Weekly Market Recap (05-09 February)

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The Chinese
January Caixin Services PMI missed expectations:

  • Caixin Services PMI
    52.7 vs. 53.0 expected and 52.9 prior.

China Caixin Services PMI

The Eurozone
December PPI came in line with expectations:

  • PPI
    M/M -0.8% vs. -0.8% expected and -0.3% prior.
  • PPI
    Y/Y -10.6% vs. -10.5 expected and -8.8% prior.

Eurozone PPI YoY

Fed’s Kashkari
(hawk – non voter) debated whether the neutral rate in the US is higher than
expected and what that could mean for monetary policy:

  • Possibly
    higher neutral rate means Fed can take more time to assess upcoming data before
    starting rate cuts.
  • Higher neutral rate means monetary policy may not be as tight as thought.
  • That
    will entail “less risk” to the economic recovery.
  • Core inflation making “rapid progress” towards Fed’s target.
  • But
    economic data not “unambiguously positive”.
  • There
    are some signs of weakness including rising consumer delinquencies.

Fed’s Kashkari

The US January ISM
Services PMI beat expectations across the board with the employment component
jumping back into expansion and the prices paid index spiking above 60:

  • ISM Services PMI
    53.4 vs. 52.0 expected and 50.5 prior.
  • Business activity
    55.8 vs. 55.8 prior.
  • Employment 50.5 vs. 43.8 prior.
  • New orders 55.0 vs. 52.8 prior.
  • Prices Paid 64.0 vs.
    57.4
    prior.

US ISM Services PMI

Fed’s Goolsbee
(dove – non voter) said that a March cut was unlikely given the recent economic
data, but he didn’t want to rule it out either:

  • March cut is unlikely.
  • Economy has been
    quite strong.
  • If we keep getting
    inflation going down despite strong jobs in GDP growth, then we might be
    in a period like mid-1990s.
  • He does not want to
    rule out a March cut but does want to see more data and not tie the Fed’s
    hands.
  • Fed’s goal is PCE measure
    of 2%.
  • Inverted yield
    curve, as a rule of thumb, is not applicable as a recession indicator.
  • Does not see
    widening problems in the regional banking system.

Fed’s Goolsbee

BoE’ Pill (neutral
– voter) doesn’t see reasons to cut rates at the moment:

  • UK economic activity
    has been quite weak.
  • Supply side
    constraints are committing GDP growth.
  • The pickup in GDP is
    not going to be dramatic.
  • It is early days to
    say that inflation has been suppressed.
  • Expects UK inflation
    to fall close to or even below its target.
  • Rates would be
    restrictive even after cuts.
  • Not yet confident to
    reduce rates.
  • Emphasize now is on
    when there is no evidence to cut rates, not live.

BoE’s Pill

Fed’s Bostic
(neutral – voter) didn’t comment on the rate path outlook although he mentioned
that wage growth is settling back into more normal patterns.

Fed’s Bostic

The Federal
Reserve released the Senior Loan Officer Opinion Survey (SLOOS) where US banks
reported tighter lending standards and weaker demand for C&I loans although
improving relative to the prior readings:

SLOOS

The Japanese
January Average Cash Earnings missed expectations:

  • Average Cash
    Earnings Y/Y 1.0% vs. 1.3% expected and 0.2% prior.
  • Spending M/M -0.9%
    vs. 0.2% expected and -1.0% prior.
  • Overtime pay Y/Y
    -0.7% vs. 0.9% prior.

Japan Average Cash Earnings YoY

The RBA left the
Cash Rate unchanged at 4.35% as expected and kept the tightening bias:

  • While recent data
    indicate that inflation is easing, it remains high. The Board expects that
    it will be some time yet before inflation is sustainably in the
    target range.
  • Inflation continued
    to ease in the December quarter. Despite this progress, inflation remains
    high at 4.1 per cent.
  • Goods price
    inflation was lower than the RBA’s November forecasts.
  • Services price
    inflation, however, declined at a more gradual pace in line with the RBA’s
    earlier forecasts and remains high.
  • While there have
    been favourable signs on goods price inflation abroad, services price
    inflation has remained persistent and the same could occur in Australia.
  • Wages growth has
    picked up but is not expected to increase much further and remains
    consistent with the inflation target.
  • The outlook is still
    highly uncertain.
  • While there are
    encouraging signs, the economic outlook is uncertain, and the Board
    remains highly attentive to inflation risks.
  • Services price
    inflation is expected to decline gradually as demand moderates and growth
    in labour and non-labour costs eases.
  • The Board needs to
    be confident that inflation is moving sustainably towards the target
    range.
  • To date, medium-term
    inflation expectations have been consistent with the inflation target, and
    it is important that this remains the case.

RBA

Moving on to the
RBA Governor Bullock’s Press Conference:

  • We still have got a
    “little way to go” to get inflation down.
  • We are not ruling anything
    in or out on policy.
  • We still think risks
    are balanced.
  • What we’re really
    looking for is data that assures that inflation is coming back to target.
  • We’ve had good news
    so far on inflation, but it still has a ‘4’ in front of the inflation rate.
  • We don’t want
    inflation expectations to rise.
  • Tax cuts are not a
    material issue for inflation and spending.
  • We need to be sure
    we won’t have to backtrack on inflation.
  • I feel we are
    potentially on the narrow path to getting inflation back to target, cites
    2.8% 2025 inflation forecast.
  • Says confidence
    level on getting there is 5/10, more data needed.
  • I’m really convinced
    we can bring inflation down without too much pain in the labour market.
  • We judge risks to
    inflation as fairly balanced.
  • Employment is still
    growing and the board, I can assume you, is very, very focused on that.
  • We’ve got to be
    confident that we’ll get to the midpoint of the target to think about
    interest rate cuts.

RBA’s Bullock

The Eurozone
December Retail Sales missed expectations:

  • Retail
    Sales M/M -1.1% vs. -1.0% expected and 0.3% prior (revised from -0.3%).
  • Retail
    Sales Y/Y -0.8% vs. -0.9% expected and -0.4% prior (revised from -1.1%).

Eurozone Retail Sales YoY

BoE’s Dhingra
(uber dove – voter) was the only member to vote for a rate cut at the last
policy meeting and she continues to support her view:

  • I’m not worried
    about cutting rates too early being the worst thing to do.
  • We took a long time
    to get rates up.
  • Couple that with the
    transmission lags, we’re still looking at a pretty restrictive period of
    monetary policy even after you start the moderation.
  • Fairly convinced
    that falling prices are not solely driven by energy alone.
  • At this point, about
    97% of annual CPI inflation items have turned down.
  • Fall in retail sales
    is pretty convincing and unexpected.
  • Not fully convinced
    of sharp excess demand in the economy from the consumption side.
  • Does not see a
    reason to trade off weak consumption when inflation is on a sustainable
    path at this point.
  • If you do the right
    policy and if you even deviate for the right reasons, people will
    understand.

BoE’s Dhingra

ECB’s Vujcic
(neutral – voter) continues to push back against premature rate cuts:

  • Should not rush
    start of rate cutting cycle.
  • Important for ECB’s credibility
    to be right with rate cuts.
  • Still quite a lot of
    resilience in services inflation and wages.
  • The equilibrium
    level of interest rates is likely to be higher than it was some years ago.

ECB’s Vujcic

Fed’s Mester (hawk –
voter) gave some broad comments on different topics and the TL;DR is that she
doesn’t see the need to cut rates in the first half of the year given the
strength in the data and the uncertainty around the last mile to the 2% target,
although she still expect 3 rate cuts in 2024:

  • Monetary policy in
    good place to assess what’s next for rates.
  • Fed can lower rates
    later this year if economy performs as expected.
  • When Fed cuts rates
    will likely be at gradual pace.
  • If inflation doesn’t
    fall Fed can maintain current policy.
  • Inflation must be
    moving sustainably lower to open rate cut door.
  • Expects to move back
    to 2% inflation over time.
  • Sees growth and
    employment moderating this year.
  • Must be attentive to
    risk labour market will cool faster-than-expected.
  • Recent news on
    inflation has been ‘encouraging’.
  • Can’t be sure last
    stage of move to 2% inflation will be swift.
  • So far Red Sea
    trouble hasn’t rattled supply chains.
  • It would be a
    mistake to cut rates prematurely.
  • Possible inflation
    may be more persistent than expected.
  • Wage gains still too
    high for getting to 2% inflation.
  • Higher productivity
    levels may change wage-inflation calculus.
  • Does not believe us
    is moving to only large bank model.
  • Fed will not launch
    Fed digital dollar unless told to do so by elected officials.
  • Sees progress in
    getting banks ready to use discount window.
  • Doesn’t want to
    offer timing on rate cut.
  • Sees no rush to
    lower Fed rate target.
  • Still leans toward
    three rate cuts for 2024.
  • Wants more data
    before deciding on rates.
  • Expects to see rate
    cuts later this year.
  • Fed should not rule
    out asset sales for balance sheet.
  • Expects balance
    sheet run off to slow before being stopped.

Fed’s Mester

Fed’s Kashkari
(hawk – non voter) gave some extra remarks on the current economic stance:

  • Inflation has come
    down very quickly.
  • Labor market is very
    strong.
  • It is a conundrum.
  • A recession is not
    my base case.
  • We do not think
    about politics, or the election, when we set interest rates.
  • We are not quite
    there on year over year inflation data, but 3-month and 6-month data is
    basically there.
  • We are not done yet,
    on inflation, but data is looking positive.
  • Most of the
    disinflationary gains have come from supply-side.
  • The yield curve is
    not a reliable indicator of recession, because disinflation isn’t being
    mostly caused by the Fed.
  • I feel optimistic
    about the dollar’s role in the world.
  • The dollar’s value
    in the long run is a set by economic competitiveness.
  • Household savings
    are being spent down more slowly than expected.
  • Delinquencies are
    creeping up, though from very low levels.
  • Monetary policy may
    not be putting as much downward pressure on demand as we think.
  • If labour market
    continues to be strong, we can dial back policy rate quite slowly.
  • At this moment, 2-3 cuts
    seem appropriate.
  • If we can see a few
    more months of good inflation data, will give confidence on way back to 2%
    inflation.
  • Most commercial real
    estate sector, aside from office segment is doing well.
  • Economy showing to
    be remarkably resilient.
  • So far data has been
    resoundingly positive. We’re going to have to see how the economy
    performs.

Fed’s Kashkari

BoC Governor Macklem remains
confident that the current level of policy setting is enough to bring inflation
back to target but he still wants to see some more progress in the underlying
measures before deciding when to start cutting rates:

  • Monetary policy is
    working; it has slowed demand, rebalanced the economy, and brought down
    inflation.
  • Shelter price
    inflation is now the biggest contributor to above-target inflation.
  • Years of supply
    shortages and the recent increase in newcomers have meant house prices
    have declined only modestly with higher rates.
  • Housing
    affordability is a significant problem in Canada — but not one that can be
    fixed by raising or lowering interest rates.
  • Canada’s structural
    shortage of housing is not something monetary policy can fix.
  • More time is needed
    to bring down inflation.
  • Volatility in global
    oil and transportation costs related to wars in Europe and the Middle East
    could add volatility to Canadian inflation.
  • The path back to 2%
    inflation is likely to be slow and risks remain.
  • Policy interest rate
    at 5% is the level we think is needed to take the remaining steam out of
    inflation.
  • Discussion about
    future policy is shifting from whether monetary policy is restrictive
    enough to how long to maintain the current stance.
  • We want to see
    inflationary pressures continue to ease and clear downward momentum in
    underlying inflation.
  • BoC targets overall
    CPI inflation, but we cannot ignore shelter costs.
  • Looking ahead,
    neutral interest rate will probably be a bit higher than the 2% to 3%
    range.
  • There will be modest
    increase in housing prices this year versus decreases last year.
  • There is certainly
    considerable uncertainty around what will happen to housing prices.

BoC’s Macklem

Fed’s Harker (neutral – non
voter) sees the US on track for a soft landing:

  • Sees ‘real progress’
    on getting inflation back to 2%.
  • Fed decision to hold
    rates was the correct decision.
  • Data shows inflation
    falling and labour market in better balance.
  • Consumer spending
    has been resilient.
  • Economy on track for
    a soft landing.

Fed’s Harker

The New Zealand Q4 labour
market report beat expectations:

  • Unemployment Rate
    4.0% vs. 4.2% expected and 3.9% prior.
  • Job growth 0.4% vs.
    0.3% expected and -0.2% prior.
  • Participation rate
    71.9% vs. 72.0% expected and 72% prior.
  • Labour cost index Q/Q
    1.0% vs. 0.8% expected and 0.8% prior.
  • Labour cost index
    Y/Y 3.9% vs. 3.8% expected and 4.1% prior.

New Zealand Unemployment Rate

BoE’s Breeden (neutral –
voter) is confident that the current level of rates is enough to bring
inflation back to target and she’s just patiently waiting for some more
progress before cutting rates:

  • I have become less
    concerned that rates might need to be tightened further.
  • Need more evidence
    to be confident that UK economy is progressing as per forecast.
  • My focus has shifted
    to thinking about how long rates need to remain at current level.
  • Will look at how pay
    growth and demand are influencing firms’ pricing decisions.

BoE’s Breeden

ECB’s Schnabel (hawk –
voter) remains cautious about risks of a reacceleration in inflation due to
premature rate cuts, so she continues to be patient waiting for more progress
before leaning towards rate cuts:

  • The last mile in
    bringing inflation down may be the most difficult one.
  • We see sticky
    services inflation, resilient labour market.
  • There is a loosening
    of financial conditions as markets aggressively priced in rate cuts.
  • Recent events in the
    Red Sea also spark fears of renewed supply chain disruptions.
  • Taken together, this
    cautions against adjusting policy stance too soon.
  • We have made
    substantial progress on inflation, but we are not there yet.
  • We must be patient,
    cautious as inflation can flare up again.

ECB’s Schnabel

Fed’s Kugler (neutral –
voter) gave a comprehensive speech on the state of the economy and monetary
policy:

  • Pleased with ‘great
    progress’ on inflation. Optimistic it will continue.
  • Fed’s job on
    inflation ‘not done yet’.
  • Will remain focused
    on Fed’s inflation goal until confident inflation is returning durably to
    2% target.
  • Risks to our dual
    mandate ‘roughly balanced’.
  • Our policy stance is
    restrictive.
  • At some point,
    cooling inflation and labour markets may make rate cut appropriate.
  • If disinflation
    progress stalls, may be appropriate to hold policy rate steady for longer.
  • Sees ‘reasons for
    optimism’ on services inflation, where there has been less progress.
  • Core-services
    ex-housing ‘still elevated,’ but expect improvement.
  • Continued moderation
    of wage growth, normalization of price-setting, anchored inflation
    expectations ‘likely to contribute’ to continued disinflation.
  • Pleased that cooling
    of labour demand has not led to rise in layoffs.
  • How spending
    momentum will evolve this year an open question’ affecting disinflationary
    process.
  • Expects consumer
    spending to grow more slowly this year. Should
    help with disinflation.
  • Some measures of
    financial conditions have eased but remain relatively tight and are
    consistent with continued progress on inflation.
  • Paying close
    attention to upside inflation risks from geopolitics.
  • Disinflation was
    rapid in the second half of 2023.
  • Inflation on
    3–6-month basis as moved to 2% level.
  • Wage growth
    moderation is key.
  • Services ex-housing
    is one of the elements to be watched for continued declines.
  • Housing inflation
    has been persistent but is expected to come down.
  • Layoffs in US are
    spotty and not showing up in aggregate data.
  • Immigration is
    helped in some sectors including construction.
  • We need further
    moderation in wage data especially the service sector, but it is
    moderating and this filtering through to prices.
  • Wage moderation
    needs to continue, though level that is consistent with inflation target
    depends on factors like productivity
    .
  • Too early to assess
    AI’s potential on productivity.
  • Progress on
    inflation has been aided by both Fed policy impact on demand and healing
    of the supply-side.
  • There is still room
    for healing on the supply-side help lower inflation.
  • 20% of companies are
    still seeing shortage of goods supplies.
  • There is much
    uncertainty around the neutral rate of interest.
  • At the policy
    interest rate will depend on performance of inflation.
  • Aware that
    unemployment rate can move fast when it starts to change.
  • Watching commercial
    real estate for source of financial stress.
  • Keeping a close eye
    on regional bank exposure.
  • May be some upward
    pressure coming on goods prices given global shipping, other risk.
  • Every meeting is
    ‘live’ from here and moving forward.

Fed’s Kugler

Fed’s Collins (neutral –
non voter) echoed his colleagues as she continues to expect “gradual and
methodical” rate cuts later this year:

  • Likely to cut rates
    later this year if the economy meets expectations.
  • Monetary policy is
    well positioned for current outlook.
  • Progress back to 2%
    inflation could be uneven and bumpy.
  • When cuts start,
    they should be gradual and methodical.
  • Supported FOMC
    decision to keep rates steady last week.
  • Needs more data
    before supporting rate cut.
  • Strong January jobs
    data shows why caution warranted.
  • Economy needs to
    moderate to get to 2% inflation.
  • Needs to see wage
    gains moderate to aid move to 2% inflation.
  • Recent data shows
    economic resilience, demand to take time to moderate.
  • Economic risks have
    come into better balance.
  • Important for Fed to
    be sure it’s on path to lower inflation.
  • Fed doesn’t need to
    go all the way back to 2% inflation to ease.
  • Sees limits to
    supply chain improvement aiding lower inflation.
  • Jury is out when it
    comes to neutral rate level.
  • It’s possible future
    interest rate might be higher than pre-pandemic levels.
  • In future deflation
    risks likely lower relative to before pandemic.
  • Recent data has been
    quite volatile.

Fed’s Collins

Fed’s Barkin (neutral –
voter) preached patience on policy rate path as he wants to see some more
“broad-based” progress on inflation:

  • Makes sense to be
    patient on rate cuts.
  • In all honesty my
    forecast is uncertain. That’s why it’s important to be patient on rate
    cuts.
  • Inflation has been
    coming down nicely over the last seven months.
  • Concerned that goods
    prices coming down might be a head fake and may move back the upside in
    coming months.
  • I don’t have a rate
    path focus. Have an economy focus.
  • If inflation continues
    to calm down, and if it starts to broaden out in many categories, that’s a
    kind of signal I am looking for to start cutting rates.
  • Still a tight labour
    market.
  • Challenge on
    inflation coming down is that it’s not that broad.
  • Services and rent
    inflation have stayed more elevated.
  • We have to see if it
    still more inflationary pressure to calm.
  • Firms still feel
    like they have a little more price power than they used to.
  • I’m very supportive
    of being patient to get to where we need to get on inflation.
  • I am waiting to see
    if disinflation becomes more broad-based.
  • I didn’t expect the
    strength of the last jobs report.
  • I am in no
    particular hurry on policy rate.

Fed’s Barkin

The BoC released the
Minutes of its January Monetary Policy Meeting:

  • Bank of Canada was
    ‘particularly concerned about persistent inflation and lowering rates
    ‘prematurely’ in January policy-setting meetings.
  • Governing council
    discussed risk that monetary policy could have greater than expected
    impact on consumer spending, requiring lower rates earlier and more
    quickly.
  • Governing council
    saw risk of inflation being more persistent than expected
    , requiring rate to
    stay restrictive for longer.
  • Governing council
    discussed risk that housing market would rebound more than expected and
    keep inflation above target even as other price pressures wane.
  • Governing council
    saw mixed picture of underlying inflation, the need for more time for
    past rate hikes to sink in
    .
  • Governing council
    recognized ‘it was difficult to foresee when it would be appropriate to
    begin cutting rates’.
  • Governing council
    expect wage growth to moderate gradually.
  • Governing council
    agreed most likely explanation for rise in overnight repo interest rate
    above policy rate was increase in demand for government bonds.
  • Governing council
    agreed need for overnight repo operations was operational issue related to
    implementing monetary policy.

BoC

The Atlanta Fed Wage
Growth tracker fell to 5.0% vs. 5.2% prior in the latest reading.

Atlanta Fed Wage Growth Tracker

The Chinese January CPI
missed expectations with even the Core Y/Y measure now approaching deflationary
territory:

  • CPI M/M 0.3% vs. 0.4%
    expected and 0.1% prior.
  • CPI Y/Y -0.8% vs.
    -0.5% expected and -0.3% prior.
  • Core CPI M/M 0.3% vs. 0.1% prior.
  • Core CPI Y/Y 0.4%
    vs. 0.6% prior.
  • PPI Y/Y -2.5% vs.
    -2.6% expected and -2.7% prior.

China Core CPI YoY

BoJ’s Uchida slammed
hawks’ expectations as he downplayed an eventual rate hike:

  • BoJ won’t
    aggressively hike rates even after ending negative rate.
  • Japan’s real
    interest rate is in deep negative territory, monetary conditions are very
    accommodative.
  • We don’t expect this
    to change in a big way.
  • Uncertainty over
    outlook remain high, but likelihood of sustainably achieving our price
    target gradually heightening.
  • We expect Japan’s
    economic recovery to continue, positive wage-inflation cycle to strengthen.
  • Consumer inflation
    has exceeded 2% but this is mainly due to cost-push factors.
  • If sustained,
    sustainable achievement of price target comes into sight, role of massive
    stimulus will have been met and we will consider reviewing it.
  • Regardless of when
    we tweak policy, we see need to take steps in communication, market
    operations to ensure there is no disruptive moves in financial markets.
  • Before we introduced
    negative rates, B0J applied a 0.1% interest on excess reserves, overnight
    call rate moved in a range of 0-0.1%.
  • If we were to move
    back to that situation, it would be equivalent to a 0.1% interest rate
    hike.
  • What is more
    important is the future short-term rate path, which will be set at
    appropriate level, so consumer inflation moves around BoJ’s 2% target.
  • YCC and BoJ’s bond
    buying management are intertwined.
  • When we end or tweak
    YCC, we will think about how we would communicate our bond buying
    operation.
  • Tweak to YCC would
    mean allowing yields to move more freely but we will ensure this does not
    lead to big change in our bond buying amount, sharp rise in yields.
  • It would be natural
    to end ETF, J-REIT buying if achievement of 2% inflation can be foreseen.
  • Even if we were to
    end ETF, J-REIT buying, impact on markets won’t be big.
  • What to do with our
    very huge ETF, J-REIT holding is a different problem, this is something we
    need to consider taking time.
  • We would like to
    maintain stable, accommodative monetary environment.
  • Expects service
    prices to rise alongside wage increases.
  • Government, BoJ
    share common understanding in guiding policy.
  • Inflation won’t
    sustainably hit 2% unless accompanied by wage growth.
  • We will ensure to
    support the economy in order to achieve that.

BoJ’s Uchida

ECB’s Wunsch (hawk – non
voter in March) wants to see a normalisation in wage growth to give him some
more conviction for rate cuts:

  • There is value in
    waiting to get more comforting wage data.
  • Wage rises are
    holding up rate cuts.
  • But have some
    indications, not strong ones, that wage growth is softening.

ECB’s Wunsch

The US Jobless Claims
beat expectations:

  • Initial Claims 218K
    vs. 220K expected and 227K prior (revised from 224K).
  • Continuing Claims
    1871K vs. 1878K expected and 1894K prior (revised from 1898K).

US Jobless Claims

ECB’s Lane (dove – voter)
expanded on the central bank’s focus on wage growth as they want to be sure
that the disinflation back to their target is sustainable:

  • In terms of an
    overall evaluation of our policy trajectory, we need to be further
    along in the disinflation process
    before we can be sufficiently
    confident that inflation will hit the target in a timely manner and settle
    at target sustainably.
  • The incoming data
    suggest that the process of disinflation in the near term in fact may run
    faster than previously expected, although the implications for
    medium-term inflation are less clear.
  • Monetary policy
    needs to carefully balance the risk of overtightening by keeping rates too
    high for too long against the risk of prematurely moving away from the
    hold-steady position that we have been in since September.
  • Many wage agreements
    will be renewed in the early months of 2024, and updates to the wage
    trackers will provide essential information in projecting wage dynamics.
  • The available survey
    indicators are broadly consistent with the decreasing wage profile
    foreseen in the latest Eurosystem staff projections.
  • According to our
    most recent discussions with large European non-financial corporations,
    the wage growth expectations of this set of companies for 2024 are 4.4
    percent on average, which is a marked easing compared to the average 2023
    wage growth of 5.3 per cent.

ECB’s Lane

BoE’s Mann (uber hawk –
voter) remains firm on her views that the central bank should at very least
remain on hold for longer as she still sees risks around inflation momentum and
persistence:

  • My vote to hike was
    a “finely balanced” decision.
  • Sees risk of
    continued inflation momentum and embedded persistence.
  • Labour market still
    “relatively tight”.
  • Financial conditions
    have eased substantially; have eased ‘too much’.
  • Headline inflation
    moves are not a good measure of inflation.
  • A drop in services
    inflation could persuade me to vote to hold.
  • It’s unclear what
    could persuade me to vote to cut rates.

BoE’s Mann

ECB’s Holzmann (uber hawk
– voter) is the most hawkish member of the central bank and he sees a chance
that the ECB will not cut rates at all this year:

  • There is a certain
    chance that the ECB will not cut rates this year.
  • Must be sure
    inflation is in check before first cut.
  • High wage deals will
    show up in inflation eventually.

ECB’s Holzmann

RBA Bullock delivered her
remarks to Parliament:

  • RBA Board is focused
    on bringing inflation down.
  • Remain acutely aware
    that the cost of living is rising much faster than it has over recent
    decades.
  • Recent developments
    in inflation are encouraging.
  • We have some way to
    go to meet our target.
  • Even if the economy
    evolves along the central path, inflation will still have been outside the
    target range for four years.
  • While there are some
    encouraging signs, Australia’s inflation challenge is not over.
  • The longer inflation
    remains high and outside the target range, the greater is the risk that
    inflation expectations of households and businesses adjust higher.
  • At this stage, the
    board hasn’t ruled out a further increase in interest rates but neither
    has it ruled it in.
  • Given the
    substantial costs to the economy and the Australian people of continued
    high inflation, the board is committed to bringing inflation back to
    target in a reasonable time frame.
  • Trying to bring
    inflation back to target without slowing the economy more than necessary
    on the one hand or risking high inflation for longer.
  • Inflation doesn’t
    need to be in 2-3% band for us to think about rate cuts.
  • If consumption slows
    more quickly than expected will be opportunity to cut rates.
  • We considered range
    of policy scenarios at February meeting.

RBA Governor Bullock

The Canadian January Labour
Market report beat expectations although we saw a fall in wage growth and full-time
jobs:

  • Employment change
    37.3K vs. 15K expected and 12.3K prior (revised from 0.1K).
  • Unemployment rate
    5.7% vs. 5.9% expected and 5.8% prior.
  • Full time employment
    -11.6K vs. -23.5K last month.
  • Part-time employment
    48.9K vs. 23.6 last month.
  • Average hourly wages
    permanent employees Y/Y 5.3% vs. 5.7% last month.
  • Participation rate
    65.3% vs. 65.4% last month.

Canada Unemployment Rate

The BLS released the revisions
for the prior CPI readings:

  • December CPI 0.2%
    vs. 0.3% prior.
  • December CPI ex-food
    and energy unrevised at 0.3%.
  • November 0.2% vs. 0.1%.
  • October 0.1% from unchanged.
  • Q4 core CPI
    unrevised at a 3.3% annualized increase.
  • Core six-month
    annualized CPI down to 3.0% from 3.3%.

US CPI Revisions

The
highlights for next week will be
:

  • Tuesday: Japan PPI,
    UK Labour Market report, Switzerland CPI, German ZEW, US NFIB Small Business
    Optimism Index, US CPI.
  • Wednesday: UK CPI,
    Eurozone Industrial Production.
  • Thursday: Japan
    GDP, Australia Labour Market report, UK GDP, UK Industrial Production,
    Switzerland PPI, US Retail Sales, US Jobless Claims, US Industrial Production,
    US NAHB Housing Market Index, New Zealand Manufacturing PMI, PBoC MLF.
  • Friday: UK Retail Sales,
    Switzerland Industrial Production, US PPI, US Housing Starts and Building
    Permits, US University of Michigan Consumer Sentiment.

That’s all folks. Have a
nice weekend!

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