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Newsquawk Week Ahead: US NFP, ECB & BoC rate decisions, Japan wage data

Sat, Mar 2, 2024 3:38 PM

<p>Week Ahead 4th - 8th March</p><ul class="text-align-left"><li>Mon: Swiss CPI (Feb), South Korean GDP (Q4), Japanese Tokyo CPI (Feb),</li><li>Tue: US Primary Super Tuesday, Chinese Caixin Services PMI Final (Feb), EZ/UK/US Services and Composite PMI Final (Feb), EZ PPI (Jan), US ISM Services PMI (Feb), South Korean CPI (Feb)</li><li>Wed: BoC Announcement, Australian GDP (Q4), German Trade Balance (Jan)</li><li>Thu: ECB Announcement, Japanese Wage Data, Chinese Trade Balance (Feb)</li><li>Fri: German Industrial Output and PPI (Jan), EZ GDP Revised (Q4), US Jobs Report (Feb), Canadian Jobs Report (Feb)</li><li>Sat: Chinese Inflation (Feb)</li><li>Sun: Japanese GDP (R)</li></ul><p class="text-align-left">Note: Previews are listed in day order</p><p class="text-align-left">China two-sessions (Mon/Tue): </p><p class="text-align-left">China’s political elite and lawmakers are poised to gather for the nation’s annual legislative sessions. The event, dubbed the “two-sessions”, will set budgets and lay down Beijing’s plans for the country’s economy, trade, diplomacy and military. Some also flag a potential re-evaluation of economic strategies with a clear focus on stimulating internal demand. From a market perspective, confidence in an investable China needs to be restored. FT reported that regulators are taking measures to keep the exchange rate stable in a bid to boost confidence in the Chinese currency and economy ahead of the meeting. Sentiment in Chinese stocks has also been bearish. Chinese authorities have recently stepped in with regulators telling quant funds to end a popular high-leveraged strategy – “The gradual exit would help prevent drastic selloffs, sources said. China’s Global Times, citing analysts, suggests this year’s event will likely focus on “discussing how to proceed with the high-quality development of the economy and how to further boost confidence in the Chinese economy.” Analysts at ING expect the Two Sessions to maintain the GDP target. ING forecasts: GDP around 5% (vs “around 5%” in 2023), Inflation around 3% (vs “around 3%” in 2023), New Urban Employment around 12mln (vs “around 12mln” in 2023), Urban Unemployment Rate around 5.5% (vs “around 5.5%” in 2023), Fiscal Deficit around 3.5% (vs “3%” in 2023), and Special Government Bond Issuance 4tln (vs “3.8tln” in 2023).</p><p class="text-align-left">Swiss CPI (Mon):</p><p class="text-align-left">February’s CPI data will draw slightly more scrutiny than normal as it will include the latest estimate of rental price pressures; on January 23rd, Jordan said he expects some inflationary pressure from rents, though he did also expect an acceleration in prices during January. However, the January print came in markedly cooler than forecast at 1.3% vs expected and previous of 1.7% (SNB Q1 forecast 1.8%) and sparked a significant dovish shift in market pricing to over a 50% chance of a March cut vs circa. 25% pre-release (currently 60%). February’s data will be scrutinised for any indication that January’s print was not indicative of the pricing backdrop (possible, given January is often a more volatile reporting period) and as mentioned for signs of any rental pressures. The last rental update was provided in November and saw the index increase by 1.1% Q/Q or 2.2% Y/Y, a level judged as acceptable and sparked a dovish shift in pricing heading into the December gathering.</p><p class="text-align-left">Tokyo CPI (Mon):</p><p class="text-align-left">Tokyo inflation data for February is due early next week which is seen as a leading indicator for the national price trend, while participants will be eyeing the data to see if there is a further slowdown after Core CPI in Japan’s capital slowed for a third consecutive month in January to its lowest in almost two years. As a reminder, Tokyo Inflation in January printed softer than expected with headline CPI at 1.6% vs. Exp. 2.0% (Prev. 2.4%) and CPI Ex. Fresh Food at 1.6% vs. Exp. 1.9% (Prev. 2.1%) which were their lowest readings since March 2022, while CPI Ex. Fresh Food &amp; Energy printed its slowest pace of increase in 11 months at 3.1% vs. Exp. 3.4% (Prev. 3.5%). The softening in the Tokyo inflation data was helped by a decline in energy and utility costs, while the rise in the prices of accommodation had eased and there was also a moderation in the pace of increase of processed food prices which softened the blow from the largest upward driver of inflation. Furthermore, the national inflation data for Japan in January also showed a decline for the third consecutive month to reach its lowest in 22 months but was firmer than expected and matched the central bank's price target with National Core CPI at 2.0% vs. Exp. 1.8% (Prev. 2.3%).</p><p class="text-align-left">US Primary Super Tuesday (Tue):</p><p class="text-align-left">Super Tuesday is the busiest day in the pre-convention election calendar. For the Democrats, the stakes are minimal given incumbent President Biden is essentially guaranteed to secure the nomination. For Republican’s the narrative isn’t quite as clear, as former President Trump still faces opposition from Nikki Haley. However, Trump has taken a commanding lead in the race and Super Tuesday’s primaries are unlikely to alter this narrative. Therefore, barring any significant Haley surprise, market reaction may well be minimal and in-fitting with primaries thus far. Post-Tuesday, attention turns to when Haley exits the race (she has committed to at least Super Tuesday) or failing that when Trump hits the 1215 delegate threshold needed to secure the nomination. Recently, Trump’s team estimated this could occur as soon as 12th March when four primaries are held. Thus far, Trump has won 119 delegates vs Haley’s 22.</p><p class="text-align-left">US ISM Services PMI (Tue):</p><p class="text-align-left">The headline is currently expected to pare a little to 53.3 in February vs the 53.4 in January. In its flash PMI data for the month, S&amp;P Global noted that flash US services business activity fell to a fresh three-month low at 51.3 (from 52.5). The survey compiler said "services sector growth has slipped slightly, however, as has confidence in the year-ahead outlook among service providers, in part reflecting some pull back in the extent to which interest rates are expected to fall in 2024." Still, S&amp;P welcomes news that both manufacturing and services are back in expansion territory again for the first time in three months. It added that the expansion was being accompanied by subdued price pressures. "Although up slightly in February, the survey’s gauge of selling prices for goods and services continues to run at a level consistent with the Fed hitting its 2% inflation target, and a further fall in cost growth to the lowest since October 2020 hints at price pressures remaining subdued in the coming months."</p><p class="text-align-left">UK Budget (Wed):</p><p class="text-align-left">Next week focus in the UK will mostly be on the fiscal, rather than the monetary side of policy as UK Chancellor Hunt presents his spring budget. From a political perspective, the Chancellor is under immense pressure from his party to lower taxes in an attempt to turn the Conservative party’s fortunes around ahead of this year’s general election. In terms of what the Chancellor can actually “pull out of the hat”, economists at Pantheon Macroeconomics anticipate a GBP 20bln tax package with the headroom afforded to the Chancellor based on the following two fiscal rules; 1) “government debt-to-GDP ratio must be forecast to be falling in five years’ time” and 2) "public-sector borrowing has to be below 3% of GDP in the same year”. Hunt has been afforded more “headroom” for spending on account of lower levels of borrowing since the Autumn Statement with PM expecting the OBR to lower its 2023/24 borrowing forecast to GBP 114bln from GBP 123.9bln. In terms of how the tax cuts will be implemented, PM anticipate a combination of a freeze in fuel duty, income tax reductions and some measures to support the housing market. Goldman Sachs suggest that the basic rate of income tax could be lowered by 2p, however, murmurings out of the Treasury have labelled an equivalent move for national insurance as “impossible at the moment”. As such, the Chancellor may be forced to raise taxes elsewhere via measures such as hiking taxes on vapes and tobacco. Whilst the politics of the situation will see prompt Hunt to do as much as he can to lower the burden on UK taxpayers, the events of September 2022 via the Truss mini-budget remain at the forefront of investor sentiment and therefore anything the resembles a lack of fiscal prudence could prompt outsized moves the UK rates space, which could then have some spill over to monetary policy. That being said, under the assumption that measures in the budget comply with fiscal rules, ING is of the view that sizeable tax cuts “would add further impetus for the Bank of England to keep rates on hold a little longer”. Finally, with regards to the Gilt borrowing remit, Morgan Stanley expects the 2024/25 Gross issuance figure to decline to GBP 252.7bln from GBP 257bln.</p><p class="text-align-left">BoC Announcement (Wed):</p><p class="text-align-left">The consensus expects the BoC to hold its policy interest rate at 5.00%, with analysts projecting the first rate cut will come at the central bank's June confab, according to a poll by Reuters. The survey notes that while inflation has fallen back within the BoC's 1-3% target rate (at 2.9% Y/Y last), policymakers are not yet convinced that high inflation has been resolved yet, particularly as shelter costs remain elevated. BMO said "the risk is the first rate cut will come later than June. If the bank is going to make an error here, it is that they'll keep policy too tight for too long to make sure inflation is headed back towards their target or event lower," adding that "they're also concerned about a renewed pickup in the housing market, and just more recently, they've got the added wrinkle the Canadian dollar has started to weaken again. The Reuters poll added that there was no clear consensus around the number of rate cuts coming this year, but around 70% of the economists surveyed are looking for 100bps of cuts or less.</p><p class="text-align-left">Australian GDP (Wed):</p><p class="text-align-left">Australian GDP data for Q4 is scheduled next Wednesday which will provide a gauge into the health of the economy after the somewhat mixed readings in Q3. The previous economic growth data for Australia showed the economic growth missed expectations and slowed to 0.2% vs. Exp. 0.4% (Prev. 0.4%) to match its weakest quarterly growth in two years although GDP Y/Y topped forecasts and maintained the pace of expansion of 2.1% vs. Exp. 1.8% (Prev. 2.1%). The soft quarterly growth was helped by domestic final demand which contributed 0.5 percentage points to GDP growth and government expenditure rose 1.1% and accounted for a 0.2 percentage point increase to GDP with state and federal government social benefit schemes such as the Energy Bill Relief Fund and expansion of the Child Care Subsidy the main contributors, while capital and private investment also continued to increase. Conversely, goods industries weakened with the mining and agriculture industries declining by 1% and 3.5%, respectively, while utility services fell 2.6% amid less demand for heating during the quarter. Furthermore, GDP per capita had declined for a 3rd straight quarter and if it weren’t for population growth or government spending, the economy would have been in a contraction. Looking ahead, the expectations are for Australia’s GDP in Q4 to maintain its Q/Q expansion of 0.2% and for Y/Y growth to slow to 1.5% from 2.1%. Furthermore, the other metrics for economic activity in Q4 have been mixed as Retail Trade and Capital Expenditure topped forecasts but CPI and Construction Work Done were softer than expected, while monthly Manufacturing and Services PMI data were in contraction territory from October to December.</p><p class="text-align-left">ECB Announcement (Thu):</p><p class="text-align-left">Expectations are for the ECB to once again stand pat on rates with markets assigning a 94% chance of such an outcome. The previous meeting passed with little in the way of fanfare with the Governing Council very much in wait-and-see mode as policymakers track progress in inflation returning towards the 2% mandate. In terms of developments since the prior meeting, headline HICP pulled back to 2.6% in February from 2.8%, whilst the core metric fell to 3.3% from 3.6%. From a growth perspective, Q4 GDP printed at 0% vs. the 0.1% contraction seen in the prior month, whilst more timely PMI data saw the EZ-wide services PMI rise to 50.0 from 48.4, manufacturing slip to 46.1 from 46.6, leaving the composite at 48.9 vs. prev. 47.9. The accompanying report noted “The latest PMI print gives hope for a recovery in the eurozone”. Recent comments from ECB officials continue to point towards no imminent intention to lower rates with President Lagarde observing that the ECB is “not there yet” when it comes to inflation, whilst most officials wish to see the outcome of the April wage data (released after the April meeting). In terms of a timeline for the first cut, known-dove Stournaras of Greece does not anticipate one until June with markets broadly in-fitting with this viewpoint, assigning a 92% chance of such an outcome. In the analyst community, 46/73 surveyed by Reuters expect a reduction in June, 17 look for April and 10 expect a H2 reduction. With regards to the full year outlook, markets anticipate a total of 86bps of policy loosening, the median view of analysts looks for 100bps. For the accompanying macro projections, analysts at Danske Bank expect (for the first time in the hiking cycle) “staff projections to show that inflation will hit the 2% target in both 2025 and 2026”, with the 2024 HICP projection to be cut to 2.4% from 2.7% on account of “recent lower than expected inflation data, anchored inflation expectations, and lower energy futures”.</p><p class="text-align-left">Japanese Wage Data (Thu):</p><p class="text-align-left">There are currently no expectations for the data, but the release could attract some attention given the BoJ’s focus on wages coupled with recent hotter-than-expected CPI. Household spending figures will also be released the next day. However, the BoJ is keeping a closer eye on the upcoming Spring wage negotiations. Governor Ueda, at the BoJ’s January conference, suggested the number of firms that have decided to hike wages at this year's Spring wage talks is higher than this time last year, and highlighted that even if real wages are negative and the outlook is positive, a policy change is possible. Former BoJ policymaker Sakurai on Feb 22nd said the BoJ could end negative rates in March if this year's pay hikes exceed 4%, although there's an equal chance it may wait until April. He added the BoJ appears to be fully prepared for an exit, it's a question of when Governor Ueda makes a call.</p><p class="text-align-left">Chinese Trade Balance (Thu):</p><p class="text-align-left">There are currently no forecasts for the trade balance data but as usual the metrics will be used as a gauge of domestic and foreign demand. In terms of the release, the January data did not come out last month amid the Chinese New Year holiday. In terms of the release seen in Jan, Chinese exports grew at a faster pace in December 2.3% (exp. 1.7%, prev. 0.5%). However, imports missed forecasts at +0.2% (exp. +0.3%, prev. -0.6%), indicating fragile demand. It’s worth noting that the data will be released after the China Two-Sessions in which some flag a potential re-evaluation of economic strategies with a clear focus on stimulating internal demand.</p><p class="text-align-left">US Jobs Report (Fri):</p><p class="text-align-left">The US economy is expected to have added 188k nonfarm payrolls in February, with the pace of payroll additions cooling from the 353k reported in January. Analysts said that the Feb data is likely to be supported by the unseasonably milder weather conditions in the month. The unemployment rate is forecast to remain unchanged at 3.7% (the Fed's December projections see unemployment ending this year at 4.1%, then remaining there over the course of its forecast range). Capital Economics is sceptical that the acceleration in employment growth in December and January marks a genuine resurgence in labour demand, noting that S&amp;P Global's PMI data, regional Fed surveys, and the NFIB survey’s hiring intentions indicator, and the downward trend in job openings allude to cooling conditions in the months ahead. Meanwhile, average hourly earnings are expected to rise by 0.2% M/M, cooling from the +0.6% rate seen in January. CapEco is beneath the consensus view on AHE, seeing gains of just +0.1% M/M, and sees the annual rate falling back to 4.3% Y/Y from 4.5% in January. It explains that January’s slump in hours worked was concentrated in low paid retail and leisure sectors, and argues that January's jump in average earnings was a weather-related distortion, observing that during past three weather disruptions, average hourly earnings increased by an average of 0.44% in the weather-hit month and then only 0.13% in the following month.</p><p class="text-align-left">This article originally appeared on <a href=";utm_source=forexlive&amp;utm_medium=research&amp;utm_campaign=partner-post&amp;utm_content=week-ahead">Newsquawk</a>.</p> This article was written by Newsquawk Analysis at

Forexlive Americas FX news wrap: US dollar stumbles on softer data, Nasdaq breaks 2021 top

Fri, Mar 1, 2024 9:57 PM

<ul><li><a href="">US February ISM manufacturing 47.8 vs 49.5 expected</a></li><li><a href="">US January construction spending -0.2% vs +0.2% expected</a></li><li><a href="">US February UMich final consumer sentiment 76.9 vs 79.6 expected</a></li><li><a href="">US Feburary S&amp;P Global final manfacturing PMI 52.2 vs 51.5 prelim</a></li><li><a href="">Fed's Barkin: Yesterday was a high inflation report</a></li><li><a href="">Fed's Kugler: Signs firms are adjusting prices slower, bolstering disinflation confidence</a></li><li><a href="">Fed's Goolsbee: Housing inflation is the thing that's really been weird</a></li><li><a href="">The Fed's Daly: No comments on monetary policy</a></li><li><a href="">Comments from Waller and Logan focus on balance sheet</a></li><li><a href="">Canada February S&amp;P Global manufacturing PMI 49.7 vs 48.3 prior</a></li><li><a href="">BOE's Pill: My baseline is that the time for cutting rates is some ways off</a></li><li><a href="">Martin Schlegel a likely candidate to replace Swiss National Bank's Jordan</a></li><li><a href="">Goldman Sachs pushes back first ECB rate cut call to June from April previously</a></li></ul><p>Markets:</p><ul><li>Gold up $40 to $2083</li><li>US 10-year yields down 6.8 bps to 4.18%</li><li>WTI crude oil up $1.51 to $79.78</li><li>S&amp;P 500 up 0.8%, Nasdaq up 1.1%</li><li>Bitcoin up 2.1% to $62,750</li><li>AUD leads, JPY lags</li></ul><p>Happy Friday. It certainly was for the market as a trio of soft second-tier US economic data releases combined to add a dose of dovishness to the market and send the Nasdaq above the 2021 high.</p><p>Before the data, some worry was creeping into the market and the US dollar was bid. Comments from Barkin struck a hawkish note and with Waller on the schedule after him, there was some worry about a hawkish turn. Instead, the ISM manufacturing, construction spending and final UMich numbers were all soft and the dollar sank. Then Waller limited his comments to the balance sheet and Goolsbee stayed dovish.</p><p>US 10-year Treasury yields fell 12 bps from the highs and broke the important 4.20% level. With that, I would have expect more US dollar selling but that might have been capped by turn-of-the-calendar or US equity buying. The euro and pound managed to recoup yesterday's declines while the Australian dollar edged modestly above yesterday's highs before stalling. </p><p>USD/JPY declined after the data and finished the week just above 150.00 in what's going to be an intriguing month for the pair.</p><p>Gold closed at the highest level on record, at least spot gold did (futures were close). Oil got above $80 only to finish just below in what was a strong day for commodities.</p><p>Bitcoin was lackluster early despite the Nasdaq bid but caught up late to finish within striking distance of the highs of the week. Eyes will be on BTC on the weekend, where it's generally languished since the ETFs emerged.</p> This article was written by Adam Button at

US equity close: A surge to the finish line to close at record highs

Fri, Mar 1, 2024 9:08 PM

<p>Looking at the numbers, I'm surprised how quietly the Russell put on some solid gains and broke out.</p><p>On the day:</p><ul><li>S&amp;P 500 +0.8%</li><li>Nasdaq +1.1%</li><li>DJIA -0.1%</li><li>Russell 2000 +0.9%</li><li>Toronto S&amp;P TSX Comp +0.9%</li></ul><p>On the week:</p><ul><li>S&amp;P 500 +0.95%</li><li>Nasdaq +1.7%</li><li>DJIA -0.1%</li><li>Russell 2000 +2.8%</li><li>Toronto S&amp;P TSX Comp +0.6%</li></ul> This article was written by Adam Button at

The case for a super-bubble in Nvidia shares

Fri, Mar 1, 2024 7:05 PM

<p>Nvidia is already the third-most-valuable company on the planet, trailing only Microsoft and Apple. It's the undisputed leader in the production of chips essential for powering the generative artificial intelligence revolution.</p><p>Companies are throwing as much money as possible at Nvidia in order to stockpile chips in datacenters that will churn out unique images, videos, text and other content in the years ahead. </p><p>Shares of the company have surged by 65% year-to-date, just two months into the year. The gain in Nvidia shares alone this year has powered 32% of the gain in the S&amp;P 500.</p><p>It's a stunning achievement but for all that, shares aren't that expensive. They're trading at 32x forecast earnings in the next 12 months and have grown earnings at a pace never seen before at any company (in dollar terms at least). For context, companies during the dot-com era were trading at 60-100x earnings; so on that alone, shares could more than double.</p><p>What could really propel its growth further?</p><p>Looking at the chart, it's incredible (particularly as a guy who owned shares in 2011, but hasn't since then unfortunately). It's tempting to think that it will all come crashing down. The company is running with +75% margins right now and they don't even manufacture their own chips. Surely someone will catch up by the end of the decade with something at least comperable to what they're offering, right? The long history of chips shows that it's more of a commoditized product than a moat.</p><p>Maybe. But let's set that all aside for a minute.</p><p>Bubbles happen because of mass psychology. A mania mindset emerges as people come to grips with a world-changing idea. All the pieces are already in place for that with Nvidia and its rise from $150 at the dawn of ChatGPT to $818 now captures much of that.</p><p>But is 5x really a bubble in the company that's clearly the leader in AI? Especially when actual earnings have matched the growth rate of the stock? </p><p>I would argue not. This could be just the beginning. Mass psychology is hard to predict but here's the line of thinking that could lead Nvidia much higher:</p><p>Virtually all invention in the future will be via AI</p><p>Human invention is a relic. Already we've seen phamaceuticals that were developed via AI and it's just the tip of the iceberg. With good data (and that might not be easy to find), generative AI can unlock the molecular mysteries of the human body and how we can enhance and heal ourselves in ways never before considered. AI is going to cure cancer and so much more.</p><p>That's just in one field. It could do the same in materials, design, engineering, accounting, programming and many more. Within that, whoever has the largest army of chips owns those inventions. It's the key to unlocking the future and it will be winner-take-all.</p><p>Moreover, the stakes may even be higher for governments as generative AI is tasked with weapons design, including biological, chemical and nuclear weapons along with defenses against those things. What's that worth to the US, China, Russia, Iran and North Korea? It will become a national security priority to amass the largest bank of AI chips possible, with no cost being too high.</p><p>Finally, it will be AI designing the next generation of computer chips. Nvidia's main task will be using its own chips to create the next generation of chips and so on. It will also use that power to design custom chips for clients, something <a href="" target="_blank" rel="nofollow">it's already working on</a>.</p><p>“The chip industry is the foundation of nearly every other industry in the world,” said Jensen Huang, founder and CEO of Nvidia.</p><p>...</p><p>Now do I believe all of that will come to pass? I can certainly see some holes in that argument. Do I think that enough people will believe in that idea to create perhaps the biggest single-stock bubble in history? Enough to make Nvidia the most-valuable company in the world (it would only need to rise 50% from here)? </p><p>I think that very soon people will be screaming that same argument as Nvidia crosses $1000/share and beyond.</p> This article was written by Adam Button at

S&P 500 and Nasdaq soar to record highs

Fri, Mar 1, 2024 6:14 PM

<p>It turns out there is still more room on the AI hype train.</p><p>US equities were mixed earlier but a hint of a softening of the US economy (ie rate cuts) and it was right back to the races. The S&amp;P 500 is up 32 points to a record 5128 and the Nasdaq Composite just broke the 2021 high.</p><p>These are some lofty numbers and lofty moves. </p><p>it's no surprise to see chipmakers at the top of the list today with Broadcom, WD, Micron and AMD inthe top-8 gainers in the S&amp;P 500. NVDA has also added another 3.3%</p><p>The move hasn't happened without some concerns as Apple shares are down 1% and Wynn Resorts are down 4%. That points to consumer weakness.</p><p>I would argue that the turn of the month may be responsible for some of the buying as new money goes to work in what's traditionally the strong March-April seasonal period.</p> This article was written by Adam Button at

Weekly Market Recap (26-01 March)

Fri, Mar 1, 2024 4:47 PM

<p>Monday</p><p>ECB’s Lagarde (neutral – voter) reaffirmed her patience stance with the usual focus on wage growth:</p><ul><li>We are not there yet on inflation.</li><li>We have to get to 2% inflation sustainably.</li><li>ECB must play its role in climate transition.</li><li>There are increasing signs of a bottoming-out in growth and some forward-looking indicators point to a pick-up later this year.</li><li>Wage pressures, meanwhile, remain strong.</li><li>The current disinflationary process is expected to continue, but the governing council needs to be confident that it will lead us sustainably to our 2% target.</li><li>Labour cost increases are partly buffered by profits and are not being fully passed on to consumers.</li><li>We expect inflation to continue slowing down, as the impact of past upward shocks fades and tight financing conditions help to push down inflation.</li><li>Our restrictive monetary policy stance, the ensuing strong decline in headline inflation, and firmly anchored longer-term inflation expectations act as a safeguard against sustained wage price spiral.</li></ul><p>Tuesday</p><p>The Japan January CPI beat expectations although the inflation rates eased from the prior figures:</p><ul><li>CPI Y/Y 2.2% vs. 2.6% prior. </li><li>Core CPI Y/Y 2.0% vs. 1.8% expected and 2.3% prior.</li><li>Core-Core CPI Y/Y 3.5% vs. 3.7% prior.</li></ul><p>Fed’s Schmid (hawk – non voter) can be put on the top of the FOMC hawks after his comments although he’s not a voting member this year:</p><ul><li>No need to pre-emptively adjust the stance of policy.</li><li>Fed should be patient, wait for convincing evidence that inflation fight has been won.</li><li>In 'no hurry' to halt the ongoing reduction in size of Fed's balance sheet.</li><li>We are not out of the woods yet on 'too high' inflation.</li><li>How much further Fed can shrink its balance sheet 'an open question'.</li><li>Don't favour 'overly cautious' approach to balance sheet runoff; some interest-rate volatility should be tolerated.</li><li>Fed should minimize its footprint in the financial system, particularly as relates to Fed's balance sheet.</li><li>Returning inflation to 2% will likely require restoring balance in labour markets, moderating wage growth.</li><li>Reducing Fed's balance sheet should be a priority once crisis has passed.</li><li>Large Fed balance sheet can create unintended consequences, including on bank lending, liquidity.</li><li>January CPI inflation data argues for caution.</li><li>Large Fed balance sheet can create asset-price distortions.</li><li>Bank regulators should take tailored approach.</li><li>Silicon Valley Bank was a bit of a canary in a coal mine.</li><li>Fed's Discount Window should be part of a bank's 'strategic stack' funding.</li><li>it would be a mistake to consider cryptocurrency as a currency.</li></ul><p>The US January Durable Goods Orders missed expectations:</p><ul><li>Durable Goods Orders M/M -6.1% vs. -4.5% expected and -0.3% prior (revised from 0.0%).</li><li>Non-defense capital goods orders ex-air M/M 0.1% vs. 0.1% expected and -0.6% prior (revised from 0.3%).</li><li>Ex transport M/M -0.3% vs. 0.2% expected.</li><li>Ex defense M/M -7.3% vs. 0.5% prior.</li><li>Shipments M/M -0.9%.</li></ul><p>BoE’s Ramsden (neutral – voter) supports the current patient approach as he would like to see more evidence that inflation is going back to their 2% target sustainably. </p><ul><li>Key indicators of inflation persistence remain elevated.</li><li>I support the more-balanced outlook on risks to inflation set out in the MPC's latest forecast.</li><li>I am looking for more evidence about how entrenched this persistence will be and therefore about how long the current level of bank rate will need to be maintained.</li></ul><p>The US February Consumer Confidence missed expectations by a big margin with negative revisions to the prior readings:</p><ul><li>Consumer Confidence 106.7 vs. 115.0 expected and 110.9 prior (revised from 114.8).</li><li>Present situation index 147.2 vs.154.9 prior (revised from 161.3).</li><li>Expectations 79.8 vs. 81.5 prior (revised from 83.8).</li><li>1 year Inflation 5.2% vs. 5.2% prior.</li><li>Jobs hard-to-get 13.5% vs. 11.0% prior (revised from 9.8%).</li></ul><p>“The decline in consumer confidence in February interrupted a three-month rise, reflecting persistent uncertainty about the US economy,” said Dana Peterson, Chief Economist at The Conference Board. “The drop in confidence was broad-based, affecting all income groups except households earning less than $15,000 and those earning more than $125,000. Confidence deteriorated for consumers under the age of 35 and those 55 and over, whereas it improved slightly for those aged 35 to 54.”</p><p>Fed’s Bowman (hawk – voter) maintains her patient stance with no fear of raising rates further if inflation progress were to stall:</p><ul><li>Will remain cautious on monetary policy.</li><li>If inflation moves sustainably to 2% goal, it will eventually be appropriate to cut interest rates; not yet there.</li><li>Reducing policy rate too soon could result in need for future rate hikes.</li><li>She remains willing to raise policy rate if inflation progress stalls or reverses.</li><li>Latest inflation data suggests slower progress on inflation.</li><li>Economic activity and consumer spending are strong, labour market 'tight'.</li></ul><p>Reuters reported that OPEC+ may consider extending their voluntary output cuts into Q2 or even into year-end. </p><p>Wednesday</p><p>The Australian January Monthly CPI missed expectations:</p><ul><li>CPI Y/Y 3.4% vs. 3.6% expected and 3.4% prior.</li><li>Trimmed Mean CPI Y/Y 3.8% vs. 4.0%.</li></ul><p>The RBNZ left the OCR unchanged at 5.5% and dropped the tightening bias:</p><p>RBNZ forecasts:</p><ul><li>Sees official cash rate at 5.59% in June 2024 (prior 5.67%).</li><li>Sees official cash rate at 5.47% in March 2025 (prior 5.56%).</li><li>Sees twi nzd at around 71.5% in March 2025 (prior 70.7%).</li><li>Sees annual CPI 2.6% by March 2025 (prior 2.4%).</li><li>Sees official cash rate at 5.33% in June 2025 (prior 5.42%).</li><li>Sees official cash rate at 3.16% in March 2027.</li></ul><p>Statement:</p><ul><li>The OCR needs to remain at a restrictive level for a sustained period.</li><li>The New Zealand economy has evolved broadly as anticipated by the committee. </li><li>The committee remains confident that the current level of the OCR is restricting demand. </li><li>Core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced. </li><li>However, headline inflation remains above the 1 to 3 percent target band, limiting the committee's ability to tolerate upside inflation surprises. </li><li>A sustained decline in capacity pressures in the New Zealand economy is required to ensure that headline inflation returns to the 1 to 3 percent target. </li><li>With high immigration and weaker demand growth, capacity constraints in the New Zealand labour market have eased.</li></ul><p>From the minutes to the meeting:</p><ul><li>Ongoing restrictive monetary policy settings are necessary to guard against the risk of a rise in inflation expectations.</li><li>Capacity pressures have eased significantly over the past year. </li><li>The committee agreed that interest rates need to remain at a restrictive level for a sustained period of time. </li><li>The committee noted that aggregate demand is now better matched with the supply capacity of the economy. </li><li>The starting point for capacity pressures in the New Zealand economy is only slightly lower than previously assumed. </li><li>The committee is conscious that the economy has limited capacity to absorb further upside inflation surprises. </li><li>Recent drops in core inflation and business inflation expectations are encouraging, but they remain above the 2 percent mid-point of the committee’s target band.</li></ul><p>Moving on to the Governor Orr’s Press Conference:</p><ul><li>Central banks may have to hold rates higher than markets expect.</li><li>New Zealand economy has evolved ‘broadly’ as expected.</li><li>Discussed rate hike, but strong consensus that rates were sufficient.</li><li>Domestic price pressures are easing as expected.</li><li>Comforting to see inflation expectations decline.</li><li>Data has given us more confidence in the outlook than in November.</li><li>We are in a disinflation period.</li><li>Economy faces a soft-landing scenario.</li></ul><p>ECB’s Kazimir (hawk – non voter in March) is clearly signalling a rate cut in June, all else being equal:</p><ul><li>Market's rate cut pricing now "more realistic".</li><li>Pleased with recent shift in expectations.</li><li>Headline disinflation is going quicker than expected but core prices still remain uncertain.</li><li>Prefers June rate cut, then "smooth and steady cycle of policy easing".</li></ul><p>The 2nd reading for the US Q4 2023 GDP missed slightly expectations with higher figures for consumer spending and inflation:</p><ul><li>US Q4 2023 GDP 3.2% vs. 3.3% expected.</li></ul><p>Details:</p><ul><li>Consumer spending 3.0% vs. 2.8% advance.</li><li>Consumer spending on durables 3.2% vs. 4.6% advance.</li><li>GDP final sales 3.5% vs. 3.2% advance.</li><li>GDP deflator 1.7% vs. 1.5% advance.</li><li>Core PCE 2.1% vs. 2.0% advance.</li><li>Business investment 0.9% vs. 2.1% advance.</li></ul><p>Fed’s Collins (neutral – non voter) echoed her colleagues in supporting a patient stance as they gather more information:</p><ul><li>Repeats it will likely become appropriate to begin easing policy later this year.</li><li>Recent economic data highlight that progress toward the Fed's goals could continue to be bumpy.</li><li>More time is needed to discern if the economy is sustainably on the path to price stability and a healthy labour market.</li><li>States the need to see more evidence that the disinflationary process will continue before starting to carefully normalize policy.</li><li>Expecting all of the data to speak uniformly is too high a bar; shouldn't overreact to individual data readings.</li><li>The return to 2% will likely require demand growing at a more moderate pace this year.</li><li>Wants to see continued evidence that wage growth is not contributing to inflationary pressures.</li><li>In assessing inflation progress, will look for inflation expectations remaining well anchored and an orderly moderation in labour demand.</li><li>Wants to see continued declines in housing inflation and non-shelter services inflation.</li><li>The threat of inflation remaining above 2% has receded.</li><li>I see risks is more balanced between cutting too early and too late.</li><li>We should be taking time on policy.</li><li>We expect we will see more of a decline in reserves, and will be paying attention to what point it might be appropriate to revisit QT.</li><li>Too early to tell if we are extracting the right signal from housing inflation data.</li></ul><p>Fed’s Williams (neutral – voter) reiterated the patient approach as the Fed will be guided by the incoming economic data:</p><ul><li>Still some ways to go before hitting the 2% inflation target.</li><li>Fully committed to achieving the Fed's 2% inflation target.</li><li>Will let incoming economic data determine the monetary policy path.</li><li>Sees likely uneven path back to 2% inflation.</li><li>Inflation pressures have fallen a lot amid broad-based improvement.</li><li>Risks to outlook exist on up and down sides.</li><li>Inflation to hit 2%-2.25% this year, 2% in 2025.</li><li>Growth at 1.5% this year, unemployment up to around 4%.</li><li>Economy, job market strong, imbalances waning.</li><li>Current 3.7% unemployment rate around long-term level.</li><li>Risks to Fed job, inflation mandates moving into better balance.</li><li>Fed likely to cut rates later this year.</li><li>Will watch data to drive decision over cutting rates.</li><li>Fed has time to take in data before cutting rates.</li><li>Pandemic aftermath still affecting economy, but optimistic about outlook.</li><li>3 interest-rate cuts in 2024 reasonable for US central bank officials to debate.</li><li>Data will drive one federal cut rates.</li><li>Current US economy is similar to where it was during December policy meeting.</li><li>It is unclear what impact potential US government shutdown would have on economy.</li></ul><p>Fed’s Bostic (hawk – voter) repeated the comments from other members as they all support a patient approach:</p><ul><li>There is still work to do on inflation.</li><li>Has not declared victory just yet.</li><li>Is comfortable being patient on policy.</li><li>Will not be a fast march to 2% inflation.</li></ul><p>ECB’s Nagel (hawk – voter) wants to see wage growth to moderate before supporting rate cuts:</p><ul><li>It would be fatal if ECB cut rates too early only for inflation to rebound.</li><li>ECB needs confirmation that wage growth is moderating to a level that will let inflation fall back to target in 2025.</li></ul><p>BoE’s Mann (hawk – voter) blamed consumers for the slow progress on inflation:</p><ul><li>Lack of consumer discipline complicates policy.</li><li>BoE is struggling to bring inflation back to target because price rises are increasingly driven by people who are immune to the pressures of higher interest rates.</li><li>There is lack of consumer discipline to rein in business's pricing power in areas of the services sector where prices were often sticky. </li></ul><p>Thursday</p><p>The Japanese January Industrial Production missed expectations:</p><ul><li>Industrial Production Y/Y -1.5% vs. -0.7% prior.</li><li>Industrial Production M/M -7.5% vs. -7.3% expected and 1.4% prior.</li></ul><p>The Japanese January Retail Sales came in line with expectations:</p><ul><li>Retail Sales Y/Y 2.3% vs. 2.3% expected and 2.4% prior (revised from 2.1%).</li><li>Retail Sales M/M 0.8% vs. -2.9% prior.</li></ul><p>BoJ’s Takata delivered some hawkish comments that sent the Yen higher across the board:</p><ul><li>Momentum is rising in spring wage talks.</li><li>Many companies are offering higher-than-2023 wage hikes.</li><li>Achievement of 2% inflation target is becoming in sight despite uncertainty of economic outlook.</li><li>Japan's economy is in inflection point of changing 'norm' that people think wages, prices are not rising.</li><li>Exit measures should include abandoning yield curve control framework, ending negative rates, overshoot commitment.</li><li>I would call for a gear shift in policy, but not one that is going backwards.</li><li>Moderate recovery trend intact despite slowdown in capex, consumption.</li><li>Monetary policy needs to remain consistent with the real economy, financial environment.</li><li>Have not made up mind yet on monetary policy decision.</li><li>Wage hikes are broadening stronger than last year.</li><li>Need to watch outcome of spring wage talks after mid-March.</li><li>Not thinking of raising rates one after another.</li><li>Don't want to single out any policy step in mentioning "nimble responses".</li><li>Gradual steps will be needed amid mixed circumstances surrounding smaller firms.</li><li>We need to keep some easing measures to some extent.</li><li>But important for exit strategy to not be too complicating.</li></ul><p>The Switzerland Q4 2023 GDP beat expectations:</p><ul><li>Q4 2023 GDP Q/Q 0.3% vs. 0.1% expected and 0.3% prior.</li></ul><p>The US Jobless Claims missed expectations:</p><ul><li>Initial Claims 215K vs. 210K expected and 202K prior (revised from 201K).</li><li>Continuing Claims 1905K vs. 1874K expected and 1860K prior (revised from 1862K).</li></ul><p>The US January PCE came in line with expectations:</p><ul><li>PCE Y/Y 2.4% vs. 2.4% expected and 2.6% prior.</li><li>PCE M/M 0.3% vs. 0.3% expected and 0.1% prior.</li><li>Core PCE Y/Y 2.8% vs. 2.8% expected and 2.9% prior.</li><li>Core PCE M/M 0.4% vs. 0.4% expected and 0.1% prior (revised from 0.2%).</li></ul><p>Consumer spending and consumer income for January:</p><ul><li>Personal income 1.0% versus 0.4%. Prior month 0.3%.</li><li>Personal spending 0.2% versus 0.2% expected. Prior month 0.7%</li><li>Real personal spending -0.1% vs 0.6% last month revised from 0.5%).</li></ul><p>The Canadian Q4 2023 GDP beat expectations:</p><ul><li>Q4 GDP Q/Q 0.3% vs. ­-0.1% prior (revised from -0.3%).</li><li>Annualised GDP Q/Q 1.0% vs. 0.8% expected and -0.5% prior (revised from -1.1%).</li><li>December GDP M/M 0.0% vs. 0.2% expected and 0.2% prior.</li></ul><p>Fed’s Goolsbee (dove - non voter) continues to see progress in disinflation:</p><ul><li>We've had very substantial progress over a long-term basis on inflation.</li><li>Even with January PCE data showing a month of rebound, should be careful to extrapolate.</li><li>There is element of truth that disinflation of 2023 was supply chain repair.</li><li>Should be careful with the argument that supply change is now fixed.</li><li>Should not expect more benefit in 2024.</li><li>Impact on supply shock on inflation takes time.</li><li>Suggests benefits of supply chain disinflation are still to come.</li><li>Lags on supply shock from labour on inflation are probably long.</li><li>As of labour supply shocks probably have a longer lasting effect on inflation then supply chain shocks.</li><li>If substantial productivity growth continues, that would have an impact on monetary policy.</li><li>What I'm watching the most is why hasn't housing inflation improved more than it has.</li><li>There is a risk of betting against the Fed being committed on doing what it says.</li><li>Rates are pretty restrictive.</li><li>I still think the question is how long we want to remain in this restrictive.</li><li>External shocks are the things I worry about most.</li><li>2023 was a golden year.</li><li>If golden path is to continue in 2024, would rely on lagged effect of the past positive supply shocks.</li><li>If you stay quite restrictive, you will eventually have to think about impact to employment.</li></ul><p>Fed’s Bostic (hawk – voter)</p><ul><li>Inflation came down much faster than expected.</li><li>The last inflation number shows that inflation's decline will be a bumpy one.</li><li>Fed must stay vigilant and intensive.</li><li>Over the long arc inflation is still coming down.</li><li>It is probably appropriate to reduce the fed funds policy rate in the summertime.</li><li>Economic data will be the guide for the Fed on when rate cards are made.</li><li>Degree of risk exposure in the nonbanking sector worries me.</li><li>Calls the US banking sector sound and strong.</li><li>Range of risks that has to think about has become more complex.</li><li>Geopolitical risks are currently high.</li><li>I expect things are going to be bumpy on inflation.</li><li>It is useful to use a range of different approaches to assess inflation.</li></ul><p>Fed’s Daly (neutral – voter) repeated that the current policy stance is appropriate:</p><ul><li>Fed policy is in a good place.</li><li>Fed can cut rates if needed.</li><li>The Fed wants to avoid holding rates all the way to 2% inflation.</li><li>There is no imminent risk of the economy faltering.</li><li>If Fed were to cut too quickly, inflation can get stuck.</li><li>Risks of persistent inflation and economic downturn are even.</li></ul><p>Fed’s Mester (hawk – voter) continues to support the patient stance guided by incoming economic data:</p><ul><li>January PCE data was not too surprising.</li><li>January PCE reading does not change view that inflation is going downward.</li><li>There is a little more work for the Fed to do on inflation.</li><li>It's all about risk management until we get to 2% inflation goal.</li><li>Monetary policy is restrictive, demand should cool.</li><li>We can't rely on pace of disinflation last year to continue this year.</li><li>Demand will moderate, growth this year will not be as strong as last year.</li><li>Does not want to focus on timing of the rate cut but the data.</li><li>Expects some slowdown in employment growth.</li><li>That slowing in employment growth is what we need to see to ease policy.</li><li>We do need to be more confident that inflation is on that downward path.</li><li>Baseline is we will see moderation in the labour market, but it will still healthy.</li><li>Need to see continued disinflation.</li><li>Baseline forecast of three rate cuts still seems about right.</li><li>Economy and monetary policy is in a good spot.</li></ul><p>Friday</p><p>BoJ’s Ueda basically retracted what Takata said yesterday as he cast doubt on the achievement of the 2% target and wasn’t upbeat on wage negotiations:</p><ul><li>The recent recession in Japan follows previous strong quarters.</li><li>Japan's economy will continue recovering gradually.</li><li>Japan firms' capex plan is strong, which likely to be implemented eventually.</li><li>Japan's economy not yet in situation where sustained achievement of 2% inflation can be foreseen.</li><li>In judging whether sustained achievement of 2% inflation target can be foreseen, this year's annual wage negotiation outcome is key.</li><li>Compared with when we announced our January report, labour unions have demanded wage growth higher than last year, big firms seem keen to hike wages.</li><li>Want to look at collective outcome of wage talks, as well as hearings we conduct on firms.</li></ul><p>RBNZ Hawkesby reaffirmed the central bank patient stance:</p><ul><li>Restrictive policy needed to ensure inflation expectations anchor at 2%.</li><li>Policy is going to stay restrictive for some time yet.</li><li>Policy will need to stay restrictive even when the output gap is negative.</li><li>We think the output gap now is around zero, if not a bit negative.</li><li>We don't have a lot of room to manoeuvre when it comes to future inflation shocks.</li><li>We are on the right path with inflation, have to hold our course.</li><li>Not in a mindset to cut rates now, will be cutting sometime down the track.</li></ul><p>The Japanese Unemployment Rate came in line with expectations:</p><ul><li>Unemployment rate 2.4% vs. 2.4% expected and 2.4% prior.</li></ul><p>RBNZ Governor Orr reaffirmed the central bank’s patient stance:</p><ul><li>Economy is evolving as anticipated.</li><li>Inflation expectations have fallen.</li><li>Inflation is still too high but is falling.</li><li>Monetary policy needs to stay restrictive for some time.</li><li>Expect to begin normalising policy in 2025.</li><li>Expect economic growth to begin picking up in 2024.</li></ul><p>Fed’s Williams (neutral – voter) reiterated that he sees progress on inflation and rate cuts this year:</p><ul><li>Says 2023 was an amazing year for the economy.</li><li>Current business cycle is not a normal one.</li><li>Much of what happened in the economy is a reversal of the pandemic hit.</li><li>The resilience of the US economy is remarkable.</li><li>The Federal Reserve is dealing a strong economy, adding lots of jobs.</li><li>Wants inflation back to 2% and sees progress on that.</li><li>I do expect us to cut interest rates later this year.</li><li>Doesn't see sense of urgency to cut rates.</li><li>Rate hike is not part of base case.</li><li>Current outlook doesn't suggest another hike is needed.</li></ul><p>The Chinese February PMIs showed Manufacturing remaining in contraction and Services improving further:</p><ul><li>Manufacturing PMI 49.1 vs. 49.1 expected and 49.2 prior.</li><li>Services PMI 51.4 vs. 50.9 expected and 50.7 prior.</li></ul><p>The Chinese February Caixin Manufacturing PMI beat expectations:</p><ul><li>Caixin Manufacturing PMI 50.9 vs. 50.6 expected and 50.8 prior.</li></ul><p>Caixin PMI summary:</p><ul><li>Production and new orders grew faster in February.</li><li>New export business expanded for the second consecutive month due to an improvement in underlying global demand conditions.</li><li>Inventories of purchased items increased at the fastest pace since late-2020.</li><li>Stocks of finished items fell for the first time since June last year.</li><li>Employment fell for the sixth successive month.</li><li>Factory gate prices down for the second month, with the rate of discounting being the quickest since July 2023.</li></ul><p>The Switzerland February Manufacturing PMI missed expectations:</p><ul><li>Manufacturing PMI 44.0 vs. 44.4 expected and 43.1 prior.</li></ul><p>The Eurozone February CPI beat expectations:</p><ul><li>CPI Y/Y 2.6% vs. 2.5% expected and 2.8% prior.</li><li>Core CPI Y/Y 3.1% vs. 2.9% expected and 3.3% prior.</li></ul><p>The Eurozone Unemployment Rate remained unchanged at 6.4%.</p><p>Fed’s Barkin (hawk – voter) seems to be getting a bit uncomfortable as he even questioned rate cuts this year:</p><ul><li>Yesterday was a high inflation report.</li><li>We're still a world of prices increasing at higher levels.</li><li>Says he tried to not take too much out of January economic figures in general.</li><li>PCE data yesterday is consistent with the story he is hearing with regards to services inflation.</li><li>Inflation is coming down, but we have to see how much more has to happen to get it to 2%.</li><li>I am not in a hurry to cut rates.</li><li>I still see wage and inflation pressures.</li><li>We'll see if there are rate cuts this year.</li><li>It all depends on progress on inflation.</li><li>Economy will tell us what to do on policy.</li></ul><p>BoE’s Pill (neutral – voter) stressed that even if they cut monetary policy will remain restrictive:</p><ul><li>My baseline is that the time for cutting rates is some ways off.</li><li>I need to see more compelling evidence that the underlying persistent component of UK CPI inflation is being squeezed down.</li><li>Maintaining restrictiveness does not necessarily mean leaving bank rate unchanged.</li><li>Real interest rates will rise as inflation and short-term inflation expectations ease.</li><li>Monetary policy stance remains restrictive even after a cut.</li></ul><p>The Canadian Manufacturing PMI improved further in February:</p><ul><li>Manufacturing PMI 49.7 vs. 48.3 prior.</li></ul><p>The US February ISM Manufacturing PMI surprisingly missed expectations:</p><ul><li>ISM Manufacturing PMI 47.8 vs. 49.5 expected and 49.1 prior.</li></ul><p>Details:</p><ul><li>Prices paid 52.5 vs. 52.9 prior.</li><li>Employment 45.9 vs. 47.1 prior.</li><li>New orders 49.2 vs. 52.5 prior.</li><li>Inventories 45.3 vs. 46.2 prior.</li><li>Production 48.4 vs. 50.4 prior.</li></ul><p>The highlights for next week will be:</p><ul><li>Monday: Switzerland CPI.</li><li>Tuesday: Tokyo CPI, China Caixin Services PMI, Eurozone PPI, US ISM Services PMI.</li><li>Wednesday: Australia GDP, Eurozone Retail Sales, US ADP, BoC Policy Decision, US Job Openings, Fed Chair Powell Testimony.</li><li>Thursday: Japan Wage data, Switzerland Unemployment Rate, ECB Policy Decision, US Jobless Claims, Fed Chair Powell Testimony.</li><li>Friday: US NFP, Canada Labour Market report.</li></ul><p>That’s all folks. Have a nice weekend.</p> This article was written by Giuseppe Dellamotta at

Gold is track for the highest close ever after a $36 jump

Fri, Mar 1, 2024 4:45 PM

<p>There is a thinking in much of the metals market that prices will take off when the US dollar turns.</p><p>Today, with the slightest bit of US economic and US dollar weakness, we've seen a big move in gold and silver. Gold is up $36 to $2079, which would be the highest daily close ever if it holds.</p><p>The intraday high of $2135 came in a briefly flurry of gains in early December but lasted only minutes before a sharp reversal. Aside from that day, gold has never traded above $2090.</p><p>The latest run for gold has been impressive because it's run counter to USD strength and rising Treasury yields.</p> This article was written by Adam Button at

European equity close: A sea of green

Fri, Mar 1, 2024 4:39 PM

<p>Closing changes on the day:</p><ul><li>Stoxx 600 +0.6%</li><li>German DAX +0.3%</li><li>UK FTSE 100 +0.8%</li><li>French CAC flat</li><li>Italy MIB +1.0%</li><li>Spain IBEX +0.6%</li></ul><p>On the week:</p><ul><li>Stoxx 600 +0.1%</li><li>German DAX +1.8%</li><li>UK FTSE 100 -0.3%</li><li>French CAC -0.45%</li><li>Italy MIB +0.7%</li><li>Spain IBEX -0.7%</li></ul> This article was written by Adam Button at

Nasdaq nears the intraday record high

Fri, Mar 1, 2024 4:24 PM

<p>The Nasdaq closed at a record high yesterday but the intraday high of 16,212 is about 6 points away. We could see a fresh record at any moment.</p><p>The market is happy to see falling Treasury yields due to slower US economic data.</p> This article was written by Adam Button at

US dollar takes a sharp turn lower after USdata slate

Fri, Mar 1, 2024 3:42 PM

<p>The market turned on a dime after a trio of US data releases all missed estimates.</p><p>The US dollar was at the highs of the day shortly before the data, in part due to a stronger S&amp;P Global manufacturing PMI and comments from Barkin that were more hawkish. The fear was building that the Fed could be inching towards a more-hawkish stance, perhaps ruling out rate cuts in H1 and raising the idea of no cuts at all this year.</p><p>Instead, soft data was combined with comments from Goolsbee that were still dovish. Meanwhile, Fed Governor Waller didn't weigh in at all on mon pol.</p><p>The moves have been substantial with the US dollar falling 30-40 pips across the board. EUR/SUD traded at 1.0800 before the data and is up to 1.0835, erasing most of yesterday's decline.</p><p>The bond market move is arguably more dramatic with US 10-year yields falling to 4.205% from 4.295% just before the data. The 4.20% level has been critical for 10s so far this year.</p> This article was written by Adam Button at

US February UMich final consumer sentiment 76.9 vs 79.6 expected

Fri, Mar 1, 2024 3:00 PM

<ul><li><a href="" target="_blank" class="article-link">Prior </a>was 79.0</li><li>Current conditions 79.4 vs 81.5 prelim</li><li>Expectations 75.2 vs 78.4 prelim</li><li>One -year inflation 3.0% vs 3.0% prelim</li><li>Five-year inflation 2.9% vs 2.8% prelim</li></ul> This article was written by Adam Button at

US January construction spending -0.2% vs +0.2% expected

Fri, Mar 1, 2024 3:00 PM

<ul><li><a href="" target="_blank" rel="follow">Prior </a>was +0.9%</li></ul><p>Details:</p><ul><li>Private construction +0.1% vs +0.9% last month</li><li>Public construction -0.9% vs +1.3% last month</li></ul><p>Data from the Census Bureau.</p> This article was written by Adam Button at

US February ISM manufacturing 47.8 vs 49.5 expected

Fri, Mar 1, 2024 3:00 PM

<ul><li><a href="" target="_blank" rel="follow">Prior </a>was 49.1</li></ul><p>Details:</p><ul><li>Prices paid 52.5 vs 52.9 prior</li><li>Employment 45.9 vs 47.1 prior</li><li>New orders 49.2 vs 52.5 prior</li><li>Inventories 45.3 vs 46.2 prior</li><li>Production 48.4 vs 50.4 prior</li></ul><p>This is a big surprise, especially after a strong S&amp;P Global report a few minutes ago.</p><p>Comments in the report are more upbeat than the numbers:</p><ul><li>“Currently seeing increasing sales in our business. Most delivery dates are in the second quarter of 2024.” [Chemical Products]</li><li>“The first quarter will be slower due to some customer order changes, but we are expecting the rest of 2024 to be strong. We may increase our growth projections.” [Transportation Equipment]</li><li>“Typical first quarter volume drops from fourth quarter high volumes. Additional distribution has allowed us to maintain consistent production shifts.” [Food, Beverage &amp; Tobacco Products]</li><li>“Customer softness continues in China, Japan and Europe.” [Computer &amp; Electronic Products]</li><li>“Demand has finally picked up, with customer orders more closely resembling typical January and February levels. January was up 22 percent compared to December; February up 26 percent compared to January.” [Machinery]</li><li>“Customer orders are steady, neither up nor down compared to last month. This steady state is what we budgeted and forecast. We are forecasting business to increase 2 percent to 4 percent over the next couple of months.” [Fabricated Metal Products]</li><li>“Business outlook overall is stable. Working through customer backlog with some raw material lead times improving.” [Miscellaneous Manufacturing]</li><li>“We reflected on 2023 for maybe a minute and turned the page forward to 2024. Weather in January caused several operations to be idle, and shipments were affected.” [Nonmetallic Mineral Products]</li><li>“The month seems to be getting stronger with each passing day and week. Lots of market volatility —pricing flat to downward. It will be interesting to see how the last days of the month play out, as indications seem to be all over the place.” [Primary Metals]</li><li>“We are experiencing increased sales, which is putting pressure on the plant and assembly to meet new customer demand.” [Electrical Equipment, Appliances &amp; Components]</li></ul> This article was written by Adam Button at

US Feburary S&P Global final manfacturing PMI 52.2 vs 51.5 prelim

Fri, Mar 1, 2024 2:45 PM

<ul><li>Prelim was 51.1</li><li><a href="" target="_blank" rel="follow">Prior </a>was 50.7</li><li>Input prices rose at a slower pace</li><li>Selling prices increased at the steepest pace since April 2023</li><li>Domestic and foreign client demand strengthened, driving total sales higher and at the sharpest pace since May 2022</li></ul><p>This adds upside risks to the ISM manufacturing survey at 10 am ET and highlights a strong backdrop in the US.</p><p>Chris Williamson, Chief Business Economist at S&amp;P Global Market Intelligence, said: </p><blockquote>“Manufacturing is showing encouraging signs of pulling out of the malaise that has dogged the goods-producing sector over much of the past two years. After a long spell of reducing inventories in order to cut costs, factories are now increasingly rebuilding warehouse stock levels, driving up demand for inputs and pushing production higher at a pace not seen since early 2022. There are also signs of stronger demand for consumer goods, linked in part to signs of the cost of living crisis easing. </blockquote><blockquote>“Firms are consequently investing in more staff and more equipment, laying the foundations of further production gains in the coming months to hopefully drive a stronger and more sustainable recovery of the manufacturing economy. </blockquote><blockquote>“Problems with shipping disruptions and supply chains earlier in the year have eased, taking some pressure off input prices, though factory gate prices are recovering amid stronger customer demand, which will be an area to watch closely in the coming months as policymakers assess the appropriateness and timing of any interest rate cuts.”</blockquote> This article was written by Adam Button at

Canada February S&P Global manufacturing PMI 49.7 vs 48.3 prior

Fri, Mar 1, 2024 2:30 PM

<ul><li><a href="" target="_blank" rel="follow">Prior </a>was 48.3</li><li>The relative improvement in the PMI reflected slower falls in both output and new orders</li><li> There remained many reports that client demand was subdued</li></ul><p>Commenting on the latest survey results, Paul Smith, Economics Director at S&amp;P Global Market Intelligence said:</p><blockquote> "Canada’s manufacturing PMI moved closer to the crucial break-even 50.0 mark during February amid slower falls in both output and new orders. Although continuing to decline, reflective of some ongoing client hesitancy, rates of contraction were small in the context of recent months and reflect a steady underlying improvement in global market conditions. </blockquote><blockquote>"Moreover, firms expressed their optimism about the future by adding to their staffing levels for the first time in three months. This in part may be the result of relative price stability; although costs continued to rise in February, the net increase was broadly in line with the trend seen over the past half-year or so. Still, margins remain under a little pressure, with factory gate prices continuing to rise only modestly and at a slower pace than costs."</blockquote> This article was written by Adam Button at

ISM manufacturing highlights the US economic calendar today

Fri, Mar 1, 2024 1:51 PM

<p>Welcome to March trading. If you haven't read my March seasonals package yet, <a href="" target="_blank" rel="follow">check it out</a>.</p><p>As the calendar turns over, the yen is giving back all of Thursday's gain while the rest of the FX market is still and oil is on a bit of a run.</p><p>There is no early US data today but we have plenty to come on the <a href="" target="_blank" rel="follow">economic calendar</a>, including more Fedspeak.</p><p>The data focus of the day is US manufacturing with the S&amp;P Global PMI at 9:45 am ET followed by the ISM manufacturing report 15 minutes later. At the same time, we also get US Jan construction spending and the UMich final Feb consumer sentiment report.</p><p>For Canada, the S&amp;P Global manufacturing report is due at 9:30 am ET.</p><p>In terms of Fedspeak, we get:</p><ul><li>10:15 am ET Waller &amp; Logan</li><li>12:15 am ET Bostic</li><li>1:30 pm ET Daly</li><li>3:30 pm ET Kugler</li></ul> This article was written by Adam Button at

Goldman Sachs pushes back first ECB rate cut call to June from April previously

Fri, Mar 1, 2024 12:36 PM

<p class="text-align-justify">I reckon they just wanted to wait on the February CPI data before officially releasing the note. But this call is one that most market players have been sitting on for weeks now. The odds priced in for an April rate cut are only at ~28% while a June rate cut is ~98% priced in as at time of writing.</p> This article was written by Justin Low at

ForexLive European FX news wrap: Dollar mixed, gold at one-month high

Fri, Mar 1, 2024 12:26 PM

<p>Headlines:</p><ul><li><a href="">Bond yields fall back lower in European morning session</a></li><li><a href="">USD/JPY settles back into range as it runs the other way today</a></li><li><a href="">Eurozone February preliminary CPI +2.6% vs +2.5% y/y expected</a></li><li><a href="">Eurozone February final manufacturing PMI 46.5 vs 46.1 prelim</a></li><li><a href="">Eurozone January unemployment rate 6.4% vs 6.4% expected</a></li><li><a href="">UK February final manufacturing PMI 47.5 vs 47.1 prelim</a></li><li><a href="">UK February Nationwide house prices +0.7% vs +0.3% m/m expected</a></li><li><a href="">SNB chairman Thomas Jordan to step down at the end of September 2024</a></li><li><a href="">Nikkei closes at fresh record highs to start the new month</a></li></ul><p>Markets:</p><ul><li>EUR leads, JPY lags on the day</li><li>European equities higher; S&amp;P 500 futures down 0.1%</li><li>US 10-year yields down 1.3 bps to 4.238%</li><li>Gold up 0.5% to $2,054.10</li><li>WTI crude up 1.5% to $78.61</li><li>Bitcoin up 1.2% to $62,188</li></ul><p class="text-align-justify">There wasn't too much action in European trading today, as FX continues to struggle for volatility on the week.</p><p class="text-align-justify">The dollar was little changed overall, keeping steadier despite some back and forth action in the bond market. 10-year Treasury yields rose to 4.28% early on before dipping to a low of 4.22% during the session. That did little to wake up currency traders, although USD/JPY did ease back from 150.60 to 150.30-40 levels.</p><p class="text-align-justify">EUR/USD was subdued around 1.0810-20 levels mostly while GBP/USD is just up slightly from 1.2630 to 1.2645 at the moment. AUD/USD continues to sit near the 0.6500 mark, staying little changed mostly on the day near the figure level.</p><p class="text-align-justify">Instead, it was gold that benefited the most as the precious metal rose from $2,040 to $2,050 levels currently and eyeing a break of key trendline resistance at $2,045 as outlined <a href="" target="_blank" rel="follow">here</a>.</p><p class="text-align-justify">In the equities space, European stocks are still ripping higher as investors continue the hot run from February. But US futures are more tentative for now, with S&amp;P 500 futures marginally lower ahead of the March open.</p><p class="text-align-justify">In terms of data, we got Eurozone CPI for February and that saw core prices remain more stubborn just above 3%. It still is a minor drop from January, allowing for the ECB to stay on the rate cut path at least. However, it also reaffirms the potential for prices to be stickier and more difficult to return to 2% in the months ahead.</p> This article was written by Justin Low at

Bond yields fall back lower in European morning session

Fri, Mar 1, 2024 10:44 AM

<p class="text-align-justify">It's been a choppy one for the bond market as 10-year yields in the US went up as high as 4.28% earlier only to fall back to 4.22% on the day now. The overall price action is still not really helping the bigger picture outlook, as outlined earlier <a href="" target="_blank" rel="follow">here</a>.</p><p class="text-align-justify">But amid the drop in yields, we are seeing USD/JPY pare back some of its advance to 150.30-40 levels now from around 150.60 earlier. Meanwhile, gold is ripping higher and up 0.5% to $2,053 on the day. The precious metal is threatening a break of key resistance highlighted <a href="" target="_blank" rel="follow">here</a>.</p><p class="text-align-justify">As for the dollar, it continues to sit in a more tepid spot as major currencies are still not showing much appetite overall. EUR/USD is flat at 1.0806 with GBP/USD also little changed around 1.2628 currently.</p> This article was written by Justin Low at

Eurozone January unemployment rate 6.4% vs 6.4% expected

Fri, Mar 1, 2024 10:00 AM

<ul><li>Prior 6.4%; revised to 6.5%</li></ul><p class="text-align-justify">The jobless rate in the euro area continues to reaffirm a tight labour market. For some context, this figure was 6.6% in January 2023 so it tells the story that employment conditions are still holding up well overall in the region.</p> This article was written by Justin Low at

Eurozone February preliminary CPI +2.6% vs +2.5% y/y expected

Fri, Mar 1, 2024 10:00 AM

<ul><li>Prior +2.8%</li><li>Core CPI +3.1% vs +2.9% y/y expected</li><li>Prior +3.3%</li></ul><p class="text-align-justify">The standout here is that core annual inflation continues to remain stubbornly high. Even if it did fall from 3.3% in January to 3.1% in February, it reaffirms that the challenge for the ECB to get this to 2% might be much tougher in the months ahead. The euro has nudged up slightly on the data but this shouldn't change the market's view of a June rate cut - at least for now.</p> This article was written by Justin Low at

UK February final manufacturing PMI 47.5 vs 47.1 prelim

Fri, Mar 1, 2024 9:30 AM

<ul><li>Prior 47.0</li></ul><p class="text-align-justify">The headline reading is a 10-month high but UK manufacturing activity continues to observe a downturn at least for now. Both output and new orders continue to decline while the Red Sea crisis is leading to supply disruptions. This reaffirms a more challenging environment, even with some improvements seen as of late. S&amp;P Global notes that:</p><p class="text-align-justify">“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. There were also knock-on effects for demand, as new export orders were hit by both supply disruptions and higher shipping costs. Production volumes subsequently contracted for the twelfth successive month while total new orders fell at the sharpest rate since October. </p><p class="text-align-justify">“The impacts were felt particularly hard on the price and supply fronts. Input cost inflation hit an 11-month high, leading to a further increase in selling prices. Average supplier lead times meanwhile lengthened to the greatest extent since mid-2022. Several manufacturers noted that they faced the difficult choice between accepting delays from re-routed shipping or facing the prospect of paying higher prices to source from closer to home. This comes at a time of already heightened cost caution at manufacturers in response to weak demand, as highlighted by further cuts to employment, purchasing and inventories in February. </p><p class="text-align-justify">“Although the supply impact and effect of prices is muted by standards seen at the height of the pandemic, any upward pressure on inflation will be a concern to policymakers and may add to calls that it is too early to be confident on the timing of interest rate cuts.”</p> This article was written by Justin Low at

Treasuries still in limbo as we get into March trading

Fri, Mar 1, 2024 9:27 AM

<p class="text-align-justify">It has been a frustrating last two weeks if you're watching the bond market, to say the least. 10-year Treasury yields have trended sideways, not offering much of anything to work with. Since the break above 4.20% earlier this month, yields are capped by the ceiling around the 100-day moving average (purple line):</p><p class="text-align-justify">And that technical predicament is what we're still dealing with to begin trading in March. So, what does that tell us?</p><p class="text-align-justify">The rebound in Treasury yields so far this year owes also to a repricing in the Fed outlook. At the end of December, traders were pricing in the first Fed rate cut for March with 156 bps worth of rate cuts for the year. Powell &amp; co. pushed back on that and now even odds for a June rate cut are only seen at ~76%. Meanwhile, there are only 82 bps worth of rate cuts priced in for the year.</p><p class="text-align-justify">In other words, we have seen market pricing converge to the Fed's dot plots and the outlook set out by policymakers. Now that we have gotten to this point, the question is what comes next?</p><p class="text-align-justify">It looks like we've reached a compromise on the Fed outlook, with recent economic data points helping to guide markets accordingly. As such, having to move from six rate cuts to three can be argued as being much easier than having to decide if we're going to have to reduce the three rate cuts priced in now to two or having to increase that to four.</p><p class="text-align-justify">The divergence in market expectations in November and December last year to the Fed's own narrative was what helped to oversee the moves in January and February this year. We practically reversed that as traders converged back to the data and central bank communique.</p><p class="text-align-justify">Given the prevailing situation, it just means that it is going to be much tougher to justify a much higher run in yields. Economic data in the months ahead will once again be the determining factor. But for now at least, the bond market might have run out of juice until the next catalyst comes along.</p> This article was written by Justin Low at

Eurozone February final manufacturing PMI 46.5 vs 46.1 prelim

Fri, Mar 1, 2024 9:00 AM

<ul><li>Prior 46.6</li></ul><p class="text-align-justify">Despite Germany's woes, the overall Eurozone manufacturing sector is seeing better days in February. New orders and purchasing activity saw their slowest contractions since March last year, although output held unchanged to January - which was the joint-weakest in ten months. This snapshot gives a better overview of how things are progressing across the region:</p><p class="text-align-justify">HCOB notes that:</p><p class="text-align-justify">“The eurozone’s one-year industrial recession is not coming to an end. Output has declined again at the same pace as the previous month, mainly due to the heavyweights Germany and France. Spain, by contrast, is the first of the leading four euro countries to re-enter growth territory. On a slightly more positive note, the decline in new orders in the Eurozone has softened somewhat, offering a glimmer of hope for a potential demand recovery in the future. </p><p class="text-align-justify">“The attacks by the Houthis on commercial vessels in the Red Sea have had a temporary impact, leading to a brief lengthening of delivery times in January, followed by a subsequent reduction in lead times in February. Consequently, the softer decline in input prices this month is unlikely to be wholly attributed to tensions in the Red Sea but rather to movements in commodity prices, such as the recent rise in oil prices. The fundamental trend of lower demand, which remains the primary driver of faster delivery times, continues to persist. </p><p class="text-align-justify">“Stock of purchases continues to deplete rapidly, albeit at a slightly softened pace for the second consecutive month. Despite this minor moderation, there is little indication of an imminent end to the ongoing one-year-long inventory run-down. </p><p class="text-align-justify">“Prospects regarding future output remain cautiously optimistic, although the index is still slightly below the long-term average, reflecting the prevailing subdued environment. Similarly, employers are reducing their workforce, but with a reluctance to adopt overly aggressive measures in this regard. As a result, the overall sentiment is not one of anticipating an exceptionally bright future, yet firms are also not bracing for depressive times. Instead, it appears that businesses are maintaining their operations, poised to spring back into action when the signs of improvement materialise. They are in a kind of waiting position.”</p> This article was written by Justin Low at

Germany February final manufacturing PMI 42.5 vs 42.3 prelim

Fri, Mar 1, 2024 8:55 AM

<ul><li>Prior 43.1</li></ul><p class="text-align-justify">This marks a setback for Germany's manufacturing sector, as the reading is a four-month low. Both output and new orders saw their downturns intensify on the month, with employment conditions also starting to be pressured further. It just reaffirms that Europe's largest economy is still the sick man of the bloc for now. HCOB notes that:</p><p class="text-align-justify">“All hope has been dashed – for the moment. After a steady increase of the PMI over the last half a year, the index plunged to its lowest point since last October. The drop was the result of a broad-based deterioration of indicators like the accelerated fall in new orders, the faster downturn in output and the more aggressive trimming of jobs. The widespread nature of the downturn offers little hope for a turnaround in the near future. </p><p class="text-align-justify">“The worsening situation in the German manufacturing sector is kind of unique in the Eurozone this month. Looking around, French and Italian companies are much less depressed and in Spain the sector is even growing again. This result will most probably heat up the discussion about de-industrialisation, political errors and the need for reforms in Germany. However, better to have trading partners whose industry is showing some robustness instead of being dragged down by them further into the abyss. We would even go so far as to say that the other economies are leading the way which would mean that Germany might be close to bottoming out. </p><p class="text-align-justify">“It's like Germany’s manufacturers are operating in a bubble, unaffected by the detours that commercials vessels are taking to avoid attacks from the Houthi Rebels in the Red Sea. While the shortening of delivery times softened a bit in January, firms reported in February much faster deliveries again. This is good news by itself – who would not be happy to get their ordered goods quick and fast. However, it is a clear sign that manufacturers are facing lower demand. To conclude the matter, some firms are certainly reporting problems with Houthi-induced delays, but the overall impact seems to be negligible. </p><p class="text-align-justify">“The worst news emanates from the investment goods sector. This area, which is at the core of the German manufacturing sector, was the main driver of the steep reaccelerated fall of manufacturing output in February. The decision of investment goods companies to cut jobs at the fastest pace since October 2020 underscores the pessimism among managers regarding the prospects of a near-term recovery."</p> This article was written by Justin Low at