Monday

ECB’s Lagarde (neutral – voter) reaffirmed her patience stance with the usual focus on wage growth:

• We are not there yet on inflation.
• We have to get to 2% inflation sustainably.
• ECB must play its role in climate transition.
• There are increasing signs of a bottoming-out in growth and some forward-looking indicators point to a pick-up later this year.
• Wage pressures, meanwhile, remain strong.
• The current disinflationary process is expected to continue, but the governing council needs to be confident that it will lead us sustainably to our 2% target.
• Labour cost increases are partly buffered by profits and are not being fully passed on to consumers.
• We expect inflation to continue slowing down, as the impact of past upward shocks fades and tight financing conditions help to push down inflation.
• Our restrictive monetary policy stance, the ensuing strong decline in headline inflation, and firmly anchored longer-term inflation expectations act as a safeguard against sustained wage price spiral.

Tuesday

The Japan January CPI beat expectations although the inflation rates eased from the prior figures:

• CPI Y/Y 2.2% vs. 2.6% prior.
• Core CPI Y/Y 2.0% vs. 1.8% expected and 2.3% prior.
• Core-Core CPI Y/Y 3.5% vs. 3.7% prior.

Fed’s Schmid (hawk – non voter) can be put on the top of the FOMC hawks after his comments although he’s not a voting member this year:

• No need to pre-emptively adjust the stance of policy.
• Fed should be patient, wait for convincing evidence that inflation fight has been won.
• In 'no hurry' to halt the ongoing reduction in size of Fed's balance sheet.
• We are not out of the woods yet on 'too high' inflation.
• How much further Fed can shrink its balance sheet 'an open question'.
• Don't favour 'overly cautious' approach to balance sheet runoff; some interest-rate volatility should be tolerated.
• Fed should minimize its footprint in the financial system, particularly as relates to Fed's balance sheet.
• Returning inflation to 2% will likely require restoring balance in labour markets, moderating wage growth.
• Reducing Fed's balance sheet should be a priority once crisis has passed.
• Large Fed balance sheet can create unintended consequences, including on bank lending, liquidity.
• January CPI inflation data argues for caution.
• Large Fed balance sheet can create asset-price distortions.
• Bank regulators should take tailored approach.
• Silicon Valley Bank was a bit of a canary in a coal mine.
• Fed's Discount Window should be part of a bank's 'strategic stack' funding.
• it would be a mistake to consider cryptocurrency as a currency.

The US January Durable Goods Orders missed expectations:

• Durable Goods Orders M/M -6.1% vs. -4.5% expected and -0.3% prior (revised from 0.0%).
• Non-defense capital goods orders ex-air M/M 0.1% vs. 0.1% expected and -0.6% prior (revised from 0.3%).
• Ex transport M/M -0.3% vs. 0.2% expected.
• Ex defense M/M -7.3% vs. 0.5% prior.
• Shipments M/M -0.9%.

BoE’s Ramsden (neutral – voter) supports the current patient approach as he would like to see more evidence that inflation is going back to their 2% target sustainably.

• Key indicators of inflation persistence remain elevated.
• I support the more-balanced outlook on risks to inflation set out in the MPC's latest forecast.
• I am looking for more evidence about how entrenched this persistence will be and therefore about how long the current level of bank rate will need to be maintained.

The US February Consumer Confidence missed expectations by a big margin with negative revisions to the prior readings:

• Consumer Confidence 106.7 vs. 115.0 expected and 110.9 prior (revised from 114.8).
• Present situation index 147.2 vs.154.9 prior (revised from 161.3).
• Expectations 79.8 vs. 81.5 prior (revised from 83.8).
• 1 year Inflation 5.2% vs. 5.2% prior.
• Jobs hard-to-get 13.5% vs. 11.0% prior (revised from 9.8%).

“The decline in consumer confidence in February interrupted a three-month rise, reflecting persistent uncertainty about the US economy,” said Dana Peterson, Chief Economist at The Conference Board. “The drop in confidence was broad-based, affecting all income groups except households earning less than $15,000 and those earning more than $125,000. Confidence deteriorated for consumers under the age of 35 and those 55 and over, whereas it improved slightly for those aged 35 to 54.”

Fed’s Bowman (hawk – voter) maintains her patient stance with no fear of raising rates further if inflation progress were to stall:

• Will remain cautious on monetary policy.
• If inflation moves sustainably to 2% goal, it will eventually be appropriate to cut interest rates; not yet there.
• Reducing policy rate too soon could result in need for future rate hikes.
• She remains willing to raise policy rate if inflation progress stalls or reverses.
• Latest inflation data suggests slower progress on inflation.
• Economic activity and consumer spending are strong, labour market 'tight'.

Reuters reported that OPEC+ may consider extending their voluntary output cuts into Q2 or even into year-end.

Wednesday

The Australian January Monthly CPI missed expectations:

• CPI Y/Y 3.4% vs. 3.6% expected and 3.4% prior.
• Trimmed Mean CPI Y/Y 3.8% vs. 4.0%.

The RBNZ left the OCR unchanged at 5.5% and dropped the tightening bias:

RBNZ forecasts:

• Sees official cash rate at 5.59% in June 2024 (prior 5.67%).
• Sees official cash rate at 5.47% in March 2025 (prior 5.56%).
• Sees twi nzd at around 71.5% in March 2025 (prior 70.7%).
• Sees annual CPI 2.6% by March 2025 (prior 2.4%).
• Sees official cash rate at 5.33% in June 2025 (prior 5.42%).
• Sees official cash rate at 3.16% in March 2027.

Statement:

• The OCR needs to remain at a restrictive level for a sustained period.
• The New Zealand economy has evolved broadly as anticipated by the committee.
• The committee remains confident that the current level of the OCR is restricting demand.
• Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.
• However, headline inflation remains above the 1 to 3 percent target band, limiting the committee's ability to tolerate upside inflation surprises.
• A sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3 percent target.
• With high immigration and weaker demand growth, capacity constraints in the New Zealand labour market have eased.

From the minutes to the meeting:

• Ongoing restrictive monetary policy settings are necessary to guard against the risk of a rise in inflation expectations.
• Capacity pressures have eased significantly over the past year.
• The committee agreed that interest rates need to remain at a restrictive level for a sustained period of time.
• The committee noted that aggregate demand is now better matched with the supply capacity of the economy.
• The starting point for capacity pressures in the New Zealand economy is only slightly lower than previously assumed.
• The committee is conscious that the economy has limited capacity to absorb further upside inflation surprises.
• Recent drops in core inflation and business inflation expectations are encouraging, but they remain above the 2 percent mid-point of the committee’s target band.

Moving on to the Governor Orr’s Press Conference:

• Central banks may have to hold rates higher than markets expect.
• New Zealand economy has evolved ‘broadly’ as expected.
• Discussed rate hike, but strong consensus that rates were sufficient.
• Domestic price pressures are easing as expected.
• Comforting to see inflation expectations decline.
• Data has given us more confidence in the outlook than in November.
• We are in a disinflation period.
• Economy faces a soft-landing scenario.

ECB’s Kazimir (hawk – non voter in March) is clearly signalling a rate cut in June, all else being equal:

• Market's rate cut pricing now "more realistic".
• Pleased with recent shift in expectations.
• Headline disinflation is going quicker than expected but core prices still remain uncertain.
• Prefers June rate cut, then "smooth and steady cycle of policy easing".

The 2^nd reading for the US Q4 2023 GDP missed slightly expectations with higher figures for consumer spending and inflation:

• US Q4 2023 GDP 3.2% vs. 3.3% expected.

Details:

• Consumer spending 3.0% vs. 2.8% advance.
• Consumer spending on durables 3.2% vs. 4.6% advance.
• GDP final sales 3.5% vs. 3.2% advance.
• GDP deflator 1.7% vs. 1.5% advance.
• Core PCE 2.1% vs. 2.0% advance.
• Business investment 0.9% vs. 2.1% advance.

Fed’s Collins (neutral – non voter) echoed her colleagues in supporting a patient stance as they gather more information:

• Repeats it will likely become appropriate to begin easing policy later this year.
• Recent economic data highlight that progress toward the Fed's goals could continue to be bumpy.
• More time is needed to discern if the economy is sustainably on the path to price stability and a healthy labour market.
• States the need to see more evidence that the disinflationary process will continue before starting to carefully normalize policy.
• Expecting all of the data to speak uniformly is too high a bar; shouldn't overreact to individual data readings.
• The return to 2% will likely require demand growing at a more moderate pace this year.
• Wants to see continued evidence that wage growth is not contributing to inflationary pressures.
• In assessing inflation progress, will look for inflation expectations remaining well anchored and an orderly moderation in labour demand.
• Wants to see continued declines in housing inflation and non-shelter services inflation.
• The threat of inflation remaining above 2% has receded.
• I see risks is more balanced between cutting too early and too late.
• We should be taking time on policy.
• We expect we will see more of a decline in reserves, and will be paying attention to what point it might be appropriate to revisit QT.
• Too early to tell if we are extracting the right signal from housing inflation data.

Fed’s Williams (neutral – voter) reiterated the patient approach as the Fed will be guided by the incoming economic data:

• Still some ways to go before hitting the 2% inflation target.
• Fully committed to achieving the Fed's 2% inflation target.
• Will let incoming economic data determine the monetary policy path.
• Sees likely uneven path back to 2% inflation.
• Inflation pressures have fallen a lot amid broad-based improvement.
• Risks to outlook exist on up and down sides.
• Inflation to hit 2%-2.25% this year, 2% in 2025.
• Growth at 1.5% this year, unemployment up to around 4%.
• Economy, job market strong, imbalances waning.
• Current 3.7% unemployment rate around long-term level.
• Risks to Fed job, inflation mandates moving into better balance.
• Fed likely to cut rates later this year.
• Will watch data to drive decision over cutting rates.
• Fed has time to take in data before cutting rates.
• Pandemic aftermath still affecting economy, but optimistic about outlook.
• 3 interest-rate cuts in 2024 reasonable for US central bank officials to debate.
• Data will drive one federal cut rates.
• Current US economy is similar to where it was during December policy meeting.
• It is unclear what impact potential US government shutdown would have on economy.

Fed’s Bostic (hawk – voter) repeated the comments from other members as they all support a patient approach:

• There is still work to do on inflation.
• Has not declared victory just yet.
• Is comfortable being patient on policy.
• Will not be a fast march to 2% inflation.

ECB’s Nagel (hawk – voter) wants to see wage growth to moderate before supporting rate cuts:

• It would be fatal if ECB cut rates too early only for inflation to rebound.
• ECB needs confirmation that wage growth is moderating to a level that will let inflation fall back to target in 2025.

BoE’s Mann (hawk – voter) blamed consumers for the slow progress on inflation:

• Lack of consumer discipline complicates policy.
• BoE is struggling to bring inflation back to target because price rises are increasingly driven by people who are immune to the pressures of higher interest rates.
• There is lack of consumer discipline to rein in business's pricing power in areas of the services sector where prices were often sticky.

Thursday

The Japanese January Industrial Production missed expectations:

• Industrial Production Y/Y -1.5% vs. -0.7% prior.
• Industrial Production M/M -7.5% vs. -7.3% expected and 1.4% prior.

The Japanese January Retail Sales came in line with expectations:

• Retail Sales Y/Y 2.3% vs. 2.3% expected and 2.4% prior (revised from 2.1%).
• Retail Sales M/M 0.8% vs. -2.9% prior.

BoJ’s Takata delivered some hawkish comments that sent the Yen higher across the board:

• Momentum is rising in spring wage talks.
• Many companies are offering higher-than-2023 wage hikes.
• Achievement of 2% inflation target is becoming in sight despite uncertainty of economic outlook.
• Japan's economy is in inflection point of changing 'norm' that people think wages, prices are not rising.
• Exit measures should include abandoning yield curve control framework, ending negative rates, overshoot commitment.
• I would call for a gear shift in policy, but not one that is going backwards.
• Moderate recovery trend intact despite slowdown in capex, consumption.
• Monetary policy needs to remain consistent with the real economy, financial environment.
• Have not made up mind yet on monetary policy decision.
• Wage hikes are broadening stronger than last year.
• Need to watch outcome of spring wage talks after mid-March.
• Not thinking of raising rates one after another.
• Don't want to single out any policy step in mentioning "nimble responses".
• Gradual steps will be needed amid mixed circumstances surrounding smaller firms.
• We need to keep some easing measures to some extent.
• But important for exit strategy to not be too complicating.

The Switzerland Q4 2023 GDP beat expectations:

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

The US Jobless Claims missed expectations:

• Initial Claims 215K vs. 210K expected and 202K prior (revised from 201K).
• Continuing Claims 1905K vs. 1874K expected and 1860K prior (revised from 1862K).

The US January PCE came in line with expectations:

• PCE Y/Y 2.4% vs. 2.4% expected and 2.6% prior.
• PCE M/M 0.3% vs. 0.3% expected and 0.1% prior.
• Core PCE Y/Y 2.8% vs. 2.8% expected and 2.9% prior.
• Core PCE M/M 0.4% vs. 0.4% expected and 0.1% prior (revised from 0.2%).

Consumer spending and consumer income for January:

• Personal income 1.0% versus 0.4%. Prior month 0.3%.
• Personal spending 0.2% versus 0.2% expected. Prior month 0.7%
• Real personal spending -0.1% vs 0.6% last month revised from 0.5%).

The Canadian Q4 2023 GDP beat expectations:

• Q4 GDP Q/Q 0.3% vs. ­-0.1% prior (revised from -0.3%).
• Annualised GDP Q/Q 1.0% vs. 0.8% expected and -0.5% prior (revised from -1.1%).
• December GDP M/M 0.0% vs. 0.2% expected and 0.2% prior.

Fed’s Goolsbee (dove - non voter) continues to see progress in disinflation:

• We've had very substantial progress over a long-term basis on inflation.
• Even with January PCE data showing a month of rebound, should be careful to extrapolate.
• There is element of truth that disinflation of 2023 was supply chain repair.
• Should be careful with the argument that supply change is now fixed.
• Should not expect more benefit in 2024.
• Impact on supply shock on inflation takes time.
• Suggests benefits of supply chain disinflation are still to come.
• Lags on supply shock from labour on inflation are probably long.
• As of labour supply shocks probably have a longer lasting effect on inflation then supply chain shocks.
• If substantial productivity growth continues, that would have an impact on monetary policy.
• What I'm watching the most is why hasn't housing inflation improved more than it has.
• There is a risk of betting against the Fed being committed on doing what it says.
• Rates are pretty restrictive.
• I still think the question is how long we want to remain in this restrictive.
• External shocks are the things I worry about most.
• 2023 was a golden year.
• If golden path is to continue in 2024, would rely on lagged effect of the past positive supply shocks.
• If you stay quite restrictive, you will eventually have to think about impact to employment.

Fed’s Bostic (hawk – voter)

• Inflation came down much faster than expected.
• The last inflation number shows that inflation's decline will be a bumpy one.
• Fed must stay vigilant and intensive.
• Over the long arc inflation is still coming down.
• It is probably appropriate to reduce the fed funds policy rate in the summertime.
• Economic data will be the guide for the Fed on when rate cards are made.
• Degree of risk exposure in the nonbanking sector worries me.
• Calls the US banking sector sound and strong.
• Range of risks that has to think about has become more complex.
• Geopolitical risks are currently high.
• I expect things are going to be bumpy on inflation.
• It is useful to use a range of different approaches to assess inflation.

Fed’s Daly (neutral – voter) repeated that the current policy stance is appropriate:

• Fed policy is in a good place.
• Fed can cut rates if needed.
• The Fed wants to avoid holding rates all the way to 2% inflation.
• There is no imminent risk of the economy faltering.
• If Fed were to cut too quickly, inflation can get stuck.
• Risks of persistent inflation and economic downturn are even.

Fed’s Mester (hawk – voter) continues to support the patient stance guided by incoming economic data:

• January PCE data was not too surprising.
• January PCE reading does not change view that inflation is going downward.
• There is a little more work for the Fed to do on inflation.
• It's all about risk management until we get to 2% inflation goal.
• Monetary policy is restrictive, demand should cool.
• We can't rely on pace of disinflation last year to continue this year.
• Demand will moderate, growth this year will not be as strong as last year.
• Does not want to focus on timing of the rate cut but the data.
• Expects some slowdown in employment growth.
• That slowing in employment growth is what we need to see to ease policy.
• We do need to be more confident that inflation is on that downward path.
• Baseline is we will see moderation in the labour market, but it will still healthy.
• Need to see continued disinflation.
• Baseline forecast of three rate cuts still seems about right.
• Economy and monetary policy is in a good spot.

Friday

BoJ’s Ueda basically retracted what Takata said yesterday as he cast doubt on the achievement of the 2% target and wasn’t upbeat on wage negotiations:

• The recent recession in Japan follows previous strong quarters.
• Japan's economy will continue recovering gradually.
• Japan firms' capex plan is strong, which likely to be implemented eventually.
• Japan's economy not yet in situation where sustained achievement of 2% inflation can be foreseen.
• In judging whether sustained achievement of 2% inflation target can be foreseen, this year's annual wage negotiation outcome is key.
• Compared with when we announced our January report, labour unions have demanded wage growth higher than last year, big firms seem keen to hike wages.
• Want to look at collective outcome of wage talks, as well as hearings we conduct on firms.

RBNZ Hawkesby reaffirmed the central bank patient stance:

• Restrictive policy needed to ensure inflation expectations anchor at 2%.
• Policy is going to stay restrictive for some time yet.
• Policy will need to stay restrictive even when the output gap is negative.
• We think the output gap now is around zero, if not a bit negative.
• We don't have a lot of room to manoeuvre when it comes to future inflation shocks.
• We are on the right path with inflation, have to hold our course.
• Not in a mindset to cut rates now, will be cutting sometime down the track.

The Japanese Unemployment Rate came in line with expectations:

• Unemployment rate 2.4% vs. 2.4% expected and 2.4% prior.

RBNZ Governor Orr reaffirmed the central bank’s patient stance:

• Economy is evolving as anticipated.
• Inflation expectations have fallen.
• Inflation is still too high but is falling.
• Monetary policy needs to stay restrictive for some time.
• Expect to begin normalising policy in 2025.
• Expect economic growth to begin picking up in 2024.

Fed’s Williams (neutral – voter) reiterated that he sees progress on inflation and rate cuts this year:

• Says 2023 was an amazing year for the economy.
• Current business cycle is not a normal one.
• Much of what happened in the economy is a reversal of the pandemic hit.
• The resilience of the US economy is remarkable.
• The Federal Reserve is dealing a strong economy, adding lots of jobs.
• Wants inflation back to 2% and sees progress on that.
• I do expect us to cut interest rates later this year.
• Doesn't see sense of urgency to cut rates.
• Rate hike is not part of base case.
• Current outlook doesn't suggest another hike is needed.

The Chinese February PMIs showed Manufacturing remaining in contraction and Services improving further:

• Manufacturing PMI 49.1 vs. 49.1 expected and 49.2 prior.
• Services PMI 51.4 vs. 50.9 expected and 50.7 prior.

The Chinese February Caixin Manufacturing PMI beat expectations:

• Caixin Manufacturing PMI 50.9 vs. 50.6 expected and 50.8 prior.

Caixin PMI summary:

• Production and new orders grew faster in February.
• New export business expanded for the second consecutive month due to an improvement in underlying global demand conditions.
• Inventories of purchased items increased at the fastest pace since late-2020.
• Stocks of finished items fell for the first time since June last year.
• Employment fell for the sixth successive month.
• Factory gate prices down for the second month, with the rate of discounting being the quickest since July 2023.

The Switzerland February Manufacturing PMI missed expectations:

• Manufacturing PMI 44.0 vs. 44.4 expected and 43.1 prior.

The Eurozone February CPI beat expectations:

• CPI Y/Y 2.6% vs. 2.5% expected and 2.8% prior.
• Core CPI Y/Y 3.1% vs. 2.9% expected and 3.3% prior.

The Eurozone Unemployment Rate remained unchanged at 6.4%.

Fed’s Barkin (hawk – voter) seems to be getting a bit uncomfortable as he even questioned rate cuts this year:

• Yesterday was a high inflation report.
• We're still a world of prices increasing at higher levels.
• Says he tried to not take too much out of January economic figures in general.
• PCE data yesterday is consistent with the story he is hearing with regards to services inflation.
• Inflation is coming down, but we have to see how much more has to happen to get it to 2%.
• I am not in a hurry to cut rates.
• I still see wage and inflation pressures.
• We'll see if there are rate cuts this year.
• It all depends on progress on inflation.
• Economy will tell us what to do on policy.

BoE’s Pill (neutral – voter) stressed that even if they cut monetary policy will remain restrictive:

• My baseline is that the time for cutting rates is some ways off.
• I need to see more compelling evidence that the underlying persistent component of UK CPI inflation is being squeezed down.
• Maintaining restrictiveness does not necessarily mean leaving bank rate unchanged.
• Real interest rates will rise as inflation and short-term inflation expectations ease.
• Monetary policy stance remains restrictive even after a cut.

The Canadian Manufacturing PMI improved further in February:

• Manufacturing PMI 49.7 vs. 48.3 prior.

The US February ISM Manufacturing PMI surprisingly missed expectations:

• ISM Manufacturing PMI 47.8 vs. 49.5 expected and 49.1 prior.

Details:

• Prices paid 52.5 vs. 52.9 prior.
• Employment 45.9 vs. 47.1 prior.
• New orders 49.2 vs. 52.5 prior.
• Inventories 45.3 vs. 46.2 prior.
• Production 48.4 vs. 50.4 prior.

The highlights for next week will be:

• Monday: Switzerland CPI.
• Tuesday: Tokyo CPI, China Caixin Services PMI, Eurozone PPI, US ISM Services PMI.
• Wednesday: Australia GDP, Eurozone Retail Sales, US ADP, BoC Policy Decision, US Job Openings, Fed Chair Powell Testimony.
• Thursday: Japan Wage data, Switzerland Unemployment Rate, ECB Policy Decision, US Jobless Claims, Fed Chair Powell Testimony.
• Friday: US NFP, Canada Labour Market report.

That’s all folks. Have a nice weekend.