K).
• Continuing Claims 1895K vs. 1880K expected and 1865K prior (revised from 1871K).

BoE’s Greene (hawk – voter) wants to see more signs that persistence of inflation is not embedded:

• Market expectations on rates are pricing in cuts for UK but I would need to see more signs that persistence of inflation is not embedded.
• Have not seen signs of inflation expectations becoming de-anchored in UK.
• Productivity gains from innovations such as AI could come through with a lag.

The US January Industrial Production missed expectations:

• Industrial Production M/M -0.1% vs. 0.3% expected and 0.0% prior (revised from 0.1%).
• Industrial Production Y/Y 0.0% vs. 1.2% prior (revised from 1.0%).
• Capacity Utilization 78.5% vs. 78.8% expected and 78.7% prior (revised from 78.6%).

The US February NAHB Housing Market Index beat expectations:

• NAHB 48 vs. 46 expected and 44 prior.
• Single family 52 vs. 48 prior.
• Next six months 60 vs. 57 prior.
• Traffic of prospective buyers 33 vs. 29 prior.

BoE’s Mann (uber hawk – voter) wants to see the next inflation report before deciding the next move:

• GDP is backwards looking; forward-looking data all look good.
• Latest GDP data confirms my view that H2 would be a soft patch.
• UK unemployment rate is 'pretty low', market continues to be tight, which is reflected in wage data.
• Will get another data print on inflation and look at that before deciding next move.
• Wage growth is slowing but pace remains challenging.
• Goods inflation has slowed dramatically.
• Services prices are stickier in the UK than in the US or eurozone.
• There is a lot of inertia in all the components that drive services inflation.
• Firms in UK have strong pricing power across a range of services categories, may want to rebuild profit margins.

RBNZ’s Orr didn’t offer anything new on the monetary policy front:

• A flexible approach to inflation targeting, with a medium-term focus remains appropriate.
• Bringing levels of core inflation in line with our 1 to 3% target is an important part of bringing inflation back to 2% midpoint.
• Removal of the MSE objective does not mean any big changes to our monetary policy strategy.

Friday

The New Zealand Manufacturing PMI improved in January although it remains in contraction:

• Manufacturing PMI 47.3 vs. 43.1 prior.

Fed’s Bostic (neutral – voter) continues to support a patient approach given the economic data in the last few weeks although he’s not placing too much weight on the hot January CPI report:

• Fed does not face urgency to cut rates given current economy.
• Strong economy argues for patience in adjusting monetary policy.
• Fed likely to soon contemplate cutting rates.
• Inflation likely to decline more slowly than markets expect.
• Fed has made solid progress in lowering inflation.
• U.S. economy is in a ‘good spot’.
• Unlikely January CPI signals big change in trend of weakening inflation.
• Sees case U.S. economy less sensitive to interest rate changes.
• ‘Fight is not finished’ on getting inflation back to 2%.
• Job market is remarkably strong.
• Overall economic risks have become more balanced.
• Expect more progress on inflation but could be bumpy.
• If inflation retreats faster, will change my mind on rates outlook.
• More balance sheet cuts are supported by market liquidity remaining robust.
• Has two rate cuts in his 2024 forecast.
• Pleased by the evolution of inflation expectations.
• Number one job remains getting inflation back to 2%.

BoJ’s Ueda didn’t add anything new to the policy outlook:

• When sustained, stable achievement of the price target comes into sight, we will examine whether to maintain various easing measures, including negative interest rate.
• The specific means of rolling back stimulus will depend on economic conditions at the time.
• Based on the economic and price outlook as of now, Japan's monetary conditions will likely remain accommodative even after ending negative rates.
• Labour market remains tight.
• That will likely see firms pass on rising costs via price rises.
• Expect wages to rise slightly more than inflation forecast of 1.8% for fiscal year 2025.
• Want to get confirmation of virtuous cycle of wages and prices strengthening.

ECB’s Villeroy (neutral – voter) is debating when to start cutting rates:

• There is still the question of exact timing for rate cut.
• Several reasons as to why we should not wait too long before first rate cut.
• The principle of a rate cut this year seems to be a given.
• We have significant margin to manoeuvre on rate cuts without necessarily having to return to accommodative monetary policy.

The UK January Retail Sales beat expectations across the board by a big margin:

• Retail Sales M/M 3.4% vs. 1.5% expected and -3.3% prior (revised from -3.2%).
• Retail Sales Y/Y 0.7% vs. -1.4% expected and -2.4% prior.
• Retail sales (ex autos, fuel) M/M 3.2% vs. 1.7% expected and -3.5% prior (revised from -3.3%).
• Retail sales (ex autos, fuel) Y/Y 0.7% vs. -1.6% expected and -2.1% prior.

ECB’s Schnabel (neutral – voter) continues to support her patient approach:

• We must be cautious not to adjust policy stance prematurely.
• Monetary policy needs to remain restrictive until we can be confident that inflation will sustainably return to our medium-term target.
• Persistently low productivity growth increases the risk that firms may pass higher wage costs on to consumers, which could delay inflation goal timing.

The US January PPI beat expectations across the board by a big margin:

• PPI M/M 0.3% vs. 0.1% expected and -0.1% prior.
• PPI Y/Y 0.9% vs. 0.6% expected and 1.0% prior.
• Core PPI M/M 0.5% vs. 0.1% expected and -0.1% prior.
• Core PPI Y/Y 2.0% vs. 1.6% expected and 1.7% prior (revised from 1.8%).
• PPI ex food and energy/trade M/M 0.6% vs. 0.2% prior.
• PPI ex food and energy/trade Y/Y 2.6% vs. 2.5% prior.

The US January Housing Starts and Building Permits missed expectations:

• Housing starts 1.331M vs. 1.460M expected and 1.562M prior (revised from 1.460M).
• Housing starts M/M -14.8% vs. 3.3% prior (revised from -4.3%).
• Building permits 1.470M vs. 1.509M expected and 1.493M prior.
• Building permits M/m -1.5% vs. 1.9% prior.

The February University of Michigan Consumer Sentiment survey missed expectations slightly:

• Consumer Sentiment 79.6 vs. 80.0 expected and 79.0 prior.
• Current conditions 81.5 vs. 81.9 prior.
• Expectations 78.4 vs. 77.1 prior.
• One-year inflation 3.0% vs 2.9% prior.
• Five-year inflation 2.8% vs 2.8% prior.

The highlights for next week will be:

• Monday: PBoC MLF, Canada PPI.
• Tuesday: RBA Meeting Minutes, PBoC LPR, Canada CPI, New Zealand PPI.
• Wednesday: Australia Wage data, FOMC Meeting Minutes.
• Thursday: Australia/Japan/Eurozone/UK/US Flash PMIs, Canada Retail Sales, US Jobless Claims, New Zealand Retail Sales.
• Friday: German IFO.

That’s all folks. Have a nice weekend!