Weekly Market Recap (12-16 February) | Forexlive

Over the weekend
ECB’s Panetta (dove – voter) said that he prefers to cut rates earlier and
gradually then risking waiting more and ending up cutting more aggressively:

• The time for
  interest rate cut is fast approaching.
• What should be
  discussed now are the conditions to start monetary easing, while avoiding
  risks to price stability and unnecessary damage to the real economy.
• Says the policy
  board will need to consider the pros and cons of cutting interest rates
  quickly and gradually, as opposed to later and more aggressively, which
  could increase volatility in financial markets and economic activity.
• Any speculation on
  the exact timing of monetary easing would be a sterile exercise.
• Inflation is falling
  as quickly as it rose.
• Strong growth in
  nominal wages are being offset by declines in other costs to firms.
• Doesn’t see a high
  risk of inflation impacts from Red Sea issues but acknowledged the risk of
  further escalation in the region.

ECB’s Cipollone (dove –
voter) said that there’s “no need for monetary policy to generate further slack
to keep inflation in check with demand weak and inflation expectations anchored”.
The doves are starting to be more vocal recently.

ECB’s Wunsch (hawk – non voter in March) struck a more neutral tone around
the rate cuts expectations and the inflation outlook:

• There is some value
  to waiting, but it’s not like by waiting so many days or weeks or months
  that we will know everything precisely.
• At some point it
  becomes a trade-off between the value of continuing to wait and the fact
  that the economy is not very strong, and that inflation momentum is going
  down.
• I don’t think the
  risks are that big either way.
• Costs of waiting low
  because the market is already pricing in cuts.
• The risks on the
  inflation front are by now quite limited.
• My point is that
  we’re not going to wait – just to exaggerate – a whole year to have
  absolute certainty about wages.
• At some point we are
  going to have to decide on the basis of the information we have whether we
  cut, or we don’t cut.

The New York Fed
released the monthly consumer inflation expectations data:

• 1-year inflation
  seen at 3.0% vs. 3.0% prior.
• Three year inflation
  seen at 2.4% vs. 2.6% prior.
• Five year inflation
  seen at 2.5% vs. 2.5% prior.
• Median expected home
  price change 3.0% vs. 3.0% prior.
• Feed rise expected
  lowest since March 2020.
• Gasoline price
  expected lowest since Dec 2022.

RBA’s Kohler talked about
her views on the current state of the Australian economy:

• Inflation coming
  down but still too high.
• It will take some
  time for inflation to get back within the 2-3% target range.
• Expect it to return
  to target range in 2025, and to the midpoint in 2026.
• Services inflation
  high and broadly based, likely to decline only gradually.
• Expect economic
  growth to remain subdued in the near term.
• High inflation,
  higher tax payments and interest rates have significantly reduced
  household incomes.
• Most labour market
  indicators still look ‘tight’ relative to historical norms.
• Seeing signs of
  easing wage pressures in some industries, particularly in business
  services.
• Expect much of
  adjustment in labour market to happen via drop in average hours worked.

The Japanese January PPI
missed expectations:

• PPI
  M/M 0.0% vs. 0.1% expected and 0.3% prior.
• PPI
  Y/Y 0.2% vs. 0.1% expected and 0.2% prior (revised from 0.0%).

The UK December
Labour Market report beat expectations across the board:

• January payrolls
  change 48K vs. 31K prior (revised from -24K).
• December
  Unemployment Rate 3.8% vs. 4.0% expected and 3.9% prior.
• December employment
  change 72K vs. 73K expected and 73K prior.
• December average
  weekly earnings 5.8% vs. 5.6% expected and 6.7% prior (revised from 6.5%).
• December average
  weekly earnings (ex bonus) 6.2% vs. 6.0% expected and 6.7% prior (revised
  from 6.6%).

The Switzerland
January CPI missed expectations by a big margin:

• CPI Y/Y 1.3% vs. 1.7%
  expected and 1.7% prior.
• Core CPI Y/Y 1.2% vs. 1.5% prior.

The German
February ZEW missed expectations:

• ZEW -81.7 vs. -79.0
  expected and -77.3 prior.
• Expectations 19.9
  vs. 17.5 expected and 15.2 prior.

The US January
NFIB Small Optimism Index fell back below 90:

• NFIB
  89.9 vs. 91.9 prior.

The US January CPI
beat expectations across the board with Powell’s preferred measure posting the
biggest rise since April 2022:

• CPI Y/Y 3.1% vs.
  2.9% expected and 3.4% prior.
• CPI M/M 0.3% vs.
  0.2% expected and 0.2% prior.
• Core CPI Y/Y 3.9%
  vs. 3.8% expected and 3.9% prior.
• Core CPI M/M 0.4%
  vs. 0.3% expected and 0.3% prior.
• Core Services
  ex-Housing M/M 0.85%.
• Real weekly earnings
  -0.3% vs. -0.2% prior.

ECB’s Lane (dove –
voter) didn’t say anything new as he just reaffirmed data dependency:

• Next move is a rate
  cut but timing will depend on data.
• We are moving in the
  right direction in reducing inflation, price trend is good.
• Our aim is to bring
  inflation to our 2% target.
• It would be a risk
  to embark on rate cuts too early or too late.
• The amount of
  interest rate cuts will depend on how we achieve towards our price goal. We will see how far we go.

The UK January CPI missed
expectations across the board:

• CPI Y/Y 4.0% vs. 4.2%
  expected and 4.0% prior.
• CPI M/M -0.6% vs.
  -0.3% expected and 0.4% prior.
• Core CPI Y/Y 5.1%
  vs. 5.2% expected and 5.1% prior.
• Core CPI M/M -0.9%
  vs. -0.8% expected and 0.6% prior.
• Services inflation
  Y/Y 6.5% vs. 6.4% prior.

ECB’s de Guindos (neutral
– voter) stressed about being patient on the rate cuts side as the central bank
is waiting for more information before taking such an important step:

• Disinflation process is continuing.
• While we are heading
  in the right direction, we must not get ahead of ourselves.
• It will take some
  more time before we have the necessary information.
• Wage pressures
  remain high, and we do not yet have sufficient data to confirm they are
  starting to ease.

The Eurozone December Industrial
Production beat expectations by a big margin:

• Industrial Production M/M
  2.6% vs. -0.2% expected and 0.4% prior (revised from -0.3%).
• Industrial Production Y/Y
  1.2% vs. -4.1% expected and -5.4% prior (revised from -6.8%).

Fed’s Goolsbee (dove –
non voter) shared his views on the hot US CPI report and, although it was a
surprise for him, he still expects the disinflationary trend to continue:

• Even if inflation
  comes in a bit higher, it’s still consistent with path.
• I don’t support
  waiting until inflation is at 2% on a 12-month basis before cutting.
• Rate cuts should be
  tied to confidence in being on a path towards our target rate.
• I expect
  improvements in housing services inflation to resume.
• CPI data yesterday
  was puzzling, is something I am watching.
• Current policy
  stance is quite restrictive.
• Supply side may
  continue to help us this year.
• Higher productivity,
  if continued, would have profound implications for policymakers.

BoE’s Bailey
(neutral – voter) stressed once again that the central bank will remain patient
on the policy stance as services inflation continues to be high:

• We are seeing signs
  of pay growth coming down.
• Latest wage data
  showed quite a marked reduction but not as far as we thought.
• Services inflation
  not compatible with 2% inflation.
• We have moved from
  how restrictive policy needs to be to for how long we need to maintain
  policy stance.
• Latest inflation
  data is good news, shows more downward pressure than we expected.
• This week’s data does
  not really change our view from Feb policy decision.
• Downward pressure on
  inflation quite broad based.
• We are now seeing
  signs of the beginning of a growth pickup.
• I am quite sceptical
  about forward guidance and trying to guide market expectations.
• Forward guidance
  tends to overstay its welcome.
• Staff believe we’re
  about 70% through the transmission of monetary policy.
• We are seeing an
  uptick in loan impairments but compared to history, this is nothing.
• What happens to
  inflation in the spring is not what will determine the stance of monetary
  policy.

Fed’s Barr (neutral – voter) supports the patient approach on policy
normalisation as he wants to see more data before starting to cut rates:

• FOMC confident’ it
  is on path to 2% inflation.
• Need to see
  continued good data before beginning rate cuts.
• Fully support
  ‘careful’ approach to policy normalization.
• January CPI report a
  reminder that path to 2% inflation may be bumpy.
• Banking system
  sound, resilient; pockets of risk include some office commercial real
  estate.
• No signs of
  liquidity problems across financial system; monitoring conditions
  carefully.
• Fed balance sheet
  rundown operating smoothly, reserves are plentiful.
• ‘Sizable’ overnight
  reverse repos a ‘buffer’; pleased at steady growth in signups for standing
  repo facility.
• FOMC plans in-depth
  discussions of balance sheet issues ‘soon’.
• January data was
  stronger than expected for both jobs and inflation.
• Fed is looking at
  “totality” of the numbers.
• Lack of historical
  parallels makes current monetary policy decisions “difficult.”
• Data suggest Fed is
  on a “good path,” but still early to say there will be a soft
  landing.
• Still an imbalance
  between housing supply and demand.
• High interest rates
  are dampening both sales and purchases of existing homes.
• BTFP was successful
  in ensuring bank liquidity at a moment of stress.
• Not seeing liquidity
  pressures in the banking system today.
• CRE pressures seen
  today are more “old fashioned” risk banks typically face.
• CRE pressures are
  acute in offices in certain business districts.
• There will be price
  compression and losses on CRE, but don’t expect acute pressure on banks.

RBA’s Bullock didn’t add anything
new as the central bank maintains its patient stance:

• Global economy held
  up better than initially expected.
• Had been worried
  about hard landings and recessions.
• In a good position
  to get inflation down in a reasonable amount of time.
• Inflation is being
  persistent, particularly in services, but it’s coming down.

The Australian January
Labour Market report missed expectations across the board:

• Employment Change 0.5K
  vs. 30K expected and -62.8K prior (revised from -65.1).
• Unemployment Rate 4.1%
  vs. 4.0% expected and 3.9% prior.
• Participation Rate 66.8%
  vs. 66.9% expected and 66.8% prior.
• Full-time employment 11.1K
  vs. -109.5K prior (revised from -106.6K).
• Part-time employment
  10.6K vs. 46.7K prior (revised from 41.4K).

The Japanese Q4 GDP
missed expectations triggering a technical recession:

• GDP Q4 Q/Q -0.1% vs.
  0.3% expected and -0.8% prior (revised from -0.7%).
• GDP Q4 Annualised
  -0.4% vs. 1.4% expected and -3.3% prior (revised from -2.1%).
• Japan Q4 GDP shows
  private consumption down for third straight quarter.
• Japan Q4 GDP shows
  capex down third straight quarter.
• Japan Q4 GDP shows
  exports up for third straight quarter.

The UK Q4 GDP missed
expectations triggering a technical recession:

• GDP Q4 Q/Q -0.3% vs.
  -0.1% expected and -0.1% prior.
• GDP Q4 Y/Y -0.2% vs.
  0.1% expected and 0.2% prior (revised from 0.3%).
• GDP M/M -0.1% vs.
  -0.2% expected and 0.2% prior (revised from 0.3%).

ECB’s Lagarde (neutral –
voter) continues to push back against aggressive rate cuts expectations:

• We will continue to
  follow a data-dependent approach.
• Incoming data
  continues to signal subdued activity in the near-term.
• But information was
  broadly in line with December assessment.
• Current disinflation
  process expected to continue.
• But we need to be
  confident that it will lead us to sustainably hit 2% inflation target.
• ECB’s
  forward-looking wage tracker continues to signal strong wage pressures.
• The last thing I
  want is a hasty decision only for inflation to rise again.
• There is not enough
  evidence yet on inflation returning to 2% target.

The US January Retail
Sales missed expectations across the board by a big margin:

• Retail Sales M/M
  -0.8% vs. -0.1% expected and 0.4% prior (revised from 0.6%).
• Retail Sales Y/Y
  0.6% vs. 5.3% prior (revised from 5.6%).
• Ex-autos M/M -0.6%
  vs. 0.2% expected and 0.4% prior.
• Control group -0.4%
  vs. 0.3% expected and 0.6% prior (revised from 0.8%).
• Retail sales ex gas
  and autos M/M -0.5% vs. 0.6% prior.

The US Initial Claims
beat expectations while Continuing Claims missed:

• Initial Claims 212K
  vs. 220K expected and 220K prior (revised from 218K).
• Continuing Claims
  1895K vs. 1880K expected and 1865K prior (revised from 1871K).

BoE’s Greene (hawk
– voter) wants to see more signs that persistence of inflation is not embedded:

• Market expectations
  on rates are pricing in cuts for UK but I would need to see more signs
  that persistence of inflation is not embedded.
• Have not seen signs
  of inflation expectations becoming de-anchored in UK.
• Productivity gains
  from innovations such as AI could come through with a lag.

The US January Industrial
Production missed expectations:

• Industrial Production M/M
  -0.1% vs. 0.3% expected and 0.0% prior (revised from 0.1%).
• Industrial Production Y/Y
  0.0% vs. 1.2% prior (revised from 1.0%).
• Capacity Utilization
  78.5% vs. 78.8% expected and 78.7% prior (revised from 78.6%).

The US February
NAHB Housing Market Index beat expectations:

• NAHB 48 vs. 46
  expected and 44 prior.
• Single family 52 vs. 48 prior.
• Next six months 60
  vs. 57 prior.
• Traffic of
  prospective buyers 33 vs. 29 prior.

BoE’s Mann (uber
hawk – voter) wants to see the next inflation report before deciding the next
move:

• GDP is backwards
  looking; forward-looking data all look good.
• Latest GDP data
  confirms my view that H2 would be a soft patch.
• UK unemployment rate
  is ‘pretty low’, market continues to be tight, which is reflected in wage
  data.
• Will get another
  data print on inflation and look at that before deciding next move.
• Wage growth is
  slowing but pace remains challenging.
• Goods inflation has
  slowed dramatically.
• Services prices are
  stickier in the UK than in the US or eurozone.
• There is a lot of
  inertia in all the components that drive services inflation.
• Firms in UK have
  strong pricing power across a range of services categories, may want to
  rebuild profit margins.

RBNZ’s Orr didn’t
offer anything new on the monetary policy front:

• A flexible approach
  to inflation targeting, with a medium-term focus remains appropriate.
• Bringing levels of
  core inflation in line with our 1 to 3% target is an important part of
  bringing inflation back to 2% midpoint.
• Removal of the MSE
  objective does not mean any big changes to our monetary policy strategy.

The New Zealand
Manufacturing PMI improved in January although it remains in contraction:

• Manufacturing
  PMI 47.3 vs. 43.1 prior.

Fed’s Bostic
(neutral – voter) continues to support a patient approach given the economic
data in the last few weeks although he’s not placing too much weight on the hot
January CPI report:

• Fed does not face
  urgency to cut rates given current economy.
• Strong economy
  argues for patience in adjusting monetary policy.
• Fed likely to soon
  contemplate cutting rates.
• Inflation likely to
  decline more slowly than markets expect.
• Fed has made solid
  progress in lowering inflation.
• U.S. economy is in a
  ‘good spot’.
• Unlikely January CPI
  signals big change in trend of weakening inflation.
• Sees case U.S.
  economy less sensitive to interest rate changes.
• ‘Fight is not
  finished’ on getting inflation back to 2%.
• Job market is
  remarkably strong.
• Overall economic
  risks have become more balanced.
• Expect more progress
  on inflation but could be bumpy.
• If inflation
  retreats faster, will change my mind on rates outlook.
• More balance sheet
  cuts are supported by market liquidity remaining robust.
• Has two rate cuts in
  his 2024 forecast.
• Pleased by the
  evolution of inflation expectations.
• Number one job remains
  getting inflation back to 2%.

BoJ’s Ueda didn’t
add anything new to the policy outlook:

• When sustained,
  stable achievement of the price target comes into sight, we will examine
  whether to maintain various easing measures, including negative interest
  rate.
• The specific means
  of rolling back stimulus will depend on economic conditions at the time.
• Based on the
  economic and price outlook as of now, Japan’s monetary conditions will
  likely remain accommodative even after ending negative rates.
• Labour market remains tight.
• That will likely see
  firms pass on rising costs via price rises.
• Expect wages to rise
  slightly more than inflation forecast of 1.8% for fiscal year 2025.
• Want to get
  confirmation of virtuous cycle of wages and prices strengthening.

ECB’s Villeroy
(neutral – voter) is debating when to start cutting rates:

• There is still the
  question of exact timing for rate cut.
• Several reasons as
  to why we should not wait too long before first rate cut.
• The principle of a
  rate cut this year seems to be a given.
• We have significant
  margin to manoeuvre on rate cuts without necessarily having to return to
  accommodative monetary policy.

The UK January
Retail Sales beat expectations across the board by a big margin:

• Retail Sales M/M
  3.4% vs. 1.5% expected and -3.3% prior (revised from -3.2%).
• Retail Sales Y/Y
  0.7% vs. -1.4% expected and -2.4% prior.
• Retail sales (ex
  autos, fuel) M/M 3.2% vs. 1.7% expected and -3.5% prior (revised from
  -3.3%).
• Retail sales (ex
  autos, fuel) Y/Y 0.7% vs. -1.6% expected and -2.1% prior.

ECB’s Schnabel
(neutral – voter) continues to support her patient approach:

• We
  must be cautious not to adjust policy stance prematurely.
• Monetary policy needs to remain restrictive until we can be confident
  that inflation will sustainably return to our medium-term target.
• Persistently
  low productivity growth increases the risk that firms may pass higher wage
  costs on to consumers, which could delay inflation goal timing.

The US January PPI
beat expectations across the board by a big margin:

• PPI M/M 0.3% vs. 0.1%
  expected and -0.1% prior.
• PPI Y/Y 0.9% vs.
  0.6% expected and 1.0% prior.
• Core PPI M/M 0.5% vs.
  0.1% expected and -0.1% prior.
• Core PPI Y/Y 2.0% vs.
  1.6% expected and 1.7% prior (revised from 1.8%).
• PPI ex food and
  energy/trade M/M 0.6% vs. 0.2% prior.
• PPI ex food and
  energy/trade Y/Y 2.6% vs. 2.5% prior.

The US January Housing
Starts and Building Permits missed expectations:

• Housing starts
  1.331M vs. 1.460M expected and 1.562M prior (revised from 1.460M).
• Housing starts M/M
  -14.8% vs. 3.3% prior (revised from -4.3%).
• Building permits
  1.470M vs. 1.509M expected and 1.493M prior.
• Building permits M/m
  -1.5% vs. 1.9% prior.

The February
University of Michigan Consumer Sentiment survey missed expectations slightly:

• Consumer Sentiment
  79.6 vs. 80.0 expected and 79.0 prior.
• Current conditions 81.5 vs. 81.9 prior.
• Expectations 78.4 vs. 77.1 prior.
• One-year inflation
  3.0% vs 2.9% prior.
• Five-year inflation
  2.8% vs 2.8% prior.

The
highlights for next week will be:

• Monday: PBoC MLF, Canada PPI.
• Tuesday: RBA Meeting Minutes, PBoC LPR, Canada CPI, New Zealand PPI.
• Wednesday: Australia Wage data, FOMC Meeting Minutes.
• Thursday: Australia/Japan/Eurozone/UK/US Flash PMIs, Canada
  Retail Sales, US Jobless Claims, New Zealand Retail Sales.
• Friday: German IFO.

That’s all folks.
Have a nice weekend!