Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Dec 4 – Dec 8)

RBA and BoC meetings coupled with NFP data will be the highlights of the week which will also see Q3 GDP from Australia, trade balance from China and inflation from Switzerland.

USD

Fed Governor of Reserve Board Waller, a well-known hawk, stated that his confidence is growing that monetary policy is well-positioned to slow down the economy. He said that he is still data-dependent and he finds recent signs of moderating growth were encouraging. Soft landing is still possible and he added that there is no need to insist on rates staying high is inflation continues to decline. This effectively means that they can cut rates even if inflation is not down to 2% target if they feel confident that inflation is on its way down. When a hawk is not advocating for more rate hikes and sounds more dovish markets react fast and we have another round of USD selling and Treasury buying.

Second reading of Q3 GDP came in at 5.2% annualised, up from 4.9% annualised as preliminary reported. Personal consumption was revised down so now it added 2.44pp to the GDP from 2.69pp in the preliminary reading. Upward revisions were seen to fixed investment (0.42pp vs 0.15pp) and to government consumption (0.94pp vs 0.79pp). October PCE saw headline number drop to 3% y/y as expected from 3.4% y/y in September while core PCE fell to 3.5% y/y as expected from 3.7% y/y the previous month. Both personal income and spending increased by 0.2% m/m as expected for a smaller increase than in the previous month.

ISM manufacturing PMI missed expectations in November and came in at 46.7, same as in October. New orders category improved, drawing closer to expansion but inventories improved as well. There was a drop in employment component as well as in new export orders and overall production. Additionally, there was a surge in prices which came in at 49.9, up from 45.1 the previous month. This number indicates that inflation pressures are still present.

The yield on a 10y Treasury started the week and year at around 4.47%, rose to 4.52%, then fell to 4.25% and finished the week at around 4.21%. The yield on 2y Treasury reached the high of 4.99% and then fell below 4.63% as markets started to price in some rate cuts in Q1 of 2024. Spread between 2y and 10y Treasuries started the week at -47bp then tightened to -34bp as bull steepening gripped the curve. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at December meeting at almost 100%.

This week we will have ISM services PMI and NFP data. Headline number is expected to come at around 100k with the unemployment rate staying at 3.9%.

Important news for USD:

Tuesday:​

• ISM Services PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

Preliminary Eurozone CPI for the month of November dropped to 2.4% y/y from 2.9% y/y in October with expectations were for it to fall to 2.7% y/y. Inflation fell 0.5% m/m which is the biggest monthly decline since January of 2020. A huge drop in energy prices was the main culprit of falling inflation but there were also drops in services and non-energy industrial goods. There was also a big drop in core CPI reading which printed 3.6% y/y vs 3.9% y/y as expected and down from 4.2% y/y the previous month. Spain CPI came in at 3.2% y/y vs 3.7% y/y as expected while October reading was at 3.5% y/y. Core CPI also declined and printed 4.5% y/y vs 5.2% y/y the previous month. German CPI came in at 3.2% y/y vs 3.5% y/y as expected and down from 3.8% y/y in October while monthly reading printed -0.4%. French CPI also declined to 3.4% y/y from 4% y/y the previous month while expectation was for a decline to 3.7% y/y with monthly reading printing -0.2%. With headline inflation almost reaching the 2% target markets are fully pricing in a rate cut in April.

Final reading of French Q3 GDP saw it fall into contraction with -0.1% q/q print, down from 0.1% q/q as preliminary reported. Private consumption held well but it was offset by negative prints in inventories and net trade. Next week we will get final Q3 GDP reading for the Eurozone and with French and German readings showing negative growth we may see deeper contraction in the economy.

GBP

BoE Governor Bailey reiterated that it is too early to start any discussion on rate cuts and that getting inflation to the 2% target will be hard work. BoE MPC member Haskel, a well-known hawk, stated that tightness in labor market leads to inflation pressures, therefore the need to keep rates higher for longer than most are expecting is present.

Final manufacturing PMI for the month of November was revised up and to 47.2 from 46.7 as preliminary reported and up from 44.8 in October. The report shows that there was easing in downturn for output and new orders which helped push the reading up but there are issue with employment conditions which are seen weakening further.

AUD

CPI data for the month of October came in at 4.9% y/y vs 5.2% y/y as expected and down from 5.6% y/y in September. Motor fuel prices showed the biggest declines while there was also a drop in the main housing component. Trimmed mean inflation, one of the measures of core inflation, ticked down to 5.3% y/y from 5.4% y/y the previous month indicating that price pressures are still stubborn. Monthly data is not as precise as quarterly data, it does not encompass all components of CPI, however it is moving in the right direction and may deter RBA from hiking further next week. Private CAPEX for Q3 came in at 0.6% q/q vs 1% q/q as expected.

Official PMI data for November showed economy heading in the wrong direction. Manufacturing PMI came in at 49.4 vs 49.7 as expected and down from 49.5 in October. The sector continues to contract after a brief jump back into expansion in September. Services came in at 50.2 vs 51.1 as expected and down from 50.6 the previous month. It is barely hanging in expansion but it dragged composite to 50.4 from 50.7 in October. Caixin manufacturing PMI returned to expansion with 50.7 reading smashing expectations of 49.8 and up from 49.5 in October. The report showed improvements in production and surge in business confidence.

This week we will have RBA meeting and Q3 GDP data from Australia. No change to interest rate is expected. We will also get Caixin PMIs and trade balance data from China.

Important news for AUD:

Tuesday:​

• RBA Interest Rate Decision​
• Caixin Services PMI (China)​
• Caixin Composite PMI (China)​

Wednesday:​

• GDP​

Thursday:​

• Trade Balance (China)​

NZD

RBNZ has left the Official Cash Rate (OCR) at 5.5% as expected. The statement shows that inflation remains too high, therefore monetary policy will have to remain restrictive for longer period of time. Demand has been falling but by less than expected, nevertheless, committee remains confident that current level of rates is enough to further restrict demand. RBNZ is very attentive to inflation pressures and if they were to come stronger than anticipated, the OCR would likely need to increase further.

Minutes saw that members have discussed the possibility of the need for OCR increases. Updated OCR projections see it at 5.63% in March 2024 vs 5.58% previously, at 5.66% in December 2024 vs 5.5% previously, at 5.56% in March 2025 vs 5.36% previously and at 3.55% in December 2026. Annual CPI is seen to be 2.5% by December of 2024 vs 2.4% previously. At the press conference, Governor Orr stated that there is an upward bias to the rates but further rate hikes are not certain and added that decision on rate hikes are not constricted by policy meetings. This means they can raise rates at any moment in between meetings. Hawkish message and upward revisions for OCR will keep NZD supported.

Business confidence for November printed 30.8, up from 23.4 in October and highest print since March of 2015. Big increases were seen in construction, both commercial and residential as well as in export and investment intentions and in ease of getting credit. Drops were seen in wage, cost and inflation expectations.

CAD

Q3 GDP headlines were abysmal. GDP fell 1.1% annualised while it was expected to grow by 0.2% annualised. GDP fell 0.3% q/q while expectations were for increase of 0.2% q/q. However, when we dig into details we see that there was a massive upward revision to Q2 numbers (1.4% annualised vs -0.2% as reported and 0.3% q/q vs 0% as reported). Looking into details of Q3 GDP we can see that exports and inventories were the biggest drag while government consumption was the biggest contributor to the reading. Household consumption managed to be slightly positive on the quarter.

Employment report for November saw economy adding 24.9k jobs vs 15k as expected. The unemployment rate ticked higher to 5.8% as expected while participation rate stayed the same. Wages were unchanged at 5% y/y. Composition of jobs was very encouraging with full-time jobs increasing by 59.6k while part-time jobs fell by 34.7k. This employment report is yet another strong one and it will give BoC more breathing space as they will leave the rate unchanged at next week’s meeting.

This week we will have BoC meeting. With inflation coming down there will be no need for further rate hikes so we expect no change to the rate.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

JPY

Q3 CAPEX data saw it come in at 3.4% y/y as expected, down from 4.5% y/y in the previous quarter. On the other hand, company profits surged by 20.1% y/y, smashing the expectations and almost doubling the number from Q2 (11.6% y/y). Final manufacturing PMI for the month of November was revised up slightly to 48.3 from 48.1 as preliminary reported but still down from 48.7 in October. The report shows that output and new orders declined at a stronger pace while rate of inflation eased to a three-month low with selling prices starting to decline.

CHF

SNB total sight deposits for the week ending November 24 came in at CHF473.7bn vs CHF476.9bn the previous week. Sight deposits still within a well established range lasting for almost three months. Q3 GDP came in at 0.3% q/q vs 0.1% q/q as expected while Q2 reading was revised down to -0.1% q/q from being flat as previously reported. Yearly figure also showed increase in GDP of 0.3% while Q2 y/y figure was revised down from 0.5% to 0.3%.

This week we will get inflation data.

Important news for CHF:

Monday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Dec 11 – Dec 15)

Four major central banks, Fed, ECB, BoE and SNB all meet this week, coupled with inflation data from the US, preliminary PMI data from Eurozone and the UK and employment data from the uk and Australia makes this a massive week for the markets.

USD

ISM services for the month of November came in at 52.7 vs 52 as expected and up from 51.8 in October. The report shows new export orders and inventories jumping back into expansion with small improvement in employment category. New orders index was unchanged and still deep in expansion territory while there was a small drop in prices paid component. This report shows economy that is in a good shape.

November provided another stellar NFP report. Headline number was 199k vs 180k as expected. The unemployment rate dropped to 3.7% from 3.9% in October while participation rate ticked up to 62.8%. Hourly earnings rose 0.4% m/m vs 0.3% m/m as expected but 4% y/y vs 4.1% y/y as expected. There was a huge jump in manufacturing payrolls as auto strike ended and people returned to work.

The yield on a 10y Treasury started the week and year at around 4.2%, rose to 4.26%, then fell to 4.11% and finished the week at around 4.23%. The yield on 2y Treasury reached the high of 4.72%. Spread between 2y and 10y Treasuries started the week at -35bp then widened to -49bp as curve inverted further. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at December meeting at 98% while probability of a 25bp rate hike is 2%. Probability of March 2024 rate cut fell to 47% post NFP.

This week we will have inflation and consumption data as well as Fed meeting. There will be no change in rate but we will get new dot plot projections. Markets are currently pricing four rate cuts in 2024, although they are being pared back a bit after strong NFP report, and they will be eager to see how their estimates match with those of the Fed.

Important news for USD:

Tuesday:​

• CPI​

Wednesday:​

• Fed Interest Rate Decision​

Thursday:​

• Retail Sales​

EUR

ECB Vice President de Guindos stated that falling inflation is a very welcoming sign and characterized it as a “positive surprise”. He cautioned that it is still too early to declare victory on inflation and reiterated that ECB remains in data-dependent mode. ECB Executive Board member Schnabel stated that further rate hikes are “rather unlikely” after last batch of inflation data which she called encouraging. She added that incoming data suggests that economy may be bottoming out but there are no signs of prolonged recession. Money markets are pricing in cuts more aggressively with cut in March being almost fully priced in.

Final November services PMI were revised higher on the back of almost a full point revision in German reading (49.6 vs 48.7) and printed 48.7 vs 48.2 as preliminary reported. This managed to lift composite to 47.6 from 47.1 as preliminary reported. The report mentions that services seem to be bottoming out but it states two concerning issues, one is that employment conditions fell for the first time in almost three years and two that high input prices persist making it difficult for companies to lower prices in the face of falling demand without making losses. Final Q3 GDP reading was unchanged at -0.1% q/q but yearly number was lowered and is now flat. Household consumption contributed with 0.2%, government expenditure added 0.1% and it was offset by drop in inventories of -0.3% and negative contribution from trade.

This week we will have ECB meeting and preliminary December PMI data. No change to rate is expected but change in tone to more dovish stance could come from ECB given falling inflation and weak economic data. Markets are pricing in rate cuts aggressively, with some pricing in 150bp of rate cuts, so if Lagarde pushes back there could be a rally in EUR.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

Friday:​

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

GBP

Final services PMI reading for the month of November saw it revised up to 50.9 from 50.5 as preliminary reported. This is the first time that sector is in expansion since July. New work and employment categories managed to increase further while more concerning is that there is a noticeable drop in demand from clients combined with rising input costs. The main reason for rising input costs, fastest increase in four months, are wage increases. Composite was lifted into expansion, 50.7 from 50.1 as preliminary reported and 48.7 in October.

This week we will have employment data, preliminary December PMI data as well as BoE meeting. We will get no change to the policy but the tone of the statement will be scrutinized.

Important news for GBP:

Tuesday:​

• Payroll Change​
• Unemployment Rate​

Thursday:​

• BoE Interest Rate Decision​

Friday Manufacturing PMI​

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

AUD

RBA has left cash rate unchanged at 4.35% as was widely expected. The statement shows that, according to monthly CPI, goods sector inflation is continuing to moderate, but there was no data on services inflation. Data on services inflation will be seen on January 31 with quarterly CPI numbers. The statement continues with saying that “overall, measures of inflation expectations remain consistent with the inflation target,” Ultimately, the statement concludes with “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.” This reaffirms their data-dependent stance.

Q3 GDP came in at 0.2% q/q vs 0.4% q/q as expected and in Q2. This marks the slowest growth in two years. GDP printed 2.1% y/y, same as in the previous quarter. Household saving to income ratio decreased to 1.1% from 2.8% in Q2, the lowest since December of 2007, as higher prices erode peoples’ purchasing power causing them to spend more and save less while terms of trade fell 2.6%. Government spending was the biggest contributor to GDP growth combined with investment from public corporations. Inventories also added to the reading as lower exports caused a build up. On the other hand, net trade deducted from the reading as exports fell and imports rose. Household spending was flat on the quarter.

Caixin PMI services for the month of November expanded further and printed 51.5 vs 50.8 as expected and up from 50.4 in October. The report states faster increases in business activity and new orders as well as in overall confidence. Additionally, inflation pressures are seen weakening. Composite was lifted up into expansion with 50.6 reading compared to 50 the previous month. Trade balance data for November showed bigger than expected widening of surplus to $68.39bn from $56.5bn in October. Exports rose 0.5% y/y, more than expected, while imports declined 0.6% y/y, missing expectations. Declining imports pose questions about China’s recovery as they indicate weak domestic demand.

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

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​
• Industrial Production (China)​
• Retail Sales (China)​

NZD

Q3 terms of trade saw deterioration of 0.6% q/q as export prices fell by more than import prices. First December GDT auction saw prices increase by 1.6% led by increase in Cheddar prices. This could help improve terms of trade in Q4 and bring positive impact to the economy.

This week we will have Q3 GDP data.

Important news for NZD:

Wednesday:​

• GDP​

CAD

BoC left its cash rate unchanged at 5% as was widely expected. The main takeaways from the statement were that “higher interest rates are clearly restraining spending” and that disinflation is occurring at a faster pace. The statement concluded with “Governing Council is still concerned about risks to the outlook for inflation and remains prepared to raise the policy rate further if needed” indicating hawkish stance from BoC. We think that bar for raising rates is very high but with with strong labor market and their potential impact on inflation officials have to be careful.

JPY

Tokyo area CPI for the month of November came in at 2.6% y/y vs 3.3% y/y in October while expectations were for it to decline to 3% y/y. Ex fresh food category came in at 2.3% y/y vs 2.4% y/y as expected and down from 2.7% y/y the previous month. Ex fresh food, energy, so-called “core core”, came in at 3.6% y/y vs 3.7% y/y as expected and down from 3.8% y/y in October. All three measures are above targeted 2% but they all declined and by more than expected. BoJ is planing to wait for spring wage negotiations and raise rates after that.

Labor cash earnings for the month of October rose 1.5% y/y from 0.6% y/y in September but due to the high inflation real wages are still negative and came in at -2.3% y/y. Household spending came in at -2.5% y/y vs -3% y/y as expected. Final reading of Q3 GDP was revised down to -0.7% q/q from -0.5% q/q as preliminary reported. Q2 GDP also saw revisions down as it now printed 0.9% q/q and 3.6% annualized, down from 1.2% q/q and 4.5% annualized. Household consumption declined by 0.2% while capital expenditure declined by 0.4%. Net trade was also a drag on the reading while only positive was government spending. Despite the data JPY had a massive week as Governor Ueda’s comments have been interpreted to mean faster exit from negative interest rate policy. GBPJPY has declined 650 pips in a day and USDJPY was down 550 pips in a week at one moment.

CHF

November CPI declined further and printed 1.4% y/y vs 1.7% y/y as expected and in October. Core CPI also ticked down to 1.4% y/y from 1.5% y/y the previous month. Inflation is beyond their 2% target so SNB will have no need to act at next week’s meeting. SNB total sight deposits for the week ending December 1 came in at CHF474.1bn vs CHF473.7bn the previous week. Still in a very tight range.

Important news for CHF:

Thursday:​

• SNB Interest Rate Decision​

 

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Forex Major Currencies Outlook (Dec 18 – Dec 22)

BoJ meeting and inflation data from the US, the UK and Canada will be the highlights of the week ahead of us.

USD

November inflation data came in line with expectations. Headline CPI came in at 3.1% y/y, tick down from 3.2% y/y in October. Energy component fell 2.3% m/m with gasoline prices dropping 6% m/m. Core CPI came in at 4% y/y, unchanged from October while it rose 0.3% m/m vs 0.2% m/m increase in October. Shelter component rose 0.4% m/m compared to 0.3% m/m increase the previous month and printed a 6.5% y/y increase. Services ex energy and shelter, Fed pays close attention to it, came in at hot 0.44% m/m. It should be running below 0.2% m/m in order for inflation to get down to 2%.

Fed has left Fed funds rate unchanged as was widely expected in the 5.25-5.50% range. In the statement they have acknowledged slowing economic growth and moderating job gains. Newly published dot plot shows rate at the end of 2024 at 4.6%, down from 5.1% as was seen in the September dot plot. Rate for the end of 2025 was downgraded to 3.6% from 3.9% in September while rate for 2026 was unchanged at 2.9%. Headline PCE and core PCE inflation are seen coming to the 2% level in 2026. GDP is expected to run below trend in 2024 at 1.4% before returning to trend in 2025.

Chairman Powell opened the press conference by acknowledging that inflation eased while there was no up in the unemployment rate. He added that policy rate is well in restrictive territory and that full effects of it are not yet felt. Powell admitted that they are at or near the peak of rate hikes cycle. He revealed that there was a discussion regarding rate cuts at the meeting. Powell stated that they are attentive to not making the mistake of holding rates high for too long. Additionally, Powell admitted that they will cut rates before inflation falls to 2%. There was a very dovish tone in the statement and press conference indicating that Fed is done with rate hikes and that rate cuts are on the table. Some analysts are now pricing in full 175bp of rate cuts for 2024. Fed’s Williams pushed back on those projections stating that it is premature to be thinking about rate cuts in March.

Retail sales for November printed 0.3% m/m vs -0.1% m/m as expected. Never underestimate US consumer as the old saying goes. The report shows that food services and drinking places saw biggest monthly gains followed by nonstore retailers and furniture stores. On the other hand, gasoline stations posted the biggest decline as gas prices fell. Control group, it goes into GDP calculation, saw increase of 0.4% m/m vs 0.2% m/m as expected while particularly strong result was in ex gas and autos category which rose 0.6% m/m from 0.1% m/m in October.

The yield on a 10y Treasury started the week and year at 4.23%, rose to 4.26%, then fell bellow 4% post FOMC meeting and finished the week at around 3.911%. The yield on 2y Treasury reached the high of 4.76% and also declined significantly after FOMC meeting. Spread between 2y and 10y Treasuries started the week at -48bp then widened to -53bp as curve inverted further. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 88% while probability of a 25bp rate cut is 12%. Probability of March 2024 rate cut surged to 90% but subsequently declined to 68%.

This week we will have final Q3 GDP reading and Fed’s preferred inflation measure PCE.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

ECB has left key interest rates unchanged as was widely expected. The report states that tighter financial conditions dampen demand and in that way help lower inflation. ECB plans to reduce PEPP reinvestments from H2 and 2024 and stop reinvestment under PEPP program at the end of 2024. New projections see inflation lower to 5.4% in 2023 and 2.7% in 2024 while inflation will print 2.1% in 2025 and 1.9% in 2026. ECB will remain data-dependent in making their decisions.

At the press conference President Lagarde explicitly stated that there was no talk about rate cuts. She added that risks to growth are tilted to the downside. Inflation is expected to increase in December due to base effects but it will continue declining afterwards. Lagarde stated that wages are not declining and that more data is needed. ECB policymaker Villeroy stated that nobody mentioned rate cuts at the December meeting and added that bank’s next move, if there are no economic surprises in the data, should be to lower rates.

Eurozone preliminary PMI data for the month of December provided us with picture of a further deteriorating economy. Manufacturing PMI was unchanged at 44.2 with Germany showing slight improvement while France dropping further. Services slid deeper into contraction with 48.1 vs 49 and down from 48.7 in November. Both German and French services readings declined and dragged Eurozone composite to 47 from 47.6 the previous month. Demand is weak throughout the Eurozone and that weighs heavily on consumption. The reports states that “Even though input prices increased at a modestly slower rate, companies were able to raise output prices even more than in previous months. This suggests that businesses were successful in transferring a portion of the cost increases to customers. The European Central Bank acknowledges this dynamic in its latest statement, noting that "domestic price pressures remain elevated."

GBP

November payroll change came in at -12k vs 39k in October. October unemployment rate remained at 4.2% while wages fell for the second month in a row and printed 7.2% 3m/y and 7.3% 3m/y for ex bonus wages. Wages falling down by more than expected present encouraging sign for BoE. October GDP came in at -0.3% m/m vs 0% m/m as expected and 0.2% m/m in September. All three sectors, services, production and construction, contributed negatively to the reading. Q4 has started on a much weaker note than expected and GDP was flat for the previous 3 months.

BoE has left the rate unchanged at 5.25% as widely expected. The vote came in at 6-3 also as expected with 3 members voting for a 25bp rate hike. They now see inflation at 4.5% by the end of the year, compared to 4.75% previously but add that it will take more time to bring inflation down. They are remaining data-dependent and are prepared to tighten further if evidence of more persistent inflationary pressures appear. Governor Bailey stated that they cannot confirm that interest rates have reached its peak and he pushed back on rate cuts adding that it is way too early to speculate on them. Much more hawkish sounding message than the one provided by Fed.

Preliminary December PMI data showed manufacturing dropping to 46.4 from 47.2 after three months of improvements in the sector. Services sector continued to strengthen and printed 52.7, up from 50.9 in November and thus managed to push up composite to 51.7 from 50.7 the previous month. There is a clear division between sectors in the economy as can be seen from the results and prices of goods are seen falling while prices of services are still elevated putting doubt whether inflation will come down as fast as expected.

This week we will have November inflation and final Q3 GDP data.

Important news for GBP:

Wednesday:​

• CPI​

Friday:​

• GDP​

AUD

Yet another strong employment report from Australia. November employment change came in at 61.5k smashing expectations of 11k. In October the economy added 55k jobs making this second consecutive stellar report. The unemployment rate rose to 3.9% from 3.7% in October but it was due to increase in participation rate to 67.2% from 67% the previous month. Almost all of jobs added were full-time (57k) with part-time filling in the rest (4.5k). This report will keep RBA debating what to do at their February meeting.

Deflationary data are coming from China. Headline inflation for the month of November printed -0.5% y/y vs -0.1% y/y as expected. Weak consumer demand coupled with falling oil prices pushed CPI deeper into deflation. PPI has shown a decline of 3% y/y while a decline of 2.8% y/y was expected. These numbers show that there is ample space for fiscal stimulus and PBOC obliged. They have kept 1-year MLF rate at 2.5% as widely expected but injected 1.45tln yuan into the system while only 650bn yuan was maturing today. This means that they have injected stimulus of 800bn yuan which is highest recorded monthly injection.

November economic activity data saw industrial production increase 6.6% y/y vs 5.6% y/y as expected and up from 4.6% y/y shown in October. Retail sales, on the other hand, missed expectations although they posted a very healthy increase (10.1% y/y vs 12.5% y/y as expected and up from 7.6% y/y the previous month). China had lockdown restrictions in November of 2022, meaning the base for comparison was low and that is the main reason for high numbers. Reports from Reuters are circulating that China will set its 2024 GDP target at around 5%.

NZD

Q3 GDP disappointed coming in at -0.3% q/q vs 0.2% q/q as expected and -0.6% y/y vs 0.5% y/y. Additionally, Q2 readings were revised down to 0.5% y/y and 1.5% y/y. The report shows declines in manufacturing, transportation, construction and wholesale. RBNZ has left open option to raise rates between meetings, but with growth crumbling we think that further rate hikes will not be delivered.

CAD

October manufacturing sales printed a 2.8% m/m decline. Wholesale posted second month of declines coming in at -0.5% m/m after a -0.6% m/m decline in September. Housing starts in November plunged to 212.6k from 272.3k the previous month. CAD has managed to benefit from post-Fed drop in USD but incoming economic data are not encouraging.

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Preliminary December PMI showed manufacturing slipping further into contraction and coming in at 47.7, down from 48.3 in January. Manufacturing has been in contraction since May and this reading matches the February low. For number lower than this we have to go back all the way to 2020 during pandemic. Services posted a great improvement to 52 from 50.3 previous month thus lifting composite back into expansion with 50.4 print. The report shows stronger decline for output, new orders and new export orders in the manufacturing sector while services shows stronger growth in all of those categories. One concerning factor is that input prices sed stronger growth for both sectors indicating mounting inflation pressures.

This week we will have BoJ meeting. No changes to rate are expected but we could see abandoning of Yield Curve Control.

Important news for JPY:

Tuesday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending December 8 came in at CHF471.7bn vs CHF474.1bn the previous week. Deposits remain in the well defined range that is now lasting for over four months. SNB has left policy rate unchanged at 1.75% as was widely expected. CPI projections have been lowered and they now show CPI at 1.9% in 2024 vs 2.2% previously and CPI at 1.6% in 2025 vs 1.9% previously. The part of the statement showing bank’s willingness to further tighten has been omitted indicating that the bank is now on hold. SNB Chairman Jordan stated that they are no longer focused on forex sales adding that risks to inflation are currently balanced. He added that members believe that current stance of monetary policy is appropriate.

We will be taking a well deserved break and will continue publishing our weekly report in 2024. TradersWay analytics team wishes you Merry Christmas and Happy New Year!​

 

[katetrades]

Forex Major Currencies Outlook (Jan 8 – Jan 12)

Inflation week is ahead of us as the US, China and Switzerland publish inflation reports.

USD

ISM Manufacturing for the month of December improved to 47.4 from 46.7 in November. Expectations were for it to improve to 47.1. Manufacturing has spent entire 2023 in contraction territory and has not been in expansion since October of 2022. Production was the only component that was in expansion with 50.3, up from 48.5 in November. New orders index declined to 47.1 making it sixteenth month in contraction. Employment improved to 48.1 from 45.8 the previous month while the biggest positive was a big drop in prices paid component which came in at 45.2 from 49.9 in November. With inflation pressures easing Fed will be more confident that they are on path to achieve much coveted “soft landing”.

Minutes from the December meeting revealed that participants see policy rates to likely be at its peak. “A number” of participants questioned for how long monetary policy should remain restrictive. All participants observed that clear progress on bringing inflation down to 2% has been made in 2023. However, progress on inflation has been uneven with core services component continuing to increase at elevated pace. There was also talk about preparing to reduce the size of balance sheet run off, QT, which will be a hot topic of discussion at the next press conference.

Headline December NFP number printed 216k vs 170k as expected. The unemployment rate was unchanged at 3.7% y/y vs 3.8% y/y as expected, however participation rate recorded a big drop to 62.5% from 62.8% in November. Wages increased 0.4% m/m and 4.1% y/y. These numbers refute market’s pricing of Fed rate cuts as jobs are stable and wages are increasing at a healthy pace. Digging into the details we can see that there was a downward revision of 71k jobs in the past two months. Additionally, government added 52k jobs with health care adding 38k jobs.

ISM services posted a big miss in December as they came in at 50.6 vs 52.6 as expected and down from 52.7 the previous month. The biggest drop was seen in the employment category which plunged to 43.3 from 50.7 the previous month. This number indicates that businesses are not hiring. Prices paid component also declined as did new orders, new export orders and inventories. The numbers from report are very dovish.

The yield on a 10y Treasury started the year at 3.88%, rose to 4.10% and finished the week at around 4.05%. The yield on 2y Treasury started the year at 4.25% and reached the high of 4.48%. Spread between 2y and 10y Treasuries started the year at -37bp then widened to -38bp as curve inverted further. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 94% while probability of a 25bp rate cut is 6%. Probability of a March rate cut is at 66%.

This week we will get December inflation data and it is expected to come in unchanged from previous month.

Important news for USD:

Thursday:​

• CPI​

EUR

Final December manufacturing PMI was revised up to 44.4 from 44.2 as preliminary reported with positive revisions to German and French readings. Italy beat the expectations while Spain missed. Still, absolute measures show Spain to decline at the slowest pace while France declines fastest. Although number is very low it still marks a seven month high. The report shows that growing number of firms shows optimism regarding their output over the next 12 months. Final services for Eurozone improved to 48.8 on the back of improvements in German and French readings as well as Spain beating the expectations. New business opportunities continued to weaken while input prices continued to increase with companies successfully passing higher costs to consumers. Composite PMI came in at 47.6 unchanged from November.

Preliminary December inflation numbers saw headline CPI at 2.9% y/y vs 3% y/y as expected and up from 2.4% y/y in November. Both German and French preliminary CPI readings for December came in higher than previous month and printed 3.7% y/y. Declining energy base effects were the main culprits for increase in inflation. A very encouraging sign was seen in core CPI which declined to 3.4% y/y from 3.6% y/y in November while markets were expecting a decline to 3.5% y/y. These numbers give confidence to ECB that pause is the right way to go for now and that rate cuts in the second half of the year, or from June, are justified.

GBP

Unlike Eurozone manufacturing reading, final December UK manufacturing PMI was revised down to 46.2 from 46.4 as preliminary reported and down from 47.2 in November. New orders and output declined and there was a further decline in business optimism. The report sees a gloomy future for manufacturing sector stating drop in input prices due to weaker demand as one shining light. Final services reading was revised up to 53.4 from 52.7 as preliminary reported and up from 50.9 in November indicating a healthy and rising sector. New orders and business activity both increased in December. Input prices have been increasing but doe to cost-of-living crises companies are not capable of fully transferring costs to consumers. Composite improved to 52.1 from 50.7 the previous month.

AUD

Official PMI data from China for the month of December showed manufacturing continue to slip down into contraction printing 49 vs 49.5 as expected and down from 49.4 in November. New orders component is declining further indicating weak activity. Services PMI inched up to 50.4 from 50.2 the previous month but expectations were for a 50.5 reading. Composite dipped slightly to 50.3 from 50.4 in November. Caixin manufacturing PMI, measuring small and medium sized enterprises, fared better and ticked up to 50.8 from 50.7 the previous month while it was expected for it to dip to 50.4. The report shows that both output and new orders increased at faster pace. Caixin services beat expectations and rose further into expansion with 52.9 reading, up from 51.5 the previous month while composite printed 52.6, a seven month high.

This week we will get inflation data from China.

Important news for AUD:

Friday:​

• CPI (China)​

NZD

NZD had a turbulent start of the year as rebalancing of portfolios took its toll on the risk on currencies. However, it seems that Kiwi has carved out a bottom post NFP and we could see some nice strength throughout the coming week.

CAD

December employment report was a mixed bag. Employment change was 0.1k, basically unchanged, vs 13.5k as expected. The unemployment rate remained at 5.8% while tick higher to 5.9% was expected. Wages surged 5.7% y/y vs 5% y/y in November. All of the jobs added were part-time jobs (23.6k) while full-time jobs saw a big decline (23.5k). There are signs of weakening job market but with wages running hot it is not what BoC wants to see.

JPY

Final December manufacturing PMI was revised up to 47.9 from 47.7 as preliminary reported, but still down from 48.3 in November. The report highlights weaker external demand but higher input prices. Firms, however, remain hesitant to continue passing higher costs to consumers. Final services were revised down to 51.5 from 52 as preliminary reported but up from 50.8 in November. The report shows that business volume improved led by domestic consumers. On the other hand, there was a big increase in prices from service sector that will keep inflation elevated.

CHF

Swissy was the best performing currency, out of majors, with its incredible surge in the last couple of trading days in 2023. However, 2024 has started slow and Swissy lost ground against all major pairs only to regain its strength as the week progressed.

This week we will get inflation data.​

Important news for CHF:

Monday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Jan 15 – Jan 19)

Q4 GDP from China, inflation data from the UK and Canada, employment data from the UK and Australia will highlight the week ahead of us.

USD

December CPI report came in hotter. Headline number came in at 3.4% y/y vs 3.2% y/y as expected and up from 3.1% y/y in November. Monthly reading showed an increase of 0.3% compared to 0.2% as expected. Energy component declined 2% y/y but rose 0.4% m/m. Core reading slid but not as much as expected as it printed 3.9% y/y vs 3.8% y/y as expected and down from 4% y/y the previous month. Shelter was the biggest contributor to price increases as it rose 0.4% m/m but rose 6.2% y/y compared to 6.5% y/y increase the previous month. Prices of used cars increased 0.5% m/m. The so called “super-core” measure, core services CPI ex housing, Fed pays close attention to it, rose 0.4% m/m. Real wages were crushed by high inflation as they declined by 0.2% m/m compared to them increasing by 0.5% m/m the previous month. Overall it is a hawkish report for the USD as markets will need to recalculate their cut bets.

The yield on a 10y Treasury started the week at 4.05%, rose to 4.10% and finished the week at around 3.96%. The yield on 2y Treasury started the week at 4.40% and reached the high of 4.48% only to collapse post CPI and finish the week at around 4.14%. Spread between 2y and 10y Treasuries started the week at -34bp then tightened to -18bp as curve started to steepen again. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 93% while probability of a 25bp rate cut is 7%. Probability of a March rate cut is at 83%.

This week we will have consumption data.

Important news for USD:

Wednesday:​

• Retail Sales​

EUR

November volume of retail sales came in at -0.3% m/m as expected while there was a positive revision to October reading (0.4% m/m vs 0.1% m/m as previously reported). Consumers in the Eurozone are still struggling with higher prices and detailed report shows that only automative fuel saw increase of 1.4% m/m while food, drink and tobacco and non-food products recorded declines of 0.1% m/m and 0.4% m/m respectively.

December sentiment data for the Eurozone points to strengthening of economic activity. Sentiment indicator jumped to 96.4 from 94 in November making it a third consecutive month of improvements. Services sentiment made a big jump improving to 8.4 from 5.5 the previous month. Consumer confidence is still at very low levels but it also showed an improvement coming in at -15 compared to -16.9 in November. It reflects better current conditions but also improved expectations for the period of next 12 months. ECB Governing Council member Isabel Schnabel stated that it is too early to discuss rate cuts and that although inflation is coming down additional data confirming that will be needed for any changes in monetary policy to occur.

GBP

November GDP printed an increase of 0.3% m/m compared to 0.2% m/m as expected. Services output rose by 0.4% m/m and was the main contributor to the GDP reading while construction output declined by 0.2% m/m and was the biggest drag. Chances of a recession have declined and BoE may wait a bit further before beginning with rate cuts.

This week we will have employment and inflation data.

Important news for GBP:

Tuesday:​

• Payrolls Change​
• Unemployment Rate​

Wednesday:​

• CPI​

AUD

November monthly inflation reading came in at 4.3% y/y vs 4.4% y/y as expected and down from 4.9% y/y in October. Monthly reading comprises of around 70% of the weight of the quarterly CPI basket, so although it does not show a full picture it could be used as a good approximation. The next Q4 quarterly reading will come on January 31 and it will have a big impact on RBA thinking process. Retail sales for the same month increased 2% m/m compared to 0.2% m/m increase the previous month.

December inflation data from China saw CPI decline by -0.3% y/y vs -0.4% y/y as expected. This makes it a third consecutive month of outright deflation. Big declines in pork prices are pushing CPI into negative territory. Trade data showed widening of surplus to $75.34bn, more than expected, as both exports (2.3% y/y vs 0.5% y/y in November) and imports (0.2y/y vs -0.6% y/y in November) increased.

This week we will get employment data from Australia as well as Q4 GDP, production and consumption data from China.

Important news for AUD:

Wednesday:​

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

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

The ANZ World Commodity Price Index rose 2.4% m/m in December. It tracks 17 major commodity exports from New Zealand. Increase in dairy prices had the most impact on the rise of the overall index. This is a positive impact for Kiwi and the economy.

CAD

November building permits declined 3.9% m/m, much more than expected 1.7% m/m decline. CAD has been struggling throughout the week but managed to gain some momentum against the USD after the US CPI report.

This week we will have inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Tokyo are inflation for December saw headline number come down to 2.4% y/y from 2.6% y/y in November. Ex fresh food category also declined as it came in at 2.1% y/y, down from 2.3% y/y the previous month. However, ex fresh food, energy category, the “core core”, was unchanged at 3.6% y/y, almost double the BoJ’s target of 2%. Household spending for November recorded further declines as it fell by 2.9% y/y while a decline of 2.3% y/y was expected. Higher costs are weighing on consumption and will have negative impact on Q4 GDP. Nominal wages have managed to eek a positive reading increasing 0.2% y/y in November but when we take into account the inflation then we get a decline of 3% y/y in real wages. BoJ is paying close attention to wages and it is expected for wages to increase significantly after the Spring wage negotiations which will then lead to BoJ adjusting their ultra loose monetary policy.

CHF

Swiss inflation turned higher in December. Headline CPI came in at 1.7% y/y vs 1.5% y/y as expected and up from 1.4% y/y in November. Core CPI came in at 1.5% y/y, a tick up from 1.4% y/y the previous month. Numbers should deter any talk about easing coming from SNB. As they are still way below 2% there is no need for them to change the course of their policy and will remain firm in the pause mode. SNB total sight deposits for the week ending January 5 came in at CHF468.8bn vs CHF462.9bn the previous week. Total sight deposits are in a narrow range between CHF462bn abd CHF476bn for the past two months.​

 

[katetrades]

Forex Major Currencies Outlook (Jan 22 – Jan 26)

BoJ, BoC and ECB open the year for central banks meetings, we will also have advanced Q4 GDP from the US as well as preliminary January PMI data from the Eurozone and the UK.

USD

Fed Governor Waller gave a speech in which he confirmed that economic data from the past few months is consistent with Fed cutting this year. He added that cuts need to be calibrated carefully and Fed will be able to cut if there is no rebound in inflation or inflation stays high. He emphasized that his view is consistent with three 25bp rate cuts suggested by Fed in December dot plot and added that timing and actual number of cuts will be dependent on the incoming data. According to him financial conditions remain restrictive and he is now more confident that inflation is on its to the 2% target. In the Q&A session he said that Fed is now in a peculiar position, they can cut rates without shocking the economy. He characterised 4% growth as a bit high, but not by much and commented that overnight repo facility does not need to have funds in it. Currently there are around $600bn in it and they could all be drained.

The old saying “never underestimate the strength of US consumer” proved true once again. Retail sales in December came in at 0.6% m/m vs 0.4% m/m as expected. Control group, used for GDP calculation, rose 0.8% m/m indicating a very healthy consumer and a strong Q4 GDP reading. The report shows that biggest gain in retail sales were from clothing, nonstore retailers and general merchandise stores. Declines were found in health and personal care stores as well as in furniture stores.

The yield on a 10y Treasury started the week at 3.94%, rose to 4.18% and finished the week at around 4.15%. The yield on 2y Treasury started the week at 4.15% and reached the high of 4.40%. Spread between 2y and 10y Treasuries started the week at -21bp then widened to -24bp as curve inverted further after a strong retail sales report. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 97% while probability of a 25bp rate cut is 3%. Probability of a March rate cut plunged from 70% at the start of the week to 55%.

This week we will get preliminary Q4 GDP, Atlanta Fed’s forecast is for 2.4% annualized, and Fed’s preferred inflation metric PCE.

Important news for USD:

Thursday:​

• GDP​

Friday:​

• PCE​

EUR

January German ZEW survey showed sentiment improve to 15.2 from 12.8 in December as majority of participants expect ECB to cut interest in the first half of this year. German statistical office released preliminary estimate and it shows that German economy shrank by 0.3% in 2023. Their estimates see Q4 GDP declining also by 0.3%.

ECB Chief Economist Lane stated that most complete wage data will be available only for the June meeting thus pushing back on market’s early rate cut bets. ECB hawks Holzmann and Nagel added that early wage data show high increases and that it is much too early to talk about rate cuts. They are also wary that once the story about rate cuts becomes proliferated markets will grab it and take it much further than policymakers intended thus potentially seriously damaging all that has been done so far. ECB policymaker Villeroy spoke in Davos and stated that it is too early to call victory on inflation adding that rate cut is coming this year, but did not want to specify when. ECB President Lagarde spoke in Davos and stated that “too optimistic markets are not helpful in fight against inflation”. She then added that it is likely that rates will be cut by the Summer. Hawks and doves in the ECB are not aligned when it comes to the path of future rate cuts.

This week we will have preliminary January PMI data as well as well as ECB meeting. No changes to the policy rate are expected. The focus will be on press conference for further clues regarding when can we expect first rate cut.

Important news for EUR:

Wednesday:​

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

Thursday:​

• ECB Interest Rate Decision​

GBP

December payroll change saw a decline of 24k jobs. November reading was revised up so it shows 9k jobs added. November unemployment rate remained unchanged at 4.2%. Wages continued to decline as average weekly earnings came in at 6.5% 3m/y vs 7.2% 3m/y the previous month and earnings ex bonus printed 6.6% 3m/y vs 7.2% 3m/y in November. Wages remain elevated but their trend is clearly to the downside which should put downward pressure on prices.

Inflation data for December was unwelcome. Headline CPI printed an increase of 4% y/y, up from 3.9% y/y in November while markets expected a tick down to 3.8% y/y. Core CPI reading was unchanged at 5.1% y/y while markets expected a decline to 4.9% y/y. Services inflation was the biggest contributor as it rose by 0.7% m/m and 6.4% y/y vs 6.3% y/y in November showing that disinflationary path is not a straight line.

This week we will get preliminary January PMI data.

Important news for GBP:

Wednesday:​

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

AUD

After two very strong job reports we got one abysmal report. December employment change came in at -65.1k vs 17.6k as expected. The unemployment remained unchanged at 3.9% due to big drop in the participation rate, 66.8% from 67.2% in November. The composition of jobs was dreadful as full-time employment saw a loss of 106.6k jobs! Part-time added 41.5k jobs. Labour market is easing and further inflation pressures will not come from wages.

Chinese Q4 GDP came in at 1% q/q as expected, but down from 1.5% q/q in Q3. Yearly figure printed a growth of 5.2% vs 5.3% as expected, but up from 4.9% in the previous quarter. December figures saw industrial production at 6.8% y/y vs 6.6% y/y as expected, but retail sales at 7.4% y/y vs 8% y/y as expected. Mixed activity data but GDP beat the 5% target. PBOC made no changes to their 1-year MLF rate and left it at 2.50%. Markets were looking for a rate cut to 2.40%. PBOC has added liquidity in the market by adding more loans instead of cutting rates.

NZD

Business confidence in Q4 showed a big improvement as it printed -2%, up from -52% in Q3. The report shows easing in labour market conditions and inflationary pressures. Concerns have now shifted to the demand side as week demand poses problems for businesses. Kiwi received a small boost after the news but remained under pressure from strong USD for the entire week.

This week we will get Q4 inflation data.

Important news for NZD:​

Tuesday:

• CPI​

CAD

December CPI report printed 3.4% y/y as expected. It was 3.1% y/y in November. BoC core CPI reading declined to 2.6% y/y from 2.8% y/y the previous month. The main reason inflation increased was due to base effects coming out of the calculation. With core CPI coming in stronger than expected BoC will not be pressured to cut rates soon and markets are now pricing out January and March rate cuts.

This week we will have a BoC meeting. No changes to the policy are expected, however we may get a more dovish tone from the BoC indicating that rate cuts are soon to come.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

JPY

Core machinery orders, a good proxy for CAPEX six to nine months in the future, plunged in November 4.9% m/m and 5% y/y. Final industrial production for the same month saw declines of 0.9% m/m and 1.4% y/y. National inflation data for the month of December saw all three measures decline from their November readings. Headline CPI printed 2.6% y/y, down from 2.8% y/y, Ex fresh food printed 2.3% y/y, down from 2.5% y/y while ex fresh food energy, so called core-core, printed 3.7%, a tick down from 3.8% y/y the previous month. All three measures are above targeted 2% but the are slowly returning towards the target. BoJ members are not convinced that inflation has sustainably reached 2% target, therefore they are reluctant to make any changes to monetary policy. Tertiary industry index for the month of November came in at -0.7% m/m thus falling for the third straight month.

This week we will have BoJ meeting. No changes to rate or YCC are expected as recent wage and activity data came in weaker than expected.

Important news for JPY:

Tuesday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending January 12 came in at CHF476.3bn vs CHF468.8bn the previous week. A decent jump in the deposits but still within a well-established range that is been in play since November of 2023.​

 

[katetrades]

Forex Major Currencies Outlook (Jan 29 – Feb 2)

We are in for a massive week that will see Fed and BoE meetings, preliminary Q4 GDP and January CPI from the Eurozone, NFP and Q4 CPI data from Australia. Additionally, we will get QRA from Treasury and earnings from big tech companies.

USD

Fed has announced that they will not be extending their Bank Term Funding Program (BTFP) which is scheduled to end on March 11. The program was introduced last year when regional bank crisis escalated led by the failure of Silicon Valley Bank. Starting immediately the rate charged to banks that use funding from this program will be raised by 50bp. So far banks have used BTFP as an arbitrage opportunity, borrowing at lower costs with BTFP and lending at higher to Fed thus recording a profit, but with rate hikes this will come to an end.

Preliminary Q4 GDP reading came in at 3.3% annualized vs 2% annualized as expected, Atlanta Fed predicted 2.4% annualized. The biggest highlight is GDP deflator, measure of inflation, which plummeted to 1.5% from 3.3% in Q3. Expectations was for it to drop to 2.3%. Consumer spending rose 2.8% q/q while government spending rose 3.3% q/q. Net trade contributed 0.43pp to the GDP print. GDP for 2023 is seen at 2.5%. Such a strong GDP reading increases probability of economy achieving a soft landing.

December PCE data showed headline number staying at 2.6% y/y as expected while core PCE dropped to 2.9% y/y from 3.2% y/y in November while a decline to 3% y/y was expected. Digging into details of the report we can see that services ex energy and housing component rose 0.3% m/m, higher than 0.1% m/m increase the previous month. On the other hand, 6-month annualized inflation fell to 1.9% and 3-month annualized to 1.5%. With them below the 2% target chances of a rate cut are increasing and USD is weakening. Personal spending ripped higher by 0.7% m/m vs 0.4% m/m as expected while personal income rose 0.3% m/m as expected.

The yield on a 10y Treasury started the week at 4.13%, rose to 4.20% and finished the week at around 4.15%. The yield on 2y Treasury started the week at 4.38% and reached the high of 4.42%. Spread between 2y and 10y Treasuries started the week at -27bp then tightened to -19bp as curve steepened further. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at January meeting at 97% while probability of a 25bp rate cut is 3%. Probability of a March rate cut is around 50%.

This week we will get Fed meeting, Quarterly Refinancing Announcement (QRA) from Treasury, ISM manufacturing PMI and NFP on Friday. Fed is expected to stay pat, acknowledge encouraging growth and inflation data and emphasize data dependence. Investors will be on the lookout for the talk about QT reduction. Headline NFP number is expected to print around 162k with the unemployment rate staying at 3.7%.

Important news for USD:

Wednesday:​

• QRA​
• Fed Interest Rate Decision​

Thursday:​

• ISM Manufacturing PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

ECB lending survey for Q4 showed that banks continue to tighten their credit standards as well as business demand for loans weakening. High interest rates are the main reason for lower demand for credit. The report shows that demand will continue to get weaker and credit lending standards will continue to tighten which is another signal that rate cuts will come in the first half of the year. Ifo has revised German 2024 GDP to 0.7% from 0.9% seen the previous month.

Preliminary January PMI data in the Eurozone showed a split in the economy, but this time manufacturing improved while services declined. Manufacturing came in at 46.6 vs 44.8 as expected and up from 44.4 in December. Both German and French readings improved as well with German reading improving for the sixth consecutive month. The report shows that output, new orders and employment are all improving. Services reading slipped to 48.4 from 48.8 the previous month with declines seen in German and French readings. The report states that companies are expanding their workforce in services sector which is a very encouraging sign. Composite PMI ticked up to 47.9 from 47.6 in December while Germany and France saw small declines in their respective readings.

ECB has left key interest rates unchanged as was widely expected, deposit rate is at 4%. Inflation is moving in the right direction of the medium-term inflation outlook. Tight financing conditions are helping to weaken demand and push down inflation. President Lagarde stated at the press conference that risks to economic data remain tilted to the downside and that economy likely stagnated in Q4. In the Q&A section she revealed that consensus when talking about rates was that it is premature to cut them. She reiterated that they are data dependent and the importance of wage growth data.

This week we will have preliminary Q4 GDP and January CPI data.

Important news for EUR:

Tuesday:​

• GDP​

Thursday:​

• CPI​

GBP

Activity data from the UK surprises to the upside. Preliminary January PMI saw manufacturing improve to 47.3 from 46.2 in December and higher than 46.7 as expected. Services continued to move higher into expansion and printed 53.8, up from 53.4 the previous month and thus lifted composite reading to 52.5 from 52.1 in December. The report shows that businesses are becoming more optimistic regarding future growth prospects. This reading shows that UK economy is on a path for a positive GDP reading in Q1. BoE may look at this data and decide that there is no need to rush with rate cuts.

This week we will have BoE meeting. Taking into account recent UK data we expect no change to monetary policy. We will get new projections an a press conference after the meeting so we may see inflation forecast revised down.

Important news for GBP:

Thursday:​

• BoE Interest Rate Decision​

AUD

PBOC has decided to make no changes to LPR rates. The 1-year rate is left at 3.45% while 5-year rate stayed at 4.20%. LPR (Loan Prime Rate) is rate used as a benchmark for loans (1-year is used) and mortgages (5-year is used). Investors have hoped that bad economic data from China will push PBOC into cutting rates, but so far they are not obliging to market requests. PBOC has announced a 50bp RRR (Reserve Required Ratio) cut. The cut will apply from February 5. Rumors have started circulating in Chinese media that PBOC will cut MLF rate in Q1. MLF rate is a benchmark rate that commercial banks in China use to borrow funds from PBOC.

This week we will get Q4 CPI data from Australia which will be very important data input for the coming RBA meeting. We will also get official PMI data from China.

Important news for AUD:

Wednesday:​

• CPI​
• Manufacturing PMI (China)​
• Services PMI (China)​
• Composite PMI (China)​

NZD

Inflation data for Q4 came in as expected at 0.5% q/q and 4.7% y/y. Inflation is down from 1.8% q/q and 5.6% y/y increases in Q3. Inflation in New Zealand is divided into “Tradable” which is primarily driven by international demand and “Non-tradable” which is mainly driven by domestic demand. “Non-tradable” inflation surged by 5.9% y/y and 1.1% q/q, coming in much higher than 0.8% q/q as expected and indicating that domestic price pressures are not subsiding. RBNZ sectoral factor model inflation declined to 4.5% y/y from 5.2% y/y in the previous quarter. Overall, inflation pressures are easing which will be well accepted by RBNZ, but caution remains as domestic demand is still strong and pushes prices higher.

CAD

BoC held the interest rate at 5% as was widely expected. The bank expects growth to remain close to zero in Q1 of 2024 and then to pick up around the middle of the year. GDP projection is for 0.8% growth in 2024 and 2.4% in 2025. Regarding inflation statement says “The Bank expects inflation to remain close to 3% during the first half of this year before gradually easing, returning to the 2% target in 2025. While the slowdown in demand is reducing price pressures in a broader number of CPI components and corporate pricing behaviour continues to normalize, core measures of inflation are not showing sustained declines.” The statement concludes with “Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.” There is no mention of rate hikes giving this statement a clearly dovish tone. At the press conference BoC Governor Macklem stated that they have not ruled out future rate hikes and that if inflation accelerates they are prepared to raise rates but markets are not buying it.

JPY

New year but same old BoJ as they decided to make no changes to their monetary policy. Interest rate stays at -0.1% and yield on 10y JGB will fluctuate around 0% with 1% being a flexible upper bound. New projections saw no changes to core-core inflation while core inflation was lowered for 2024. GDP projections see lower growth in 2024 than projected in October but higher in 2025 than projected in October. BoJ Governor Ueda put some hawkish comments at the press conference stating that likelihood of achieving 2% inflation target is increasing. He reiterated the importance of spring wage negotiations and added that more companies are mulling wage hikes. Higher wages are necessary to sustainably achieve 2% inflation target. Ueda remarked that loose policy will continue for as long as necessary and added that change in policy is possible even if there is no change to quarterly outlook.

Preliminary January PMI data saw improvements across the sectors. Manufacturing ticked up to 48 from 47.9 in December on the back of slight improvements in output and new orders. They are still in contraction territory though. Services posted much bigger improvement as they printed 52.7 vs 51.5 the previous month. There was a big jump in new business growth and improvement in foreign demand. Composite was thus lifted to 51.1 from 50 in December. Tokyo area CPI for the month of January saw headline and ex fresh food numbers drop to 1.6% y/y from 2.4% y/y and 2.1% y/y in December respectively. Only core-core, CPI ex fresh food, energy, came in above BoJ’s 2% inflation target and printed 3.1% y/y, still down from 3.6% y/y the previous month.

CHF

SNB total sight deposits for the week ending January 19 came in at CHF473.4bn vs CHF476.3bn the previous week. A small decline but still within well-established range.​

 

[katetrades]

Forex Major Currencies Outlook (Feb 5 – Feb 9)

RBA meeting, inflation data from China, employment data from New Zealand and Canada as well as PMI data from the US and China will highlight the week ahead of us.

USD

Fed has left rate unchanged in the range of 5.25-5.50% as widely expected. The accompanying statement was changed in several places. There was no mention of "additional policy tightening" and this part was added "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." With this expression Powell has effectively pushed back on expected rate cuts. There was no mention of QT taper, the discussion about it has been moved to March, giving this statement a hawkish bias.

During the press conference Powell clarified that expression "greater confidence" refers to desire of FOMC members to see more good data on inflation. He added that they give the most credence to 12 month inflation, y/y. Powell stated rate cuts will come this year but that it is unlikely that rate cut in March is not the base case. Additionally, he clarified the importance of jobs data and stated that if jobs data weakens rate cuts may come sooner. The Chairman did not want to call "soft landing" achieved.

ISM manufacturing PMI for the month of January came in at 49.1, up from 47.4 in December, Big jumps were recorded in new orders and in prices paid. Both came in above 52 and while former is very encouraging the latter is concerning. New orders were in contraction since May of 2022. ECI (Employment Cost Index) for Q4 came in weaker than expected indicating that inflation pressures from wages are subsiding. Q4 unit labour cost rose by 0.5% vs 1.1% as expected and it added to the notion of declining inflation pressures.

First NFP of 2024 smashed expectations by almost doubling them and came in at 353k vs 180k as expected. The unemployment rate was unchanged at 3.7% as well as participation rate at 62.5%. Wages jumped significantly with weekly earnings coming in at 0.6% m/m vs 0.3% m/m as expected and 4.5% y/y vs 4.1% y/y as expected. Some weak points are drop in hours worked and the fact that almost all of the jobs added are part-time jobs. The biggest job gains were in education and health, they added 112k. Leisure and hospitality added only 11k. We got a 74k increase in professional/business services, 64k in trade & transport and 45k added in retail. Scorching hot report gave boost to USD as rising wages warn that inflation may prove sticky. Chances of a March rate cut have dropped significantly and most likely March cut is off the table.

The yield on a 10y Treasury started the week at 4.14%, rose to 4.14%, dropped to 3.87% and finished the week strong post-NFP at around 4%. QRA announcement showed that Treasury will issue $760bn vs $811bn as expected. There has been a bid in bonds due to lower than expected supply and yield on 10y fell below 4%. The yield on 2y Treasury started the week at 4.34% and reached the high of 4.36%. Spread between 2y and 10y Treasuries started the week at -22bp then widened to -38bp post-NFP as curve inverted further in expectation that Fed will stay higher for longer. The 2y10y is inverted for over a year. FedWatchTool sees the probability of no change at March meeting at 80% while probability of a 25bp rate cut is at 20%. Probability of a May rate cut is around 75%.

This week we will have ISM Services PMI.

Important news for USD:

Monday:​

• ISM Services PMI​

EUR

ECB Vice President de Guindos stated that progress on inflation has been encouraging with recent good news on inflation front and added that they will start cutting interest rates when they are sure of meeting 2% inflation goal. He added that inflation risks are tilted to the downside. ECB Centeno stated that they are data dependent but that he is not in favor of wing for wage data before cutting rates. ECB Kazimir stated that rate cut is more likely in June than in April. These comments illustrate the divide in ECB while markets almost fully price in a 25bp rate cut in April.

Preliminary Q4 GDP reading from Eurozone showed a flat economy with a measly 0.1% y/y growth. French economy was also flat q/q but rose 0.7% y/y. German GDP came in at -0.3% q/q as expected and -0.2% y/y. Spain and Italy had their respective GDPs come in positive and beat expectations. Technical recession is avoided but growth is missing.

Preliminary Eurozone CPI for the month of January came in at 2.8% y/y vs 2.9% y/y in December with a 0.4% m/m drop. Energy prices were the biggest contributor to declines due to base effects, while services inflation was not changed at 4%. Core CPI ticked down to 3.3% y/y from 3.4% y/y the previous month. Spain CPI surprised to the upside while French and German readings continued to decline with German CPI printing 2.9% y/y, the lowest level since July of 2021.

GBP

BoE has left the bank rate unchanged at 5.2% as widely expected but the vote was interesting. It came in at 6-3 with two members, Haskel and Mann, voting for a 25bp rate hike while Dhingra, the most dovish member voted for a 25bp rate cut. GDP growth has been weak recently but it is expected to pick up. CPI has come in below November projections and inflation is expected to come to 2% in Q2 and then increase again in Q3 and Q4. CPI is seen at 2.75% by the year end, 2.3% in two years and 1.9% in three years. Risks surrounding domestic prices and wages are more evenly balanced while "risks around its modal CPI inflation projection are skewed to the upside over the first half of the forecast period, stemming from geopolitical factors". The statement reveals that "monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term" as well as reiteration of data dependence. There was no mention of policy tightening indicating that despite the two members who voted for rate hike the bank is firmly in pause mode. Governor Bailey stated in the press conference that they are not yet at the place to lower rates. With BoE not sounding as dovish as expected markets are now moving rate cuts further into the future with June being almost fully priced in.​

AUD

Q4 CPI data showed 0.6% q/q increase compared to 1.2% q/q increase in Q3 and 4.1% y/y vs 4.3% y/y as expected, down from 5.4% y/y in the previous quarter. Core measure, trimmed mean, came in at 0.8% q/q and 4.2% y/y, both down from 1.2% q/q and 5.2% y/y in Q3. These numbers are encouraging and will be well received by RBA, but markets should not get ahead of themselves and price in aggressive rate hike cycle. Next week’s meeting will deliver a pause.

Official PMI data from China for the month of January saw improvements across the sectors. Manufacturing came in at 49.2 as expected, up from 49 in December. Services came in at 50.7 vs 50.6 as expected and up from 50.4 the previous month. Composite was lifted to 50.9 from 50.3 in December. IMF wants more monetary policy easing from PBOC and said that RRR cut which will take effect from February 5 is a move in right direction. Caixin manufacturing PMI printed 50.8 in January, unchanged from December, but stronger than 50.6 as expected. The report shows that total new orders remain in expansion while new export orders increased for the first time in seven months indicating growing foreign demand. Business confidence improved to a nine-month high.

This week we will have RBA meeting. No change in monetary policy is expected and language should shift from tightening to easing in the future. We will also get Caixin PMIs as well as inflation data from China.

Important news for AUD:

Monday:​

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

Tuesday:​

• RBA Interest Rate Decision​

Thursday:​

• CPI (China)​

NZD

December trade balance deficit shrank substantially as it printed -NZD332m from -NZD1250m in November. Exports declined slightly while there was an almost NZD1bn drop in imports. January business confidence improved to 36.6 from 33.2 in December. Improvements were seen in commercial construction and ease of credit with pricing intentions and inflation expectations declining. On the other hand, there was a huge drop in residential construction.

This week we will get Q4 employment data.

Important news for NZD:

Tuesday:​

• Employment Change​
• Unemployment Rate​

CAD

November GDP came in at 0.2% m/m vs 0.1% m/m as expected. Good producing industries grew by 0.6% m/m. December advanced reading sees GDP rising by 0.3% m/m which puts preliminary Q4 GDP reading at 0.3%.

This week we will get employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

The unemployment rate ticked down in December and it is now at 2.4%. Preliminary December industrial production data saw rebound compared to November but a smaller than expected improvements and January data is seen declining. Retail sales declined in December. BoJ Summary of Opinion showed that monetary policy should be maintained patiently and that positive wage-inflation spiral must be further strengthened.

CHF

SNB total sight deposits for the week ending January 26 came in at CHF472.2bn vs CHF473.4bn the previous week. Just a slight modification to the deposits as their multi-month range tightens further. SNB Chairman Jordan stated that inflation increased in January due to VAT and electricity prices but that is still below targeted 2%.​

 

[katetrades]

Forex Major Currencies Outlook (Feb 12 – Feb 16)

Inflation data from the US, the UK and Switzerland, Q4 GDP from the UK and Japan as well as employment data from the UK and Australia coupled with consumption data from the US will highlight a very busy week ahead of us.

USD

OECD has raised global growth forecast based on the very strong data coming from the US. Global growth for 2024 is now seen coming at 2.9% vs 2.7% previously while US GDP for 2024 is seen at 2.1% vs 1.5% previously. US GDP for 2025 is unchanged at 1.7%. Eurozone growth was lowered for both 2024 and 2025 while UK and China GDP were left unchanged for both years. OECD issued a warning stating that if problems around Red Sea persist it can add 0.4% to the CPI reading in a year’s time.

ISM services PMI for the month of January printed 53.4 vs 52 as expected and up from 50.5 the previous month. Employment showed a significant jump and returned into expansion with a 50.5 reading. As a reminder it plunged to 43.8 in December. There was also an improvement in new orders which moved further into expansion. One concerning factor is jump in prices paid category which printed 64! If price pressures prove to be more sticky than Fed and markets expect we could see higher rates for longer.

Fed's Senior Loan Officer Opinion Survey (SLOOS) reported that banks further tightened their lending standards in the Q4, but the pace of tightening was slower than in previous quarters. Banks also reported weaker demand for commercial and industrial loans and that weaker demand is coming from companies of all sizes. Tightening of lending standards was also seen in loans to the household sector. Higher rates are dampening demand for credit which in turn will have impact on economic growth. That is not yet seen in the economic data, but if this trend persists we can see it becoming a problem for the economy from Q2.

Headline December CPI was revised down to 0.2% m/m from 0.3% m/m as preliminary reported. Powell has highlighted that he will be closely watching this revision and incorporate this information into his decision. He wants to see that progress on inflation is being made, that inflation is falling as fast as reported, and he got a confirmation in the revised reading.

The yield on a 10y Treasury started the week at 4.02%, rose to 4.18% and finished the week at around 4.14%. The yield on 2y Treasury started the week at 4.37% and reached the high of 4.49%. Spread between 2y and 10y Treasuries started the week at -36bp then tightened to -30bp as curve steepened. The 2y10y is inverted for over eighteen months. We had very positive 10y and 30y auctions that were dominated by surge in indirect demand. FedWatchTool sees the probability of no change at March meeting at 80% while probability of a 25bp rate cut is at 20%. Probability of a May rate cut is around 68%.

This week we will have January inflation and consumption data.

Important news for USD:

Tuesday:​

• CPI​

Thursday:​

• Retail Sales​

EUR

Final January services for the Eurozone were unchanged at 48.4, down from 48.8 in December with composite coming in at 47.9, up from 47.6 the previous month on the back of stronger manufacturing sector. There were no significant revisions to the preliminary reading, although it is notable that French readings were revised up.

GBP

Final services reading was revised up in January to 54.3 from 53.8 as preliminary reported and up from 53.4 in December. Services sector is holding the UK economy and it is doing better than expected job. The reading is an eight month high. Strong output growth and rebounding new orders are stated in the report as well as declining price pressures which will be warmly accepted by the BoE. Composite reading was also revised up and printed 52.9 vs 52.1 the previous month.

This week we will have employment, inflation and preliminary Q4 GDP data.

Important news for GBP:

Tuesday:​

• Payrolls Change​
• Unemployment Rate​

Wednesday:​

• CPI​

Thursday:​

• GDP​

AUD

RBA has decided to leave cash rate at 4.35% as expected. The board acknowledged recent encouraging data on inflation but stated that it will take some time yet before inflation is sustainably in the targeted range of 2-3%. Goods inflation dropped faster than expected while services inflation declined slower than expected. The statement clearly says "The Board needs to be confident that inflation is moving sustainably towards the target range." similar as the other central banks. The outlook remains uncertain. New projections see GDP in 2024 at 1.8% and in 2025 at 2.8% wlth CPI in 2024 at 3.2% and in 2025 at 2.8%. Both are lower than previously at 2% and 3.5% for 2024 and 2.4% and 2.9% for 2025 respectively. During the press conference RBA governor Bullock stated that there is still “little way to go” to bring inflation down. She also said that recent inflation data are good, but there is still number 4 in front of the CPI data. Risks remain balanced and she did not rule out anything regarding monetary policy leaving the door open for both hikes and cuts.

Caxin services PMI for the month of January declined to 52.7 from 52.9 in December and pulled down composite with it to 52.5 from 52.6. Those numbers are still well in the expansion territory so they are not causing concern. RRP 50bp cut took effect on February 5. The main goal of the cut is to increase liquidity by increasing the amount banks can lend and thus help stimulate the economy. January CPI came in at -0.8% y/y for a fourth consecutive month of deflationary readings. The reading is the lowest since 2009. Food prices, pork prices mainly, showed biggest decline and it has been in deflation for seven months. It is possible that they will revert back as demand for pork jumps during Lunar New Year, the period right in front of us.

This week we will have employment data.

Important news for AUD:

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

Employment report for Q4 showed the unemployment rate ticking up to 4% from 3.9% in Q3 while an increase to 4.2% was expected. Participation rate ticked down to 71.9% while employment change increased by 0.4% q/q. Labor cost index slipped to 3.9% y/y from 4.1% y/y in the previous quarter but less than expected 3.8% y/y. A combination of smaller than expected increase in the unemployment rate and smaller than expected drop in labor cost index speaks of still tight labor market and it gave Kiwi a boost. ANZ has stated on Friday that recent data surprised to the upside and that it can lead to RBNZ hiking rates to 6% from current 5.5% at incoming meetings in February and April. Kiwi accepted the news and ran away with it higher.

CAD

Building permits fell off a cliff in December as they recorded a 14% m/m plunge. November reading saw negative revision and now shows a drop of 5% m/m compared to a drop of -3.9% m/m as previously reported. The declines were seen in both residential and non-residential sectors. Although this series is a very volatile and sharp cold weather in December is to blame, same blame has to go towards high rates and it has to be acknowledged that this is a rather bad data point. BoC meeting minutes showed concern regarding inflation, more precisely regarding “persistent inflation and lowering rates 'prematurely' in Jan policy-setting meetings”.

January employment report was mixed. Employment change came in at 37.3k vs 15k as expected. Additionally, the unemployment rate ticked down to 5.7% from 5.8% in December while markets were expecting an increase to 5.9%. However, good news stop there. Participation rate ticked down to 65.3% from 65.4% the previous month. More concerning is that full-time jobs declined by 11.6k and entire increase in employment came in from part-time jobs (48.9k). Wages declined significantly and printed 5.3%, down from 5.7% in December.

JPY

Final services reading for January was revised up to 53.1 from 52.7 as preliminary reported and up from 51.5 in December. The report shows big increase in business confidence. Composite was lifted to 51.5 from 50 the previous month. December average wages managed to rise 1% y/y, more than expected, but when taking inflation into account, real wages are still deeply negative. That is reflected in household spending which dropped again in December 2.5% y/y. Household spending has not had a positive reading since February of 2023. BoJ will wait for the results of Spring wage negotiations (Shunto) before deciding whether to normalize monetary policy.

This week we will have preliminary Q4 GDP data.

Important news for JPY:

Thursday:​

• GDP​

CHF

SNB total sight deposits for the week ending February 2 came in at CHF481.2bn vs CHF472.2bn the previous week. Some noticeable jump, but still within well established range.

This week we will have inflation data.

Important news for CHF:

Tuesday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Feb 19 – Feb 23)

Inflation data from the Eurozone and Canada coupled with PMIs from the Eurozone and the UK along with FOMC minutes will be highlights of the week ahead of us. NVDA will report earnings on Wednesday. Please be mindful that Monday is President’s day. Stock market will be closed so there will be lower liquidity in the markets which may cause increased volatility.

USD

January CPI saw inflation declining slower than expected with headline number printing 3.1% y/y vs 3.4% y/y in December, but expectation was for a drop to 2.9% y/y. CPI rose 0.3% m/m vs 0.2% m/m as expected with shelter rising 0.6% m/m vs 0.4% m/m in December. Services ex shelter, “super core”, rose 0.85% m/m. Core CPI came in at 3.9% y/y, unchanged from December reading while markets were bracing for a 3.7% y/y reading. Additionally, there was a 0.4% m/m increase in core reading vs 0.3% m/m as expected. The report indicates that inflation is proving to be stickier than market expected. This report will dissuade Fed from cutting rates prematurely and USD surged on the back of it.

Retail sales came in negative across all categories in January. Headline number fell 0.8% m/m with ex autos declining by 0.6% m/m. Control group, it is used for GDP calculation as it excludes all of the volatile measures, declined by 0.4% m/m. It seems that pandemic savings are running out and it is putting pressure on consumers that have to contend with higher prices. Additionally, note that retail sales amount to around 45% of total private consumption.

The yield on a 10y Treasury started the week at 4.17%, rose to 4.34% post-CPI and finished the week at around 4.29%. The yield on 2y Treasury started the week at 4.48% and reached the high of 4.73%. Spread between 2y and 10y Treasuries started the week at -32bp then widened to -37bp as curve inverted further. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 92% while probability of a 25bp rate cut is at 8%. Probability of a May rate cut is around 32%.

This week we will get January meeting minutes.

Important news for USD:

Wednesday:​

• FOMC Minutes​

EUR

Second reading of Q4 GDP was unchanged and showed that economy was flat on the quarter. The economy grew by measly 0.1% y/y. December industrial production helped Eurozone economy to avoid negative growth as it grew by 2.6% m/m and 1.2% y/y. The yearly figure printed negative readings since April of 2023.

ECB President Lagarde reiterated that they will follow data-dependent approach and added that although recent data showed subdued activity they were broadly in line with ECB’s projections. Importance of bringing inflation down to 2% was emphasized as Madame Lagarde stated that they do not want to make hasty decisions on inflation as currently there are not enough evidence that point to inflation returning to the 2% target. ECB policymaker Schnabel, a well-known hawk, warned about premature adjusting of monetary policy. She also warned that in an environment of low growth there is a danger that companies will pass costs to consumers thus rekindling inflation.

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

Important news for EUR:

Thursday:​

• S&P Global Manufacturing PMI (Eurozone, Germany, France)​
• S&P Global Services PMI (Eurozone, Germany, France)​
• S&P Global Composite PMI (Eurozone, Germany, France)​
• CPI​

GBP

The employment report showed payrolls change increasing by 48k in January. December ILO unemployment rate dropped to 3.8% from 4.2% in November. It has been at 4.2% since August and economists were expecting a decline to 4%. Wages declined at a smaller pace than expected with average weekly earnings coming in at 5.8% 3m/y vs 5.6% 3m/y as expected and down from 6.7% 3m/y in November. Ex bonus wages came in at 6.2% 3m/y vs 6% 3m/y as expected, down from 6.7% 3m/y the previous month.

January CPI data was unchanged with headline number printing 4% y/y and core number printing 5.1% y/y. Numbers came in below what was expected (4.2% y/y for headline and 5.2% y/y for core). Digging into the details of the report goods inflation ticked down to 1.8% y/y from 1.9% y/y in December but services inflation ticked up to 6.5% y/y from 6.4% y/y the previous month. Inflation remains incredibly high and BoE will not feel pressured to act and cut rates. We expect first rate cuts to come in August.

Preliminary Q4 GDP reading surprised to the downside and came in at -0.3% q/q vs -0.1% q/q as expected. UK dipped into technical recession as Q3 GDP printed -0.1% q/q thus making this a second consecutive quarter of negative growth. The report shows that “...there were falls in all three main sectors in the latest quarter with declines of 0.2% in services, 1.0% in production, and 1.3% in construction output.” Real household consumption fell 0.1%, while government spending fell by 0.3%. Business investment increased by 1.5% while net trade detracted from the GDP as exports fell by more than imports. Although economy slipped into technical recession there are signs that the only move from here is up as evidenced by January PMI numbers. Retail sales posted a great rebound in January with headline number rising 3.4% m/m and and ex autos rising 3.2% m/m.

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

Important news for GBP:

Thursday:​

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

AUD

January employment report showed that the entire country added 0.5k jobs (500!) vs 30k as expected. The unemployment rate rose to 4.1% from 3.9% in December while participation rate remained at 66.8%. One positive in the report is that all of the jobs added were full-time jobs (11.1k). Part-time jobs fell by 10.6k. RBA will not be comfortable with this report and will take off from the table any future considerations of a rate hike.​

NZD

RBNZ survey data for the Q1 of 2024 showed 1 year inflation expectations at 3.22% vs 3.6% previously and 2 year at 2.5% vs 2.76% previously. This is the lowest reading in over two years and it will significantly lower the chances of another rate hike. As of now it seems that there will be no changes to rate in 2024.

CAD

Wholesale trade in December rose by 0.3% m/m vs 0.8% as expected. It rose 0.9% m/m in November. Manufacturing sales dropped 0.7% m/m but from the upwardly revised 1.5% m/m increase in the previous month. CAD has managed to make some gains against USD this week but it was the weakest of commodity currencies as it lost ground against both AUD and NZD.

This week we will have February inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Preliminary Q4 GDP report came in at -0.1% q/q vs -0.7% q/q in the previous quarter thus plunging Japan’s economy into technical recession, meaning two consecutive quarters of negative growth. Private consumption has declined 0.2% q/q while business investment fell by 0.1% q/q. Net trade added 0.2pp to the GDP reading as exports led by exports of services outpaced imports. GDP deflator, a measure of inflation, came in at 3.8%. High inflation and low growth may deter BoJ from hiking and move first hikes into June. Still, expectations are for Q1 GDP to rebound led by exports and improvement in private consumption.

CHF

SNB total sight deposits for the week ending February 9 came in at CHF482.3bn vs CHF481.2bn the previous week. Just a small change pushing the sight deposits toward the upper bound of multi month range. CPI plunged in January with headline printing 1.3% y/y, down from 1.7% y/y in December and core printing 1.2% y/y, down from 1.5% y/y the previous month. SNB should be comfortable since inflation is positioned nicely so they have a green light if they decide to ease and cut rates.​

 

[katetrades]

Forex Major Currencies Outlook (Feb 26 – Mar 1)

RBNZ meeting, PCE from the US and CPI from Eurozone will highlight the week ahead of us that will also contain Q4 GDP data from the US, Canada and Switzerland as well as official PMI data from China.

USD

The main message from the FOMC minutes is reluctance of members to ease rates prematurely. They are not comfortable yet with progress on inflation and would not like to risk lowering rates and potentially reigniting inflation. There was also a talk on QT tapering. Members seem to be willing to adjust it at the March meeting.

The yield on a 10y Treasury started the week at 4.28%, rose to 4.33% and finished the week at around 4.26%. The yield on 2y Treasury started the week at 4.48% and reached the high of 4.67%. Spread between 2y and 10y Treasuries started the week at -36bp then widened to -41bp as curve continued to invert. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 90% while probability of a 25bp rate cut is at 10%. Probability of a May rate cut is around 34%.

This week we will get second reading of Q4 GDP, Fed’s preferred inflation metric PCE and ISM manufacturing PMI.

Important news for USD:

Wednesday:​

• GDP​

Thursday:​

• PCE​

Friday:​

• ISM Manufacturing PMI​

EUR

Wages in the Eurozone for the Q4 came in at 4.5% y/y, slightly lower than 4.7% y/y in Q3. ECB members, notably Lagarde and Lane, have emphasized that they are closely watching wages data. They were referring to Q1 2024 wages data that will come out in April but this welcoming slight drop may be a sign of things to come in April. Due to inflation falling faster than wages, we had first quarter of real wage growth in a long time.

Preliminary February PMI for the Eurozone saw manufacturing PMI slide to 46.1 form 46.6 in January on the back of horrendous German reading (42.3, down from 45.5). On the other hand, services returned to expansion with a 50 reading. Composite improved to 48.9. Apart from divergence between manufacturing and services sector there seems to be a divergence forming between German and French economies. France is showing stronger signs of recovery while Germany is stumbling. The report shows drags on new orders in manufacturing sector. Employment in the services sector is improving. Output prices continued to increase, now at a faster pace, and that will pose a problem for the ECB. Rate cuts will likely be delayed for the June meeting.

This week we will get preliminary March CPI data.

Important news for EUR:

Friday:​

• CPI​

GBP

BoE Governor Bailey stated that they may start cutting rates even before inflation drops to their target thus echoing Fed’s message. There is the need to see steady progress on inflation returning to target. Bailey added that it is not possible to say when and by how much rates will be cut at this period in time.

UK economy is on a solid path according to preliminary PMI data for the month of February. Manufacturing PMI ticked up to 47.1 from 47 in January while services was unchanged at 54.3, it was expected for them to slide down to 54.1. Composite was lifted up to 53.3 from 52.9 in January. The report shows that business activity showed the biggest rise in nine months indicating strong demand. Selling prices for services have continued to increase as inflationary pressures remain persistent.​

AUD

RBA meeting minutes showed that board was considering a 25bp rate hike or keeping rates steady. Due to balanced risks to outlook they opted for the latter. They see inflation coming down to their target but it could “take some time”, therefore future rate hikes cannot be ruled out. Board members added that if the economy weakens they are prepared to cut. Hawkish sounding minutes gave a push to AUD. Q4 wages rose 4.2% y/y, up from 4% y/y in the Q3 and putting them over the current inflation rate. The wage increase was highest since Q1 of 2009.

PBOC has kept MLF rate unchanged at 2.5% as was widely expected but cut 6-year LPR rate to 3.95% from 4.20%. This 25bp rate cut is the biggest ever cut to 5-year LPR. The 5-year LPR is used as a benchmark for new mortgages so this move is intended to make mortgages more accessible and thus help property developers. On the other hand, this move will put additional strain to already low bank margins.

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

Important news for AUD:

Friday:​

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

NZD

Q4 PPI data continued to increase but at a lower pace than in Q3. Input prices rose 0.9% q/q vs 1.2% q/q the previous quarter while output prices rose by 0.7% q/q compared to 0.8% q/q increase in Q3. Slower pace is a good sign but the fact that prices are still rising will be worrisome for the RBNZ. Chances of a rate hike at next week’s meeting are increasing. GDT price index showed yet another increase in dairy prices, sixth consecutive auction of rising prices, as it printed 0.5%. This is yet another boost to NZD which was the strongest currency of the week.

This week we will have RBNZ meeting. Markets are unsure whether we will get hike or no change, but with recent string of data we are leaning slightly toward a 25bp rate hike.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

January CPI report was helped by big numbers in January of 2023 so we got a big drop in headline which printed 2.9% y/y from 3.4% y/y the previous month. Airfares recorded the biggest monthly drop followed by gasoline prices. Core readings also declined compared to December and printed 3.3% y/y for median and 3.4% y/y for common and trim. BoC will be satisfied with the fact that monetary policy is giving results and lower than expected reading will spark dovish tone from them. CAD has plunged after the inflation reading.

This week we will get Q4 GDP data.

Important news for CAD:

Thursday:​

• GDP​

JPY

December core machinery orders rebounded nicely and beat expectations printing a 2.7% m/m increase vs 4.9% m/m decrease in November. Core machinery orders are seen as a good proxy for CAPEX 6-9 months ahead so this was a very encouraging reading. Be mindful that the data series is very volatile so it is better to use some three or six month averages when analysing expectations for future investments. Japanese government assessed economy as “recovering moderately though it appears to be stalling recently". They see consumer spending weakening and that in turn is causing economy to stumble. The view on industrial production was also downgraded and in combination with lower expected consumer spending it raises the question about potential normalization of monetary policy.

Preliminary PMI data for the month of February showed slowdown in economic activity. Manufacturing PMI printed 47.2, down from 48 in January as new order and employment indexes showed rapid declines. Services declined to 52.5 from 53.1 the previous month which dragged composite to 50.3, barely in expansion. The report also shows that "Firms were also the least upbeat since January 2023, reflecting reduced optimism with regards to future output". Nikkei has managed to print a new all time high reading with previous high being in 1989 before the housing bubble burst.

CHF

SNB total sight deposits for the week ending February 16 came in at CHF477.1bn vs CHF482.3bn the previous week. Total sight deposits return into the well-established range after threatening to breach it previous week.

This week we will get Q4 GDP data.

Important news for CHF:

Thursday:​

• GDP​

 

[katetrades]

Forex Major Currencies Outlook (Mar 4 – Mar 8)

ECB and BoC meetings, NFP and Canadian employment coupled with Q4 GDP, Swiss inflation, UK spring budget and ISM Services PMI will dominate the week ahead of us.

USD

Second reading of Q4 GDP was revised down to 3.2% from 3.3% as reported in advanced reading. Private inventories were the main culprit for the downward revision as they subtracted 0.27pp from the growth. Consumer spending was revised higher and it printed 3% vs 2.8% in advanced reading and it added 2pp to the reading. Government spending was also revised up and contributed 0.73pp while net exports were revised down and contributed 0.32pp to the reading. Gross private domestic investment added just 0.17pp as business investment declined, which is a cause for concern going forward.

Headline PCE for the month of January came in at 2.4% y/y as expected and down from 2.6% y/y in December. Core PCE printed 2.8% y/y as expected and down from 2.9% y/y the previous month. Personal spending rose 0.2% m/m while personal income jumped 1% m/m. Big increase in personal income can prove to be troublesome for inflation.

ISM manufacturing for the month of February printed 47.8 vs 49.5 as expected, down from 49.1 in January. New orders and production components fell into contraction. Positives are small decline in prices paid component as well as return of employment and new export orders into expansion. USD has noticeably weakened on the news and weaker than expected UMich consumer confidence reading added to the USD worries.

The yield on a 10y Treasury started the week at 4.22%, rose to 4.32% and finished the week at around 4.19%. The yield on 2y Treasury started the week at 4.66% and reached the high of 4.73%. Spread between 2y and 10y Treasuries started the week at -45bp then tightened to -35bp as curve proceeded to steepen. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 97% while probability of a 25bp rate cut is at 3%. Probability of a May rate cut is around 25%.

This week we will have ISM services and NFP data. Headline number is expected to come at around 190k after two months of 300+k jobs with unemployment rate staying unchanged at 3.7%.

Important news for USD:

Tuesday:​

• ISM Services PMI​

Friday:​

• NFP​
• Unemployment Rate​

EUR

ECB President Lagarde stated that "the current disinflationary process is expected to continue” but that more data is needed to confirm that inflation is returning to target. Sentiment data for the month of February showed improvement in Consumer Confidence but all three sentiment indicators (economic, services and industry) declined compared to January. Final French Q4 GDP was revised to show a growth of 0.1% q/q from being flat as preliminary reported.

Preliminary Eurozone CPI slipped to 2.6% y/y from 2.8% y/y while a decline to 2.5% y/y was expected, Core reading dropped to 3.1% y/y from 3.3% y/y while a drop sub 3% to 2.9% y/y was expected. Base effects were the main culprit for a drop in inflation. French CPI for the month of February came in at 2.9% y/y vs 2.7% y/y as expected. CPI is down from 3.1% y/y in January, but the decline was smaller than expected hinting that getting inflation all the way down to 2% will be much harder task than bringing it from highs to current levels. In addition, monthly reading printed a massive 0.8% increase. Spain CPI printed 2.8% y/y vs 2.7% y/y as expected and down from 3.4% y/y in January showing all the same signs as Eurozone and French inflation. German reading came in at 2.5% y/y, down from 2.9% y/y the previous month.

This week we will have ECB meeting. There will be no change to the rate as ECB waits wage data, however we do not expect any push to June rate cut. Additionally, we will get new macroeconomic projections.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

Final February manufacturing PMI was revised up to 47.5 from 47.1 as preliminary reported and it is up from 47 in January. Although the reading is highest in the last ten months the details show that output, new orders and new export orders continue to decline. The report states that “UK manufacturers faced challenging circumstances in February, as the ongoing impact of the Red Sea crisis delayed raw material deliveries, inflated purchase prices and impacted production capabilities.” Additionally, supply chain disruptions caused input prices to increase significantly and thus lead to further increases in selling prices. Any potential increase in inflation will be troublesome for the BoE. BoE Chief Economist Pill stated that cutting rates is some way off and that maintaining restrictive stance does not mean no change to rates.

AUD

CPI for the month of January showed inflation at 3.4% y/y vs 3.6% y/y as expected. Monthly inflation readings do not encompass entire economy, as quarterly reading does, they measure more of goods inflation than services inflation. Goods inflation is coming down nicely but RBA is more focused on services. Therefore, they will not give too much attention to monthly readings and will wait for quarterly reading to decide on how to proceed with monetary policy. AUD was pushed down after the report. Q4 CAPEX data saw increase of 0.8% q/q vs 0.5% q/q as expected, with the biggest jump in the construction industry. Jump in investment will be a nice boost for next week’s GDP reading and economy going forward.

Official PMI data from China saw manufacturing tick down to 49.1 from 49.2 in January while services jumped to 51.4 from 50.7 the previous month. Composite was unchanged at 50.9. Caixin manufacturing PMI, the one measuring private SMEs, ticked up to 50.9 from 50.8 in January while markets were expecting a slide to 50.6. The repo shows production and new orders grew at a faster pace with new export orders also expanding. Employment is of concern as it fell fort sixth consecutive month.

This week we will get Q4 GDP data.

Important news for AUD:

Wednesday:​

• GDP​

NZD

RBNZ has left OCR (Official Cash Rate) unchanged at 5.5%. There was a large number of market participants who were positioned for a rate hike, so when RBNZ did not deliver it caused a big drop in NZD. The statement shows that OCR needs to remain at restrictive levels. Bank’s forecast see OCR at 5.33% in June of 2025. Inflation measures have declined and risks around it are becoming more balance. Recent drops in core inflation are encouraging. Still, projections see annual CPI by March of 2025 at 2.6% y/y, up from 2.4% y/y as previously expected.

CAD

January estimates by statistics Canada see wholesale trade declining by 0.6% m/m while manufacturing sales rose by 0.4% m/m. Q4 GDP came in at 0.2% q/q, rebounding from -0.1% q/q in the previous quarter. Positive reading was helped by net exports.

This week we will have BoC meeting and employment data. No change to monetary policy is expected but statement should reverberate with dovish tones.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

National CPI data for the month of January continued to decline. Headline number came in at 2.2% y/y vs 2.6% y/y in December while ex fresh food category came in at 2% y/y, down from 2.3% y/y the previous month. Ex fresh food, energy category, “core-core”, came in at 3.5% y/y vs 3.7% y/y in December. All three readings came in higher than expected so it may be a sign that inflation is proving to be more resilient. BoJ is talking about inflation needing to be sustainably above 2% target for them to raise interest rates and this reading may be the first sign of that. Preliminary January industrial production data plunged 7.5% m/m for the biggest monthly drop in almost four years.

BoJ policymaker Takata stated that spring wage negotiations are in full swing and that many companies are offering higher increases than in 2023. He added that “achievement of 2% inflation target is becoming in sight despite uncertainty of economic outlook”. Additionally, he stated that he would call for a change in monetary policy adding that it he would not be the one looking backwards. These comments are unquestionably hawkish and they are giving clear hints of monetary policy normalization. Currently, these are the strongest hints we have of a potential April rate hike.

CHF

SNB total sight deposits for the week ending February 23 came in at CHF480.5bn vs CHF477.1bn the previous week. Still within a well-established range but pushing to make a break to the upside. Q4 GDP showed that economy grew by 0.3% q/q vs 0.1% q/q as expected and at same pace as in Q3. Swiss industry has warned that strong CHF could be a detriment to economic growth in 2024.

SNB Chairman Jordan has announced that he will retire at the end of September 2024. He was the chairman of SNB since 2012 and was presiding over the decision to remove the EURCHF 1.20 peg which caused massive volatility and losses in the market. SNB vice chairman Martin Schlegel is seen as the most-likely successor.

Important news for CHF:

Monday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Mar 11 – Mar 15)

Inflation and consumption from the US and employment from the UK will dominate in the rather quiet week ahead of us.

USD

ISM services 52.6 vs 53 as expected and down from January when it printed 53.4. Digging into the details we can see some encouraging signs, such as increases in business activity and new orders which printed healthy 57.2 and 56.1. Additionally, prices paid index declined indicating easing of price pressures in the services sector. On the other hand, employment index declined into contraction and printed just 48 making it the second time in the last three readings that it was below the break even 50 level.

Fed Chairman Powell testified before the Congress and the prepared statement showed that they will likely start to cut rates at some point during the year and that rate cuts will not happen until they have greater confidence that inflation is moving down towards their 2% target. At the testimony he stated that more data is needed for rate cuts to commence and added that "believe that our policy rate is likely at its peak for this tightening cycle".

February NFP number printed 275k vs 190k as expected. Good news stop there. Digging into details we can see that the unemployment rate jumped to 3.9% from 3.7% in January while participation rate remained at 62.5%. There was a big revision to the previous reading which now showed 229k jobs added vs 353k as preliminary reported. Average hourly earnings rose by 0.1% m/m, much slower increase than 0.3% m/m as was expected and 0.5% m/m in January. The details are pointing to a June rate cut.

The yield on a 10y Treasury started the week at 4.19%, rose to 4.23% and finished the week at around 4.07%. The yield on 2y Treasury started the week at 4.54% and reached the high of 4.62%. Spread between 2y and 10y Treasuries started the week at -35bp then widened to -39bp as curve continued to invert. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 97% while probability of a 25bp rate cut is at 3%. Probability of a May rate cut is around 26% while probability of a June rate cut is around 78%.

This week we will have inflation and consumption data. Inflation is expected to rise 0.3% m/m and 3.1% y/y which is unchanged from January reading.

Important news for USD:

Tuesday:​

• CPI​

Thursday:​

• Retail Sales​

EUR

Final PMI services for the month of February for the Eurozone was revised higher to 50.2 from 50 as preliminary reported. Positive revisions were made both to the German and French readings. It helped lift composite PMI to 49.2. Final reading of Q4 GDP for the Eurozone confirmed that economy came in flat on the quarter and rose measly 0.1% y/y.

ECB has left key interest rates unchanged as widely expected. New economic projections saw both inflation and GDP revised lower. CPI is now seen at 2.3% for 2024 (down from 2.7% previously), 2% for 2025 and 1.9% for 2026. GDP is seen at 0.6% in 2024, 1.5% in 2025 and 1.6% in 2026. At the press conference President Lagarde emphasized data dependent approach and added that although economy remains week there is a pick up seen in recent surveys. She clarified that they are more confident on inflation but not sufficiently confident and added that more will be known in April and even more in June thus hinting that, for now, June remains most realistic meeting for the first rate cut. She reiterated that it is not necessary for inflation to fall to 2% before starting to cut rates and stated that decision to keep rates unchanged was unanimous.

GBP

Final services PMI was revised down to 53.8 from 54.3 as preliminary reported and as was in January. New orders posted a healthy growth which is very encouraging and general number although weaker than in January is at a still high level. Composite printed 53, a tick up from 52.9 the previous month.

This week we will have employment data.

Important news for GBP:

Tuesdayll Change​

• Unemployment Rate​

AUD

Q4 GDP number printed a growth of 0.2% q/q and 1.5% y/y. Government expenditure contributed to growth with former printing 0.6% increase and contributing 0.1pp to the GDP. The report shows “Household spending rose 0.1% in December quarter as a rise in spending on essentials (0.7%) was offset by a fall in discretionary spending (-0.9%).” This is concerning as cost-of-living crisis is dampening consumption and thus negatively impacting growth. Exports declined 0.3% while imports declined by 3.4% thus net trade contributed positively to the GDP. Terms of trade rose by 2.2% for the quarter but fell 3.9% for the 2023 while household saving to income ratio grew by 3.2% from 1.9% in the previous quarter.

The latest “Two Sessions” from China saw 2024 GDP growth target set at 5%, unchanged from 2023. The fiscal deficit-to-GDP target was set at 3%, no changes compared to the previous year and it is below expectations. Markets were expecting a bigger fiscal stimulus in order to support the economic growth. Helping consumer spending increase will be given a high priority. Trade will also be given great significance.

NZD

Terms of trade in the final quarter of 2023 plunged 7.8% led by a big drop in export prices (-4.2% q/q vs -0.4% q/q as expected). Import prices rose by 3.8% q/q vs expected drop of 0.2% q/q to put a further stain on the reading. A decrease in terms of trade could have a negative impact on the economy overall as purchasing power of exports declines. First GDT auction in March saw dairy prices fall 2.3%. This is the first decline in dairy prices after last six auctions saw price increases.

CAD

BoC has left the policy rate unchanged at 5% as was widely expected but statement did not sound as dovish as expected. The economy grew in Q4 by more than expected. They have acknowledged that inflation continues moderating, that shelter is the biggest contributor to inflation and that inflation should remain close to 3% in H1 of 2024 and then gradually ease in the second part of the year. The statement shows “The Council is still concerned about risks to the outlook for inflation, particularly the persistence in underlying inflation. Governing Council wants to see further and sustained easing in core inflation…” indicating that BoC is not in a hurry to cut rates, so market needed to readjust its positioning which led to CAD strength. Governor Macklem affirmed this by stating that it is still too early to consider lowering the policy rate.

February employment report saw employment change come in at 40.7k vs 20k as expected. This is the highest employment change in seventeen months. The unemployment rate ticked up to 5.8% as expected with participation rate staying unchanged at 63.5%. Wages have risen at slower pace printing 4.9% increase, down from 5.3% increase in January. One of the highlights of the report was the fact that all of the jobs added, and then some, were full-time jobs (70.6k). Part-time jobs, on the other hand, declined by 29.9k. Labour market remains strong and a drop in wages will be welcomed by the BoC.

JPY

Q4 CAPEX data smashed expectations as it rose by 16.4% y/y vs 2.9% y/y as expected and up from 3.4% y/y in the previous quarter. This huge jump in investment should reflect positively on GDP in 2024. Company profits were affected as they rose 13% y/y vs 21.3% y/y as expected.

Tokyo CPI rose strongly in February after a drop in January and saw headline number print 2.6% y/y vs 1.8% y/y the previous month. Ex fresh food printed 2.5% y/y, up from 1.8% y/y in January. Ex fresh food, energy, “core-core”, was the only one that declined as it printed 3.1% y/y vs 3.3% y/y the previous month. Both final services and final composite PMI readings were revised up to show smaller decline than preliminary reported (52.9 and 50.6 respectively).

January wages rose by 2% y/y after a 1% y/y increase in December. When we take inflation into account real wages dropped 0.6% y/y making it a 22nd month of declining real wages. Japan’s largest trade union stated that wage hikes this year are bigger than last year. BoJ is looking for results of spring wage negotiations as valuable input for their policy setting. BoJ member Nakagawa stated that prospects of sustainably reaching inflation target of 2% are gradually increasing and MUFG now sees BoJ moving rates from negative territory in March. Governor Ueda echoed Nakagawa’s statement on inflation and added that it is possible to exit stimulus while striving to achieve 2% inflation target. JPY has had a great trading week and strengthened further on these comments.

CHF

SNB total sight deposits for the week ending March 1 came in at CHF478.5bn vs CHF480.5bn the previous week. No significant changes, just moving through the well-established range.

Inflation in Switzerland continued to decline as evidenced by February CPI reading which saw headline number tick down to 1.2% y/y from 1.3% y/y in January. Slower price increases were seen in prices of food and non-alcoholic beverages as well as in restaurants and hotels, transport, healthcare and household goods and services. Core CPI reading also ticked down to 1.1% y/y from 1.2% y/y the previous month.​

 

[katetrades]

Forex Major Currencies Outlook (Mar 18 – Mar 22)

Fed, BoE, RBA, BoJ and SNB (no less than 5 central banks) meetings, inflation from the UK and Canada, employment from Australia, preliminary PMI data from the Eurozone and the UK as well as industrial production and retail sales from China will highlight the massive week ahead of us. Caution is advised as markets will be very volatile.

USD

February CPI report saw headline number come in a tad hotter as it printed 3.2% y/y, up from 3.1% y/y in January. Core CPI continued to tick down and it printed 3.8% y/y vs 3.9% y/y in the previous month. Energy prices rose 2.3% m/m as oil prices had risen in February while gasoline prices increased by 3.8% m/m. Core services ex energy, shelter rose by 0.5% m/m vs 0.8% m/m increase in January. Core goods prices rose for the first time in three months.

Retail sales rebounded in February but by less than expected as headline number printed 0.6% m/m vs 0.8% m/m as expected. Control group was flat on the month and when taken into account a drop in January it means that consumption contribution to Q1 GDP will most likely be negative. Retail sales report was overshadowed by PPI release which saw big jump as it printed 0.6% m/m and 1.6% y/y vs 0.3% m/m and 1.1% y/y as expected. Price pressures are sticky and are not going away easily which lowered Fed’s chance of cuts and thus gave USD strength.

The yield on a 10y Treasury started the week at 4.08%, rose to 4.32% and finished the week at around 4.31%. The yield on 2y Treasury started the week at 4.48% and reached the high of 4.76%. Spread between 2y and 10y Treasuries started the week at -40bp then widened to -41bp as curve inverted further. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at March meeting at 99% while probability of a 25bp rate cut is at 1%. Probability of a May rate cut is around 6% while probability of a June rate cut is around 58%.

This week we will have FOMC meeting. Markets are pricing no chance of a rate cut and we will get new dot plot and Summary of Economic Projections. Additionally, we will get to hear Fed’s decision on potential QT taper. Incoming data has been mostly on the strong side so the Fed might deliver a hawkish message.

Important news for USD:

Wednesday:​

• Fed Interest Rate Decision​

EUR

Final German CPI unchanged at 2.5% y/y while final French CPI reading was revised up to 3% y/y. Talks about June rate cut are growing louder as some ECB policymakers even call for two rate cuts by July. ECB will wait for wages report and then decide when their next move be and markets are pricing June as a start or rate cutting cycle.

This week we will have preliminary March PMI readings.​

Important news for EUR:

Thursday:​

• 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

Employment report for the month of February saw payrolls increase by 20k after increasing by 15k in January. ILO unemployment rate for the month of January ticked up to 3.9% from 3.8% in January. There was a drop in wages as average weekly earnings rose 5.6% 3m/y vs 5.8% 3m/y the previous month and ex bonus component of earnings printed 6.1% 3m/y, down from 6.2% 3m/y in January. A slowdown in wage increases will be welcomed by the BoE which should start cutting rates in August. January GDP reading increased 0.2% m/m as expected due to services increasing 0.2% and construction sector increasing by 1.1% m/m.

This week we will have inflation data, preliminary March PMI and BoE meeting. No change to the policy rate is expected as markets are positioned for an August rate cut.

Important news for GBP:

Wednesday:​

• CPI​

Thursday:​

• BoE Interest Rate Decision​
• S&P Global Manufacturing PMI​
• S&P Global Services PMI​
• S&P Global Composite PMI​

AUD

February inflation from China saw a big jump as it printed 0.7% y/y from – 0.8% y/y in January. The report shows big jump in demand for food and services. Additionally, there were some weather issues that affected supply and thus contributed further to price increases. PPI, on the other hand, continued to decline as it printed -2.7% y/y, down from -2.5% y/y the previous month. PBOC has held 1-year MLF rate unchanged at 2.5% as was widely expected.

This week we will have employment data and RBA meeting. No change to policy is expected and many analyst see RBA staying pat for a prolonged period of time. We will also get production and consumption data from China.

Important news for AUD:

Monday:​

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

Tuesday:​

• RBA Interest Rate Decision​

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

Electronic card retail sales, they cover around 70% of retail sales, dropped in February by 1.8% m/m after they rose 2% m/m in January. Over the year they have grown by 2.5%. The report showed declines in purchases of consumables, fuel, durables and apparel while purchases of motor vehicles increased.

This week we will get Q4 GDP data.

Important news for NZD:

Wednesday:​

• GDP​

CAD

January manufacturing sales rebounded by 0.2% m/m from -1.1% m/m drop in December, but markets were expecting a 0.4% m/m increase. Sales were up in 11 of the 21 sub sectors, with transportation equipment and chemicals adding the most to the result. The biggest decline was seen in aerospace products and parts. Housing starts in January jumped 14% as the report printed 253.5k, up from 223.6k in December.

This week we will get inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Final Japan Q4 GDP reading saw it improve to 0.1% q/q from -0.1% q/q as preliminary reported. The revision helped Japan avoid technical recession, but expectations were for a 0.3% q/q growth. There was a big jump in non-residential investment, it grew by 2% vs 0.1% as preliminary reported, but private consumption was revised down to -0.3%. A drop in private consumption poses a concern but BoJ is focused solely on wages, so we expect them to move rates out of negative territory after the results of Shunto wage negotiations.

This week we will have a BoJ meeting and latest reports suggest that we will finally see a rate hike and end of negative interest rate policy.

Important news for JPY:

Tuesday:​

• BoJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending March 8 came in at CHF477.4bn vs CHF478.5bn the previous week. Sight deposits go back into the well-established range after a miniscule change from week to week.

This week we will have SNB meeting. SNB is seen as the first major central bank that could cut due to inflation being below their target, but with other central banks opting for June as a start of rate cutting cycle we could see SNB deliver no change at their March meeting.

Important news for CHF:

Thursday:​

• SNB Interest Rate Decision​

 

[katetrades]

Forex Major Currencies Outlook (Mar 25 – Mar 29)

The week ahead of us will provide us a breather from the massive week we just head which will give investors time to digest implications of recent central bank decisions and economic data. Most important news event will be on Friday when we will get PCE inflation data.

USD

Fed has kept funds rate unchanged at 5.25-5.50% range as was widely expected but delivered a more dovish message. The statement showed that economy and labour markets are strong and that inflation has eased although it remains elevated. The stance on monetary policy was unchanged with "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent".

Dot plot continued to show three rate cuts in 2024 but rates were moved up for the other years. We now have 3.9% median for the End of the Year (EoY) 2025, compared to 3.6% in December plot. Median rate for 2026 has been lifted to 3.1% EoY vs 2.9% EoY in December and longer run rate is seen at 2.6% vs 2.5% in December. GDP projection was revised up and it now shows real GDP at 2.1% in 2024 and 2% in 2025 and 2026 effectively removing any talks about recession as growth will be above the trend for the next three years. Core PCE inflation was revised up for 2024 to 2.6% from 2.4% previously and headline PCE is revised up for 2025 to 2.2% from 2.1% in December. In the longer run it is still expected to be at 2%.

At the press conference Chairman Powell stated that path forward remains uncertain and that risks are moving into better balance. Inflation has eased, although still high but longer-term inflation appear to remain well anchored. He reiterated that they will likely be cutting rates at some point this year. Powell dismissed January and February inflation increases as just bumps in the road on the way to 2% and stated that January number was possibly influenced by the seasonal adjustment effects. When asked about financial conditions he stated that they are restrictive and are weighing on economic activity. Additionally, he added that peak rates are achieved and hinted that QT tapering could show up as early as next meeting.

The yield on a 10y Treasury started the week at 4.29%, rose to 4.34% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.71% and reached the high of 4.75%. Spread between 2y and 10y Treasuries started the week at -42bp then tightened to -37bp as bull steepening of curve took place after Fed left three cuts in dot plot for 2024. The 2y10y is inverted for over eighteen months. FedWatchTool sees the probability of no change at May meeting at 88% while rate cut probability is at 12%. Probability of a June rate cut is around 74% and has jumped after the Fed meeting.

This week we will have Fed’s preferred inflation measure, PCE, as well as personal income and spending data.

Important news for USD:

Friday:​

• PCE​

EUR

Final February CPI was unchanged at 2.6% y/y, down from 2.8% y/y in January. Core CPI was also unchanged at 3.1% y/y, down from 3.3% y/y the previous month. Inflation is moving in the right direction, but the pace is slowing down. Compensation data showed that wage growth in Q4 was 3.1% y/y, down from 5.2% y/y in the previous quarter. Wages continue to increase, although at a slower pace and still show strong growth.

Preliminary PMI data for the month of March showed the familiar picture of two economies diverging. Manufacturing continued to decline with 45.7 reading, down from 46.5 in February with both German and French readings declining. Germany printed weak 41.6. Output and new orders continued on their downward path in the Eurozone. On the other hand, services improved to 51.1 from 50.2 the previous month and better than 50.5 as expected. The report states that price pressures have not increased further in the services sector and have actually eased a bit, which is a nice positive and will make ECB happy. Composite was still lifted up and barely missed breakeven 50 reading as it printed 49.9, up from 49.2 in February.

GBP

Inflation continues to decline in the UK as evidenced by the February reading. Headline CPI dropped to 3.4% y/y, a two-year low, from 4% y/y in January, while 3.5% y/y print was expected, mainly due to a big drop in food prices. Core CPI fell to 4.5% y/y from 5.1% y/y the previous month, while a drop to 4.6% y/y was expected. Services inflation also recorded a nice drop as it printed 6.1% y/y, down from 6.5% y/y in January. Inflation is expected to continue declining due to lower energy costs for households and markets now have fully priced in rate hike for August.

Preliminary March PMI showed a big jump in manufacturing as it printed 49.9, up from 47.5 in February and much better than 47.8 as expected. Services sector eased a bit but still printed a very healthy 53.4 vs 53.8 the previous month. In combination, they caused composite to tick down to 52.9 from 53 in February. The report states that data point to a small positive for Q1 GDP reading. Inflation still remains a problem as it proves more sticky.

BoE left the rate unchanged at 5.25% as was widely expected. There were dovish signals in the voting and in the statement. Result of voting was 8-1 (Dhingra voted for a rate cut). Previously Haskel and Mann, two biggest hawks, voted for rate hikes, now they have moved to neutral position indicating that bank’s next move will be a cut. The statement contained a passage “the Committee recognised that the stance of monetary policy could remain restrictive even if Bank Rate were to be reduced, given that it was starting from an already restrictive level" giving another nod to the rate cuts.

AUD

RBA left the cash rate unchanged at 4.35% as was widely expected. The statement left out the part where further rate hikes “cannot be ruled out”, the tightening bias, and changed it with "The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out". That indicates that board is moving toward neutral bias and is prepared to cut if the conditions warrant it. Markets see it as a dovish tilt from the RBA and are pricing in September for the first rate cut.

The statement showed that inflation is moderating but is still at high levels. The decline in inflation is driven by moderating goods inflation while services inflation is declining at a more gradual pace. The outlook remains highly uncertain. “The central forecasts are for inflation to return to the target range of 2–3 per cent in 2025, and to the midpoint in 2026.” At the press conference Governor Bullock stated that progress is being made in fight against inflation and recent data confirms that progress. She added that it is too soon to rule anything in or out and clarified that change in forward guidance was made due to incoming data.

February employment report provided us with some stellar numbers. The economy added massive 116k jobs compared to 40k as expected and up from partly 500 in January. The unemployment rate plunged to 3.7% from 4.1% the previous month while expectations were for it to just tick down to 4%. Participation rate slid to 66.7% from 66.8% in January. Most of the jobs added, 78.2k, were full-time which just adds to the strength of this report. Historically February has always been a month of strong job gains.

Economic activity from China saw strong increase for industrial production in the first two months of the year as it increased 7% y/y beating expectations 5% y/y. Retail sales also beat expectations as it increased by 5.5% y/y vs 5.2% y/y as expected, but came in lower than 7.4% y/y in December hinting that consumer is not doing that good and that its contribution to the 5% GDP target for the 2024 will be questionable. Given the strong industrial production reading it seems that path to GDP target will be through exports. PBOC has left 1 and 5 LPR rates unchanged at 3.45% and 3.95% respectively as was widely expected.

NZD

Q4 GDP showed economy slip into technical recession with two consecutive quarters of falling GDP. The number printed -0.1% q/q vs 0.1% q/q as expected with -0.3% q/q print in Q3. This is fourth negative quarter result in the past five quarters. The yearly figure printed a decline of 0.3%. There is some optimism regarding positive growth in Q1 of 2024. Second dairy auction in March saw prices decline by 2.8%. This is a second in a row auction that saw falling dairy prices.

CAD

February inflation data saw another month of falling inflation. CPI came in at 2.8% y/y vs 3.1% y/y as expected and down from 2.9% y/y in January. Core measures also all declined with median and common printing 3.1% y/y while trim printed 3.2% y/y. This is the second consecutive month of headline inflation declining and coming in below 3% which may nudge BoC to cut before the Fed. Markets were selling CAD after the report in anticipation of faster rate cuts.

JPY

BoJ delivered first rate hike in 17 years as was well telegraphed by the markets and brought the rate to positive territory, in the range of 0-0.10%. The bank decided to remove the upper bend of 1% on 10y JGB yield, thus effectively stopping the Yield Curve Control (YCC). However, the bank will continue purchasing JGB’s “with broadly the same amount as before” and will step up those purchases in nimble manner if yields increase rapidly. Additionally, BoJ will discontinue purchases of ETFs and J-REIT’s as well as reduce purchases of corporate bonds with a plan to discontinue them in one year.

The report shows that wages are expected to continue to increase during the year thus strengthening positive wage-price spiral which means that price target of 2% would be achieved in sustainable manner and was the main reason for a hike. The statement shows “as a virtuous cycle from income to spending gradually intensifies, Japan's economy is projected to continue growing at a pace above its potential growth rate”. The statement also shows that “Given the current outlook for economic activity and prices, the Bank anticipates that accommodative financial conditions will be maintained for the time being” showing that BoJ is still very cautious, leaning dovish and JPY continued to weaken.

Governor Ueda stated at the press conference that negative rates and YCC fulfilled their intended roles but that accommodative financial conditions will stay. He emphasized the virtuous wage-price cycle as the main reason for rate hike. He added that they will consider options for easing policy if it is needed. On the other hand, the pace of future rate hikes will depend on the how economy develops and future price outlook. Ueda stated that reaching 2% price target sustainably looks more and more likely but it is still not fully guaranteed. This last remark sounded dovish.

Preliminary March PMI data showed increases across sectors. Manufacturing printed 48.2, up from 47.2 in February. Moving closer to expansion, but still in contraction since May of 2023. Services surged to 54.9 from 52.9 the previous month indicating a very strong activity and it propelled composite to 52.3 from 50.6 in February. February CPI for the entire country saw jump in headline and ex fresh food to 2.8% y/y from 2.2% and 2% previous month. Ex fresh food, energy component continued to decline as it printed 3.2% y/y compared to 3.5% y/y in January, but it still sits comfortably above the 3% level.

CHF

SNB total sight deposits for the week ending March 15 came in at CHF469.2bn vs CHF477.4bn the previous week. Again no significant moves in the sight deposits as SNB ceases to use them as a monetary policy tool. Swiss government has lowered expected CPI for the 2024 to 1.5% from 1.9% as seen previously. Projected CPI for 2025 was unchanged at 1.1%.

SNB has cut interest rates by 25bp bringing it to 1.50%. The move surprised the markets as Swissy lost around 100 pips against the majors in a minute. The main reason for rate cut was success in fight against inflation. Similarly to the government, the bank cut CPI projection to 1.4% for 2024 from 1.9% and to 1.2% for 2025 from 1.6% previously. “The SNB will continue to monitor the development of inflation closely, and will adjust its monetary policy again if necessary to ensure inflation remains within the range consistent with price stability over the medium term.” This statement indicates that there could be another rate cut at June meeting.​

 

[katetrades]

Forex Major Currencies Outlook (Apr 1 – Apr 5)

NFP data combined with inflation data from the Eurozone will dominate the markets in the week that will also see ISM PMI data from the US, employment data from Canada and inflation data from Switzerland.

USD

Atlanta Fed President Bostic forecast that Fed will deliver only one cut in 2024 and that it will be made later in the year than market is expecting. He stated that as long as GDP is high with strong economy and healthy labour market he is not in a hurry to get inflation down to 2%. He clarified that he is now less confident that inflation will continue dropping to 2% than he was in December, thus a change in number of rate cuts.

Fed Governor Waller stated that Fed is in no rush to cut rates and may need to hold them longer than expected thus echoing some of the remarks by Bostic. He remarked that more progress on inflation is needed before he can support rate cut, more data showing that inflation is heading down to the 2% target. He added that recent data and the economy as a whole allow Fed to approach rate changes cautiously.

PCE data for the month of February showed headline inflation ticking up to 2.5% y/y from 2.4% y/y in January while core PCE printed 2.8% y/y, a tick down from upwardly revised January reading of 2.9% y/y. Personal spending rose by 0.3% m/m after a 1% m/m increase the previous month while personal income jumped 0.8% m/m after a 0.2% m/m increase in January. Higher income will not help Fed in fight against inflation. Durable goods rebounded in February printing 1.4% m/m increase after a plunge of 6.9% m/m in January. Core orders, non-defense capital goods orders ex aircraft, have a good lead quality for business investment grew by 0.7% m/m vs 0.1% m/m as expected.

The yield on a 10y Treasury started the week at 4.19%, rose to 4.25% and finished the week at around 4.20%. The yield on 2y Treasury started the week at 4.59% and reached the high of 4.63%. Spread between 2y and 10y Treasuries started the week at -39bp then widened to -42bp as curve inverted further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 96% while rate cut probability is 4%. Probability of a June rate cut is around 64%.

This week we will have ISM PMI data as well as NFP data on Friday. Headline number is expected around 200k while the unemployment rate should remain at 3.9%.

Important news for USD:

Monday:​

• ISM Manufacturing PMI​

Wednesday:​

• ISM Services PMI

Friday:​

• NFP​
• Unemployment Rate​

EUR

ECB Chief Economist Lane stated that wage data show wage growth returning to normal. He clarified it by saying that it is desirable for wage growth to be above normal in the next several years but it is important that it returns to normal over time.

Preliminary March CPI data from Spain came in line with expectations at 3.2% y/y but a big jump from 2.8% y/y seen in February. Core CPI went in the other direction and declined to 3.3% y/y from 3.5% y/y the previous month. Italy CPI jumped as well to 1.3% y/y from 0.8% y.y in February. French CPI, on the other hand, plunged by more than expected to 2.3% y/y from 3% y/y in February.

This week we will have preliminary March CPI reading.

Important news for EUR:

Wednesday:​

• CPI​

GBP

BoE policymaker Catherine Mann, one of the biggest hawk in the MPC and voter for a 25bp rate hike, explained her decision for no change in rate at the March meeting as necessary. She said it is time to move away from rate hikes as discretionary services inflation started to soften. She added that markets are pricing too many rate cuts and that market curve in the UK is impacted by decisions made by Fed and ECB. Boe policymaker Haskel, another hawk who also voted for a 25bp rate hike in February and then changed to no change in March, stated that declines in inflation are very welcoming and that persistence and underlying inflation is what BoE pays most attention to. He added that he thinks that rate cuts are a long way off.

AUD

February monthly CPI reading showed inflation unchanged at 3.4% y/y vs 3.5% y/y as expected. Monthly inflation reading does not encapsulate all of the CPI components. It includes around 70 percent of total CPI basket used for quarterly measuring. The next quarterly reading will come on April 24.

Bloomberg survey is projecting two more RRR cuts by PBOC by the end of the year. Additionally, they see rate cuts to both 1 and 5-year LPR. Industrial profits for the January – February period showed increase of 10.2% y/y thus making it the first positive reading since June of 2022. A jump in manufacturing profits was the main contributor followed by utilities. When looking at industries, "computer, communications and other electronic equipment manufacturing" category showed staggering jump in profits of 210.9% y/y!

NZD

New Zealand Treasury has cut their inflation and growth projections. They now see inflation at 3.3% for fiscal year (FY) of 2024 vs 4.1% as previously seen. GDP for FY of 2024 is seen coming in at meager 0.1%, down from 1.5% as previously forecast. They then see GDP rebounding in FY of 2025 to 2.1% from 1.5% as seen in previous forecast. Business confidence in March recorded a big drop as it printed 22.9, down from 34.7 in February.

CAD

Preliminary wholesale trade data for the month of February showed an increase of 0.8% m/m. Strong increases are seen in machinery and equipment sectors as well as in motor vehicles and motor vehicle parts. January GDP rose by 0.6% m/m vs 0.4% m/m as expected. Services industries rose by 0.7% while manufacturing led by transportation equipment rose by 0.9%. CAD has strengthened across the board during the week.

This week we will have employment data.

Important news for CAD:

Friday:​

• Employment Change​
• Unemployment Rate​

JPY

Tokyo area CPI for the month of March saw headline number come in unchanged at 2.6% y/y. Ex fresh food ticked down to 2.4% y/y from 2.5% in February while ex fresh food, energy declined to 2.9% y/y from 3.1% y/y the previous month. This is the first sub 3% reading for the category since December of 2022. Inflation still stays above 2% target but it is not rising. Preliminary industrial production for February fell further by 0.1% m/m while a rebound of 1.4% m/m was expected. The reading showed further decline in the yearly number as it printed -3.4% y/y, down from -1.5% y/y in January. These bleak data are overshadowed by the very positive outlook for the March and April readings. Retail sales, on the other hand, posted a very good result, rising 1.5% m/m and 4.6% y/y and showing that consumer is increasing spending.

CHF

SNB total sight deposits for the week ending March 22 came unchanged at CHF469.2bn. Swissy is weakening after SNB cut and the bank is not intervening as markets are doing their job for them.

This week we will have inflation data.

Important news for CHF:

Thursday:​

• CPI​

 

[katetrades]

Forex Major Currencies Outlook (Apr 8 – Apr 12)

ECB, RBNZ and BoC meetings combined with inflation from the US and China will dominate the week ahead of us.

USD

ISM manufacturing surprised to the upside in March and returned to expansion for the first time since October of 2022. It printed 50.3 vs 48.4 and up from 48.4 in February. Digging into the details we see that both production and new orders indices jumped into expansion. There was also improvement in the employment index. On the other hand, jump in prices paid is concerning as it signals that inflationary pressures are not subsiding.

ISM services went in another direction from manufacturing and printed 51.4 vs 52.7 as expected and down from 52.6 in February. Business activity improved slightly and sits at a very healthy 57.4 level. New orders declined but are still well in the expansion while new export orders strengthened more and moved further into expansion. Employment showed a marginal improvement and is sitting at 48.5. Prices paid fell heavily to 53.4, lowest in four years, from 58.6 indicating that although price pressures are still rising they are doing that at a slower pace. Backlog of orders was concerning as it showed a big drop from expansion into deep contraction.

FOMC Committee members Daly and Mester, both voting members this year, stated that three rate cuts are reasonable for 2024 but it is a close call. Chairman Powell stated that if economy continues to evolve as expected most members see it appropriate to start cutting rates during the year. Gold has reached new record of $2300 during the week.

Another month and another scorching jobs report. Headline number for March saw 303k jobs added vs 200k as expected. The unemployment rate ticked down to 3.8% while participation rate jumped to 62.7% from 62.5% in February. Wages data saw positive revision to February reading (0.2% m/m vs 0.1% m/m) and on on top of that wages rose 0.3% m/m (0.347% m/m, which is almost 0.4% m/m). Year over year they were unchanged at 4.1%. Majority of jobs came from government with leisure and hospitality coming in second place. Fed will not be able to ignore such a strong report and rate cuts will most likely be pushed even further.

The yield on a 10y Treasury started the week at 4.20%, rose to 4.42% which is the high for the year and finished the week at around 4.39%. The yield on 2y Treasury started the week at 4.63% and reached the high of 4.74%. Spread between 2y and 10y Treasuries started the week at -42bp then tightened to -34bp as curve proceeded to bear steepen. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 99% while rate hike has been priced in after strong NFP with miniscule probability of 1%. Probability of a June rate cut is around 59%.

This week we will get March inflation data and minutes from the March FOMC meeting.

Important news for USD:

Wednesday:​

• CPI​
• FOMC Minutes​

EUR

Final March manufacturing PMI was revised up to 46.1 from 45.7 as preliminary reported but it was still down from 46.5 in February. Improvements were seen across all countries with Italy even printing above 50. The report shows that new orders and output declined at a lower pace and that business confidence showed highest reading almost a year. Final services reading was revised up to 51.5 from 51.1 as preliminary reported. New business recorded growth after eighth months of declines and as report states on inflation “Service providers are still in a position to pass on at least some of the rise in input costs to customers in the form of higher prices. In March, however, the pace of inflation slowed slightly both in terms of costs and sales prices." German services inflation returned to expansion. Composite for the Eurozone returned to expansion after May of 2023 with a 50.3 reading.

Preliminary inflation data for the month of March saw headline number decline to 2.4% y/y from 2.6% y/y with core reading declining to 2.9% y/y from 3.1% y/y. German preliminary inflation came in at 2.2% y/y. Inflation readings are showcasing prevalent disinflationary pressures, but monthly jump of 0.8% m/m leaves everyone cautious.

This week we will have ECB meeting. No change in rate is expected, markets are pricing over 80% chance of no change, so this meeting will serve for preparing the terrain for a June cut.

Important news for EUR:

Thursday:​

• ECB Interest Rate Decision​

GBP

Final manufacturing PMI reading for the month of March was revised up to 50.3 from 49.9 as preliminary reported and up from 47.5 in February. This is the first time manufacturing returned into expansion since July of 2022. The details of report show that increases in output, new orders and business optimism. Final services reading was revised down to 53.1 from 534. as preliminary reported as the sector slowed down a bit. New orders are still growing which is encouraging. On the inflation front the report shows that input prices increased sharply while “Prices charged by service providers increased at the slowest pace since September 2023. However, this index has only edged downwards since last summer and it remains well above the long-run trend, therefore adding to signs of sticky inflationary pressures in the domestic economy so far this year."

AUD

Minutes from the RBA March meeting showed that board did not consider raising rates but they could not rule out possible rate hikes or rate cuts in the future. They see uncertainty around economic outlook but risks seem to be broadly balanced. On the inflation front board members say that it is still high although it is gradually coming down while the labor market is easing. Wages growth had been robust in the Q4 but the data signaled that it may have reached a peak. However, overall wages growth was not expected to decline quickly.

March official PMI data from China showed great improvements. Manufacturing climbed to 50.8 from 49.1 in February thus escaping contraction and returning to expansion for the first time since September. Services PMI moved further up in expansion as it printed 53, up from 51.4 the previous month. Combined they lifted composite to 52.7, highest in ten months. Caixin manufacturing PMI for March climbed to 51.1 from 50.9 as new exports and output continued to increase with improvement in new export orders as well. Caixin services and composite both improved to 52.7 from 52.5 the previous month.

This week we will get inflation and trade data from China.

Important news for AUD:

Thursday:​

• CPI (China)​
• Trade Balance (China)​

NZD

RBNZ Governor Orr stated that most central banks feel they are back on top of the inflation, although RBNZ is not there yet. He added that bigger than expected drop in Q4 GDP was necessary adjustment which helped the bank to be on track to get inflation within their targeted range. First dairy auction in April saw prices increase by 2.8% which comes as a nice rebound after two March auctions of falling prices.

This week we will have RBNZ meeting. No change in rate is expected but RBNZ should follow the lead of other central banks and take on more dovish stance.

Important news for NZD:

Wednesday:​

• RBNZ Interest Rate Decision​

CAD

March employment report was a disappointing one. Headline number came in at -2.2k vs 25k as expected. This has led to jump in the unemployment rate to 6.1% vs 5.9% as expected from 5.8% in February. Participation rate has remained the same at 65.3%. Breakdown of jobs saw full-time jobs decline by 0.7k while part-time jobs declined by 1.6k. Wages were unchanged at 5% y/y.

This week we will have BoC meeting. Markets are expecting no change to the rate but with the drop in inflation in recent months and easing in labor market should prompt BoC to take more dovish stance.

Important news for CAD:

Wednesday:​

• BoC Interest Rate Decision​

JPY

Final manufacturing PMI for the month of March was unchanged from preliminary reading of 48.2 and it showed improvement from 47.2 in February. The report showed that new orders and output declined at a slower pace than in February but new export orders plunged at the highest pace in over a year as external demand remains very weak. Final services and composite readings were revised down to 54.1 and 51.7 but they both improved compared to previous month. Services have been in expansion since August of 2022 and increase in March was led by rising new export orders.

CHF

SNB total sight deposits for the week ending March 29 came in at CHF456.8bn vs CHF469.2bn the previous week. This is the lowest reading for the year, lowest since July of 2015! and it seems that deposits are going to break the tight range in which they have been since September of 2023. March inflation numbers saw another plunge as the headline reading came in at 1% y/y vs 1.3% y/y as expected and down from 1.2% y/y in February. Core inflation also printed 1% y/y, a tick down from 1.1% the previous month. Inflation is quickly dissipating which increases chances of further rate cut in June and Swissy is not liking it.​

 

[katetrades]

Forex Major Currencies Outlook (Apr 15 – Apr 19)

GDP and activity data from China, inflation data from the UK, Japan, Canada and New Zealand, employment data from the UK and Australia as well as consumption data from the US will highlight the week ahead of us.

USD

March inflation report came in hotter than expected. Headline CPI came in at 3.5% y/y vs 3.4% y/y as expected and up from 3.2% y/y in February. It showed an increase of 0.4% m/m vs 0.3% m/m as expected. This makes it a third consecutive month of 0.4% m/m increases. Rising oil prices caused energy to contribute to growth in inflation. Core reading came unchanged at 0.4% m/m and 3.8% y/y while 0.3% m/m and 3.7% y/y were expected. Shelter component rose 0.4% m/m and was the biggest contributor to the core reading. Supercore, services (services ex energy, ex housing), rose 0.65% m/m. This report basically wiped out June rate cut and now September seems the most likely for a rate cut. However, it is questionable whether Fed will want to cut so close to the election in order to avoid looking politically influenced.

FOMC minutes from the March meeting showed us that members are disappointed with the latest inflation readings. Additionally, the Fed is working on creating the way for a slowing down its Quantitative Tightening programme. Most likely they will reduce the amount of Treasuries and leave the MBS rolling off at the same amount. Gold continued its massive uptrend reaching $2400 level on Friday.

The yield on a 10y Treasury started the week at 4.40%, rose to 4.6%, post CPI and after a horrendous 10y auction that saw a 3bp tail, which is the high for the year and finished the week at around 4.51%. The yield on 2y Treasury started the week at 4.76% and reached the high of 4.98%. Spread between 2y and 10y Treasuries started the week at -35bp then widened to -39bp as curve continued to invert further. The 2y10y is inverted for over twenty months. FedWatchTool sees the probability of no change at May meeting at 98% while probability of a rate cut is around 2%. Probability of a June rate cut plunged after the strong CPI report and sits at around 26%.

This week we will get consumption data.

Important news for USD:

Monday:​

• Retail Sales​

EUR

ECB has left key interest rates unchanged as was widely expected. The accompanying statement shows that most measures of underlying inflation are easing while wage growth is gradually moderating. Inflation shows lower food and goods inflation while domestic price pressures keep services inflation elevated. ECB plans to stop reinvesting PEPP proceeds at the end of 2024. Governing Council will remain data dependent and if their “updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.” They are laying the ground for a rate cut which will occur if incoming inflation data permits it. President Lagarde stated that some members were in favor of immediate rate cut but majority voted for no change as they wished to see more data.

GBP

The UK economy rose by 0.1% m/m in February as expected. Improvements were seen in manufacturing and in industrial production while construction output reported a decline. Services rose by 0.1% m/m. This is the second consecutive month of rising GDP indicating that economic activity is starting to rebound and that we will get a positive Q1 GDP print.

This week we will get employment and inflation data.

Important news for GBP:

Tuesday:​

• Payroll Change​
• Unemployment Rate​

Wednesday:​

• CPI​

AUD

March CPI data from China saw a 0.1% y/y increase vs 0.4% y/y as expected and down from 0.7% y/y in February. The report shows that prices for transportation and household appliance were the biggest drag on inflation. Overall, non-food inflation still stays positive while food prices continue to decline (-2.4% y/y). PPI has continued its downward trajectory as it printed -2.8% y/y.

This week we will get employment data from Australia as well as GDP, production and consumption data from China.

Important news for AUD:

Tuesday:​

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

Thursday:​

• Employment Change​
• Unemployment Rate​

NZD

RBNZ has left the cash rate unchanged at 5.5% as was widely expected but sounded more hawkish. Their stance was revealed at the end of the statement where it said “Committee is confident that maintaining the OCR at a restrictive level for a sustained period will return consumer price inflation to within the 1 to 3 percent target range this calendar year.” The committee sees economy developing as anticipated but the growth remains weak. Members agreed that current level of rates is putting restraints on the demand.

This week we will get Q1 inflation data.

Important news for NZD:

Wednesday:​

• CPI​

CAD

BoC has left the overnight rate at 5% as was widely expected. The statement shows that “economic growth stalled in the second half of last year and the economy moved into excess supply.” New projections see 2024 GDP at 1.5%, 2025 at 2.2% and 2026 at 1.9%. Inflation is seen gradually coming down with shelter inflation staying elevated. Inflation is expected to reach 2% target in 2025. Bank members noticed some signs of moderating wage pressures. The statement shows that thee Council will look for evidence that downward momentum in inflation, seen in recent months, is sustained. The statement concludes with “Governing Council is particularly watching the evolution of core inflation, and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”

During the press conference BoC Governor Macklem clarified that bank members are satisfied with the progress they are seeing on inflation but they need to see it for a longer period of time in order to be confident that the move down is sustained. He clarified that “We need to be assured this is not just a temporary dip.”

This week we will get inflation data.

Important news for CAD:

Tuesday:​

• CPI​

JPY

Wages data for the month of February saw increase of 1.8% y/y as expected. However, when inflation is taken into account, real wages have dropped 1.3% y/y which makes it a 23 consecutive month of falling wages. After the hot US CPI report USDJPY broke 153 level making it the highest level for the pair since 1990.

CHF

SNB total sight deposits for the week ending April 5 came in at CHF460.9bn vs CHF456.8bn the previous week. A move back into the well-established range, nothing out of the ordinary. SNB Vice chairman Shlegel, most likely to succeed Jordan as the new Chairman, stated the role of FX interventions in complementing monetary policy adding that rates would need go higher if there were no forex sales.​