The Week Ahead
A mixed week for markets ahead of and following the US CPI and PPI prints saw the yield on the 10-year UST rise 23bps, to 4.31%, while the S&P Index closed 0.13% lower. The dollar enjoyed a 0.70% jump, measured by the DXY Index, amid the interest rate adjustments; the futures market is no longer pricing at least three rate cuts this year. Brent Crude rallied ~4% last week, closing at $85.34pb following the Ukrainian attacks on Russian refineries.
US CPI prints were released largely in-line with market expectations. Headline and core CPI crept up 0.4% in February, resulting in a year-on-year rise of 3.2% and 3.8%, respectively. The headline figure was driven higher by a spike in gasoline prices, while food costs were unchanged. The core price drivers once again came from higher rental and medical service prices. Next, the PPI surprised to the upside: PPI final demand was up 0.6% in February, while the ex-food and energy print rose 0.3%; year-on-year, they rose 1.6% and 2%, respectively. Meanwhile, further signs that the US consumer is weakening came from the broadly weaker retail sales figures; the control group print, for example, was flat last month. Furthermore, the Uni. of Michigan sentiment unexpectedly fell to a three-month low. The empire manufacturing print was also hugely disappointing, recording -20.9 (exp. -7). Moreover, although industrial production was marginally better-than-expected in February (+0.1%), January suffered a -0.4% revision, suggesting that the manufacturing sector continues to face challenges.
Elsewhere, we had some split chatter from the ECB. Chief Economist Lane said, “the ECB must take its time to get interest rate cuts right and will have a clearer picture on inflationary pressures in June”. In contrast, the head at Greece’s central bank, Stournaras, said the ECB needs “to start cutting rates soon so that our monetary policy does not become too restrictive,” adding that it is “appropriate to do two rate cuts before the summer break, and four moves throughout the year seem reasonable. Insofar, I concur with the markets’ expectations.”
More upbeat data out of China showed fixed assets up 4.2% (exp. 3.2%), industrial production jumped 7% (exp 5.2%), and retail sales came in marginally below expectations at 5.5%. The property sector, however, remained depressed, falling 9% in the first two months compared to the previous year. The PBoC left its 1-year medium-term lending facility at 2.5%.
The main event this week is the Fed meeting (Tues-Wed). The BoJ meeting (Mon-Tues) will also garner interest given the excitement around the looming policy shift. We will also hear from the BoE (Thur). Later today we have the eurozone CPI. The Germany ZEW print, and US housing starts and cross-border investment hit the screens on Tuesday, and we’ll hear from the ECB Vice President Guindos. Eurozone consumer confidence, UK CPI, and the Fed’s upgrade to the economic forecasts and rate projections will garner market attention on Wednesday. We will also hear from the ECB’s Lagarde, Lane and Schnabel at the Institute for Monetary and Financial Stability conference. A host of S&P Global PMI prints for the likes of the eurozone, UK and US will be watched closely on Thursday, and the EU summit kicks-off, through to Friday. With limited data on Friday, the German IFO will draw market attention, and chatter from the Fed’s Bostic, and ECB’s Holzmann, Lane and Nagel may be of interest.
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