Monday

ECB’s de Cos (dove – voter) over the weekend reiterated the willingness of the ECB to start cutting rates in June:

• If our macroeconomic forecasts are met in the coming months, it is normal that we will start cutting rates soon and June could be a good date to start.
• Current degree of consensus is very high, and I hope this will continue to be the case.

The New Zealand Services PMI improved further in February:

• Services PMI 53.0 vs. 52.2 prior (revised from 52.1).

BNZ comment:

• “When we combine the PMI and PSI together to get an indicator of activity, there is a strong suggestion of growth returning later this year. The turnaround occurs a little stronger and earlier than we are forecasting but, whatever the case, it is a heartening sign”.

The Chinese February Industrial Production beat expectations by a big margin:

• Industrial Production Y/Y 7.0% vs. 5.0% expected and 6.8% prior.

The Chinese February Retail Sales beat expectations:

• Retail Sales Y/Y 5.5% vs. 5.2% expected and 7.4% prior.

The Chinese Unemployment Rate increased to 5.3% vs. 5.2% prior.

The Canadian February PPI beat expectations by a big margin:

• PPI M/M 0.7% vs. 0.1% expected and -0.1% prior.
• PPI Y/Y -1.7% vs. -2.9% prior.
• Raw materials prices M/M 2.1% vs. 0.8% expected and 1.2% prior.
• Raw materials prices Y/Y -4.7% vs. -6.5% prior.

The US NAHB Housing Market Index increased further in March:

• NAHB 51 vs. 48 expected and 48 prior.

Details:

• Single family 56 vs. 52 prior.
• Next six months 62 vs. 60 prior.
• Traffic of prospective buyers 34 v.s 32 prior.

ECB’s Centeno (dove – voter) continues to support a rate cut in June:

• Cutting rates may help prevent a recession.

Tuesday

The RBA left the Cash Rate unchanged at 4.35% as expected dropping the tightening bias:

• Board remains resolute in its determination to return inflation to target.
• Inflation continues to moderate but remains high.
• Recent information suggests that inflation continues to moderate.
• Services inflation remains elevated and is moderating at a more gradual pace.
• Board is not ruling anything in or out on interest rates.
• The data are consistent with continuing excess demand in the economy and strong domestic cost pressures, both for labor and non-labor inputs.
• Higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy.
• The board expects that it will be some time yet before inflation is sustainably in the target range.
• Accordingly, conditions in the labor market continue to ease gradually, although they remain tighter than is consistent with sustained full employment and inflation at target.
• While recent data indicate that inflation is easing, it remains high. While there are encouraging signs that inflation is moderating, the economic outlook remains uncertain.

Moving on to the Governor Bullock’s Press Conference:

• We're making progress in fight against inflation.
• But inflation remains high.
• Recent data suggests we're on the right track.
• We need greater confidence in seeing inflation return to target in a reasonable timeframe.
• Risks to the outlook are finely balanced.
• It is too soon to rule anything in or out.
• We have changed language on guidance based on data.
• Not confident enough to say that we can rule out certain interest rate changes.
• But we are on the path to achieving goals set out on the inflation front.
• We are responding to data as the data comes out.
• On the one hand, we still have inflation above target.
• Services inflation is still elevated.
• On the other hand, we are conscious that consumption is slowing.
• And also tightness in labour market conditions is easing.
• We can't rule anything in or out.
• Need to be much more confident on inflation coming down to consider a rate cut.

The BoJ has finally exited the negative interest rates policy hiking rates by 10 bps to 0.00-0.10% as expected. Moreover, the central bank scrapped the yield curve control and ETF purchases while maintaining QE:

• Short-term policy rate at around 0.00% to 0.10%.
• Voting majority of 7-2 on interest rates (Asahi and Toyoaki dissented).
• Upper bound of 1% on 10-year JGB yields removed i.e. yield curve control scrapped.
• To continue JGB purchases with broadly same amount as before.
• In case of rapid rise in yields, BoJ will make nimble response such as increasing JGB purchases.
• Voting majority of 8-1 on JGB purchases (Toyoaki dissented).
• To discontinue purchases of ETFs and J-REITs.
• To gradually reduce corporate bond purchases and discontinue them in about one year.
• Voting was unanimous on discontinuing ETF purchases.
• Japanese economy has recovered moderately, although some weakness has been seen in part.
• It is highly likely wages will continue to increase steadily this year.
• Virtuous cycle between wages and prices has become more solid amid recent data.
• BoJ judges it came in sight that price stability target would be achieved in a sustainable and stable manner towards the end of the projection period as outlined in January outlook report.

Moving on to the Governor Ueda’s Press Conference:

• We will carry out 'regular' monetary policy.
• Not thinking of a name for new policy framework, since it is a 'regular' setting.
• We will set short-term interest rates just like any other central bank.
• Interest rate levels will be determined by markets.
• Accommodative conditions remain in place and will firmly underpin economy, prices.
• Will consider options for easing policy if needed, including ones used in the past.
• There is still a distance to 2% price target when looking at inflation expectations.
• The pace of further rate hikes depends on economy, price outlook.
• We will consider reducing JGB purchases at some point in the future.
• Likelihood of achieving 2% price target is rising but still not 100% guaranteed.
• We are at a phase where we can slowly proceed with possible rate hikes.
• If wage hike trend broadens, it is a consideration for further policy decisions.
• For now, not necessarily confident enough that wages at smaller firms will rise.

ECB’s de Guindos (neutral – voter) said that he’s ready to discuss a rate cut in June but the evolution of wage growth for him is key:

• Ready to discuss rate cut in June.
• We haven't yet discussed anything about future rate moves.
• We need to gather more information.
• We are data-dependent.
• Evolution of wages is key.
• In June, we will have our new projections and we will be ready to discuss this.

The Canadian February CPI missed expectations across the board by a big margin:

• CPI Y/Y 2.8% vs. 3.1% expected and 2.9% prior.
• CPI M/M 0.3% vs. 0.6% expected and 0.0% prior.
• Core CPI Y/Y 2.1% vs. 2.4% prior.
• Core CPI M/M 0.1% vs. 0.1% prior.
• Trimmed Mean CPI Y/Y 3.2% vs. 3.4% prior.
• Median 3.1% vs. 3.3% prior.
• Common 3.1% vs. 3.3% prior (revised from 3.4%).

The US February Housing Starts and Building Permits beat expectations:

• Housing Starts 1521M vs. 1425M expected and 1374M prior (revised from 1331M).
• Housing Starts M/M 10.7% vs. -12.3% prior (revised from-14.8%).
• Building Permits 1518M vs. 1495M expected and 1489M prior.
• Building Permits M/M 1.9% vs. -0.3% prior.

ECB’s Kazaks (hawk – voter) is supporting the current market expectations:

• Comfortable with current market pricing on rates.
• It will take some time to get to neutral rate.

Wednesday

The PBoC left the LPR rates unchanged as expected:

• LPR 1 year 3.45%.
• LPR 5 year 3.95%.

The UK February CPI missed expectations across the board:

• CPI Y/Y 3.4% vs. 3.5% expected and 4.0% prior.
• CPI M/M 0.6% vs. 0.7% expected and -0.6% prior.
• Core CPI Y/Y 4.5% vs. 4.6% expected and 5.1% prior.
• Core CPI M/M 0.6% vs. 0.7% expected and -0.9% prior.
• Services Inflation 6.1% vs. 6.0% expected and 6.5% prior.

ECB’s Lagarde (neutral – voter) is trying to manage expectations for the ECB rate cuts path after the first move seen in June:

• Cannot commit to rate path even after first cut.
• We need to move further along the disinflationary path.
• Average wage growth in 2024 fell from 4.4% from January meeting to 4.2% in March meeting.
• Latest data suggests wages are growing in a way that is compatible with inflation reaching the ECB's target.
• Will get a clearer picture in the coming months.
• Expect to have two important pieces of evidence to raise confidence level sufficiently for first policy move.
• If the data shows sufficient alignment between inflation path and ECB projections, then can dial back on current policy cycle.

The BoC released the Minutes of its March Monetary Policy Meeting:

• Agreed conditions for rate cuts should materialize in 2024 if economy evolves as forecast.
• Council members had differing views on when there would likely be enough evidence to judge if conditions for a cut were in place.
• Members also had differing views on how to weigh risks to inflation outlook.
• Indicators of underlying inflation suggested slow progress getting inflation down to target.
• Expressed concern that housing continued to pose upside risks to the inflation outlook.
• Saw nothing in data that would change their view that CPI inflation will remain around 3% in the coming months.
• While house prices continued to fall in January, recent strength in resales could translate into pickup in house prices and stoke shelter inflation.
• Strength in equity markets could provide a boost to consumer sentiment.

The Fed held interest rates steady at 5.25-5.50% as expected with no change to the statement:

• Dots continue to show 75 bps in cuts this year but show fewer in 2025 and 2026.
• 2024 core PCE median seen at 2.6% vs. 2.4% prior.
• Central tendency on PCE inflation edges up.
• No mention in the statement of the balance sheet or tapering.

Moving on to the Fed Chair Powell’s Press Conference:

• Risks are moving into better balance.
• Inflation has eased substantially but is still too high.
• Path forward is uncertain.
• Economy has made considerable progress.
• Risks are moving into better balance.
• Activity in the housing sector was subdued last year.
• GDP has been bolstered by strong consumer demand as well as healing supply chains.
• Longer-term inflation appears to remain well anchored.
• Inflation has eased notably.
• We're likely to cut rates at some point this year.
• The economy is performing well.
• We continue to make good progress on bringing inflation down.
• We're strongly committed to bringing inflation down to 2% over time but we stress 'over time'.
• There is some confidence that lower market rents we're seeing will show up but there's uncertainty on the timing.
• There will be a combination of lower goods and services inflation bringing inflation down to 2% sustainably.
• The risks are really two-sided now.
• On the January PCE and CPI reports, we have reason to think there were seasonal adjustment effects there.
• If you take January and February together, I don't think the story of bumpy but lower inflation is unfolding.
• I don't think those numbers add to our confidence that inflation is coming down.
• I don't think we know if rates will be higher in the longer run.
• We're looking for data that confirms what we saw late last year that will give us higher confidence in inflation falling to 2%.
• It's still likely in most people's view that we will have rate cuts this year but depends on data.
• We do think financial conditions are weighing on economic activity.
• Wage growth is moderating to more sustainable levels.
• Labor market is in good shape.
• Initial claims are very, very low.
• We are closely watching layoffs but don't see it.
• We don't see cracks in the jobs market.
• Strong job growth, in and of itself, is not a reason to hold off on rate cuts.
• Fed is discussing the pace of balance sheet runoff, will have something 'fairly soon'.
• I don't think inflation was mostly caused by wages.

Nikkei reported that the BoJ was weighing the next rate hike for July. The report also said that an October hike was considered one of the most likely scenarios and that the timeline would "keep us from coming off like we're rushing to hike rates," said a BOJ source. But an early hike "leaves room for us to consider rolling out another increase before the end of the year”.

Thursday

The New Zealand Q4 2023 GDP missed expectations:

• Q4 2023 GDP Q/Q -0.1% vs. 0.1% expected and -0.3% prior.
• Q4 2023 GDP Y/Y -0.3% vs. 0.1% expected and -0.6% prior.

The Australian March PMIs showed another downtick in Manufacturing and uptick in Services:

• Manufacturing PMI 46.8 vs. 47.8 prior.
• Services PMI 53.5 vs. 53.1 prior.

The Australian February Labour Market report beat expectations by a big margin with positive revisions to the prior figures:

• Employment change 116.5K vs. 40K expected and 15.3K prior (revised from 0.5K).
• Unemployment rate 3.7% vs. 4.0% expected and 4.1% prior.
• Participation rate 66.7% vs. 66.8% expected and 66.6 prior (revised from 66.8%).
• Full-time employment 78.2K vs. 19.9K prior (revised from 11.1K).
• Part-time employment 38.2K vs. -4.6K prior (revised from 10.6K).

The Japanese March PMIs both improved further although Manufacturing remains in contractionary territory:

• Manufacturing PMI 48.2 vs. 47.2 prior.
• Services PMI 54.9 vs. 52.9 prior.

BoJ Governor Ueda reaffirmed the patient stance for the time being now that they exited the negative interest rates policy:

• BoJ expected to maintain accommodative monetary policy for the time being.
• Accommodative monetary policy likely to underpin the economy.
• Cost-push pressure on inflation dissipating but service prices continue to rise moderately.

• Recent wage negotiation data, hearing on companies confirmed wage-inflation cycle strengthening.
• Medium, long-term inflation expectations heading toward 2%.
• BoJ will support economy, prices by maintaining accommodative monetary conditions for time being.
• We could have waited until inflation stays at 2% for long time, before exiting massive stimulus but that could have led to sharp increase in upside risk to price outlook.
• Don't think our latest decision will lead to sharp increase in mortgage loan rates, cost of corporate.

• Negative rate and other tools under BoJ's massive stimulus had boosted demand by pushing down real interest rates, but had side-effects too such as on JGB market function.
• Preliminary wage negotiation outcome tends to be revised down but even so, we thought final outcome would be fairly strong number.

• Consumption was showing some weakness, but we were able to confirm strength in capex.
• We know some small firms might struggle to hike wages, but overall, small, midsized firms' profits are improving.
• As we end our massive stimulus, we will likely gradually shrink our balance sheet, and at some point, reduce JGB purchases.
• At present, we have no clear idea on timing of reducing JGB buying, scaling back size of balance sheet.
• We will take plenty of time examining how to reduce BoJ's ETF holdings.

• In event of reducing BoJ's ETF holdings, BoJ will come up with guidelines taking into account market developments at the time.
• In selling BoJ's ETF holdings, we will do so in a way that minimises losses on BoJ, disruptions in markets.

The SNB “surprised” with a 25 bps cut bringing interest rates to 1.50% vs. 1.75% prior:

• Easing of policy made possible as fight against inflation has been effective.
• Inflation likely to remain in the range below 2% over the next few years.
• Today's easing ensures that monetary conditions remain appropriate.
• 2024 inflation seen at 1.4% (previously 1.9%).
• 2025 inflation seen at 1.2% (previously 1.6%).
• 2026 inflation seen at 1.1%.
• Will adjust its monetary policy again if necessary to ensure inflation remains within the range consistent with price stability over the medium-term.

Moving on to the Chairman Jordan’s Press Conference:

• Rate cut is not a parting gift.
• We always make brave decisions regarding the mandate.
• Our decisions are independent of what other central banks do.
• We give no forward guidance on future interest rates, we will see where we are in 3 months' time.
• Rate cut today is 100% compatible with our framework.

The Eurozone March PMI showed Manufacturing falling further in contraction and Services moving higher in expansion:

• Manufacturing PMI 45.7 vs. 47.0 expected and 46.5 prior.
• Services PMI 51.1 vs. 50.5 expected and 50.2 prior.

The UK March PMIs showed Manufacturing climbing further but remaining in contraction with Services ticking lower:

• Manufacturing PMI 49.9 vs. 47.8 expected and 47.5 prior.
• Services PMI 53.4 vs. 53.8 expected and 53.8 prior.

The BoE left interest rates unchanged at 5.25% as expected with the vote split showing everyone supporting the rate hold except Dhingra voting for a 25 bps cut:

• Bank rate vote 8-0-1 vs. 7-1-1 expected (Dhingra voted to cut rates by 25 bps).
• Moving in the right direction but not yet at the point to cut interest rates.
• Inflation has continued to fall back relatively sharply.
• Restrictive monetary policy stance is weighing on activity in the real economy.
• That is leading to a looser labour market and is bearing down on inflation pressures.
• But key indicators of inflation persistence remain elevated.
• Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target.
• Prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably.
• Will keep under review for how long Bank Rate should be maintained at its current level.

The US Jobless Claims beat expectations once again:

• Initial Claims 210K vs. 215K expected and 212K prior (revised from 209K).
• Continuing Claims 1807K vs. 1820K expected and 1803K prior (revised from 1811K).

The US March PMIs showed Manufacturing climbing further into expansion while Services missed slightly:

• Manufacturing PMI 52.5 vs. 51.7 expected and 52.2 prior.
• Services PMI 51.7 vs. 52.0 expected and 52.3 prior.

“A steepening rise in costs, combined with strengthened pricing power amid the recent upturn in demand, meant inflationary pressures gathered pace again in March. Costs have increased on the back of further wage growth and rising fuel prices, pushing overall selling price inflation for goods and services up to its highest for nearly a year. The steep jump in prices from the recent low seen in January hints at unwelcome upward pressure on consumer prices in the coming months.”

Friday

The Japanese February Core CPI came in line with expectations:

• CPI Y/Y 2.8% vs. 2.2% prior.
• Core CPI Y/Y 2.8% vs. 2.8% expected and 2.0% prior.
• Core-Core CPI Y/Y 3.2% vs. 3.5% prior.

BoE’s Bailey (neutral – voter) speaking to the FT reaffirmed the central bank patient stance as they gather more information to guide their rate cuts timing:

• Rate cuts this year is not unreasonable.
• All our meetings are in play, we take a fresh decision each time.
• Need to have confidence that wages are heading in the right direction.
• Don't need to wait for inflation to drop to 2% before cutting rates.
• Recent economic developments are obviously good news.
• The job on inflation is not done but what we are seeing is encouraging.

The UK February Retail Sales beat expectations:

• Retail sales M/M 0.0% vs. -0.3% expected and 3.6% prior (revised from 3.4%).
• Retail sales Y/Y -0.4% vs. -0.7% expected and 0.5% prior (revised from 0.7%).
• Retail sales ex autos, fuel M/M 0.2% vs. -0.1% expected and 3.4% prior (revised from 3.2%).
• Retail sales ex autos, fuel Y/Y -0.5% vs. -0.9% expected and 0.5% prior (revised from 0.7%).

ECB’s Nagel (hawk – voter) supports a rate cut in June:

• The probability of a rate cut before the summer break is increasing.
• Does not see any automatism in rate cuts.
• A June rate cut has a higher probability than one in April.

The German March IFO beat expectations across the board:

• IFO 87.8 vs. 86.0 expected and 85.7 prior (revised from 85.5).
• Current conditions 88.1 vs. 86.8 expected and 86.9.
• Expectations 87.5 vs. 84.7 expected and 84.4 prior (revised from 84.1).

ECB’s Holzmann (uber hawk – voter) says that a rate cut is in preparation as most ECB members are looking for a move in June:

• A rate cut is in preparation.
• But the timing of the rate cut is unclear.
• We are data dependent.
• There are many who believe that developments in June will be such that we can cut at the time.
• My view is that inflation is stickier than those people believe, which is why I am waiting for June data.

The Canadian January Retail Sales beat expectations:

• Retail Sales M/M -0.3% vs. -0.4% expected and 0.9% prior.
• Retail Sales Y/Y 0.9% vs. 2.9% prior.
• Ex autos M/M 0.5% vs. -0.4% expected and 0.6% prior.
• Ex auto and gas M/M 0.4%.
• Sales were up in 6 of 9 subsectors.
• Advance February retail sales 0.1%.

The highlights for next week will be:

• Tuesday: US Durable Goods Orders, US Consumer Confidence.
• Wednesday: Australia Monthly CPI, Fed’s Waller.
• Thursday: BoJ Summary of Opinions, Australia Retail Sales, Canada GDP, US Final Q4 GDP, US Jobless Claims.
• Friday: Japan Jobs data, Tokyo CPI, Japan Industrial Production and Retail Sales, US PCE, Fed Chair Powell.

That’s all folks. Have a nice weekend.