Where we spent the previous week

The Reserve Bank of New Zealand (RBNZ) maintaining the Official Cash Rate (OCR) at 5.50% for the fifth consecutive meeting was one of the week’s major happenings. Additionally, the central bank reduced its OCR predictions, revealing a dovish turn that caused the NZD to sharply decline.

With January’s PCE Price Index data meeting market expectations, major US equity indexes exhaled with relief after the week (especially after earlier in February, when we had beaten the CPI and PPI). The Fed’s preferred indicator, PCE, showed support for the deflationary process; year-over-year data showed headline and core declining to 2.4% and 2.8%, respectively, from 2.6% and 2.9% previously.

Interestingly enough, the ISM manufacturing headline number for February came in on Friday. It was predicted to be 49.5, but came in at 47.8, which was softer than expected. The employment index and new orders both softened, with the former going into contractionary territory. In contrast to previous data and forecasts, the prices paid index did not significantly decline; rather, it stayed high.

Our current location for this week

The Bank of Canada (BoC), which takes center stage on Wednesday at 2:45 pm GMT, is expected to maintain its current rate of 5.0% this week, which would be the fifth consecutive session that the rate has been held at a 22-year high. After rising by 3.4% in December, headline inflation fell to 2.9% in January of this year, the lowest level since June 2023. In light of this and the fact that economic activity increased by 1.0% on an annualized basis in Q42023, it appears doubtful that policymakers would change the interest rate at this week’s meeting. Investors are wagering that the first 25 bps rate drop won’t occur until the policy meeting in July (with 34 bps of easing already included in). This is essentially consistent with market expectations for the Federal Reserve and the European Central Bank (ECB).

This week, the ECB will take the front stage when it meets on Thursday at 1:15 PM GMT. It is generally anticipated that the ECB will maintain its four-session hold on all major benchmark rates. The most recent inflation statistics from the euro area were released on Friday. It followed regional inflation figures from France, Spain, and Germany. According to Eurostat’s flash estimate, headline inflation decreased to 2.6% in the year ending in February from 2.8% in January.

Core inflation fell from 3.3% in January to 3.1% in February of last year. Even if base effects contributed significantly to February’s lower inflation, the disinflationary process is still ongoing. However, the data that has been available since the last meeting in late January, along with this, is unlikely to be enough to justify a cut at this week’s or April’s meeting. Currently, the OIS curve predicts 74 basis points of relaxing for the year (you might remember that we recently witnessed a large hawkish repricing from about 150 basis points of easing factored in for the year), with the first 25 basis point decrease anticipated in June (well, -24bps).

The ECB President Christine Lagarde’s remarks at the press conference 30 minutes following the rate announcement, as well as the updated Staff Projections on growth and inflation—which are lowered downward in 2024—will also be closely followed this week. The Staff Projections are released four times a year. If negative revisions materialize, pressure on the euro may increase.

The US Employment Situation Report airs on Friday at 1:30 PM GMT. The US economy will add 190,000 new jobs in February, according to Bloomberg’s latest poll, with a current high/low estimate ranging from 225,000 to 130,000. The US dollar (USD) will probably be supported if there is an upside surprise that tests or surpasses the estimate high; on the other hand, a downside surprise could weigh. With a narrow estimate range of 3.8% to 3.7%, it is anticipated that the unemployment rate will stay at 3.7% in February. Expectations for wages, or average hourly earnings, are that they decrease from 0.6% to 0.2% in January and February and that year-over-year statistics will decline from 4.5% (estimate range between 4.5% and 4.1%) to 4.3%.

This week, a lot of market players will also be watching the US ISM Services print on Tuesday at 3:00 PM GMT, the Australian quarterly GDP data on Wednesday at 12:30 AM GMT, the US ADP Non-Farm Employment figures at 1:15 PM GMT, and the US JOLTs data at 3:00 PM GMT. The testimony of Federal Reserve Chair Jerome Powell before Congress on March 7 and, of course, the UK Spring Budget on March 6 are also scheduled to be watched by many this week.