We expect a busy week ahead with several significant economic events, but Monday will be relatively quiet, as is often the case, with no major data releases scheduled.
Tuesday will bring important announcements for various economies. Japan and Australia will have the BoJ and RBA monetary policy announcements, respectively. Canada will release its inflation data and the U.S. will print figures on building permits and housing starts.
Wednesday we’ll get the CPI data for the U.K., but the highlight will be the FOMC meeting in the U.S. On Thursday, Australia will release its employment change and unemployment rate figures, while Switzerland and the U.K. will have monetary policy announcements. Flash manufacturing and services PMIs are also expected for the eurozone, the U.K., and the U.S.
Finally, on Friday, the U.K. will publish retail sales m/m data and Federal Reserve Chair Powell is expected to speak at the Fed Listens event in Washington, DC.
The BoJ has been the focus of many discussions recently with analysts anticipating that the Bank will exit negative interest rates in the near future. However, opinions on the timing are split with some analysts believing it could happen at this week’s meeting while others arguing that the one in April is more appropriate.
One reason why it could happen this week are the recent wage negotiations that point to pay raises which in turn could create an inflationary pressure. Aside from this, BoJ policymakers have dropped various hints in this direction, as well as the Japanese local media. The BoJ previously stressed that wage data is very important and policymakers noted that the current inflation path is not sustainable without higher wages. Wages are now expected to rise, especially for union members, so inflation could head towards the BoJ’s desired 2% target.
At this point the Bank is expected to only deliver a single hike, either now or in April, to bring the rate to 0%, which will cause the JPY to strengthen. Any indications of more than one hike would be interpreted as a surprise by the market.
At this week’s meeting, the RBA is expected to keep rates unchanged at 4.35%. Inflation has cooled down in Australia and the Bank will likely start cutting rates some time this year, but for now more data is necessary. The labor market and inflation have softened, which are in line with what the RBA wants to see, but the bank is likely to wait until September to be convinced that inflation is on path to the desired target.
In Canada expectations for the CPI m/m are to rise by 0.6% from 0.0% prior while the CPI y/y is also anticipated to rise from 2.9% to 3.1%. The increase in the month-over-month figure is linked to seasonal price rises during the first months of the year, but the most important element will be the core inflation data, particularly the 3-month annualized average which is expected to be close to 3%. The BoC is expected to keep rates unchanged at the next meeting in April and the Bank’s Summary of Deliberations for its March meeting might reveal expectations for inflation to drop below 3% by the second part of the year. The market currently expects a first rate cut at the July meeting.
The most important event of the week will no doubt be the FOMC meeting. Lately, inflation and labor market data for the U.S. continued to surprise by coming in hot so the Fed is expected to wait until summer before cutting the federal funds rate.
The focus at this meeting will be on the projections of FOMC members. As a reminder, at the December meeting the Fed estimated three 25bps rate cuts for 2024 followed by 100bps for next year. It is very likely that the new projections will reflect those in December, but with the mention that more evidence is needed before reducing rates. Analysts from Wells Fargo anticipate a shift from three cuts to two for 2024 is more plausible than from three to four. Another thing to watch will be the discussions around the balance sheet reduction and how to eventually end it.
In Australia the consensus for the employment change is to rise from 0.5K to 40.2K and the unemployment rate is expected to drop from 4.1% to 4.0%. This significant rise in employment numbers is due to seasonal factors with January usually having the most pronounced trend. However, the labor market for Australia is softening overall and a 40K rise is considered mild when compared with the same period in previous years.
At this week’s meeting the BoE is expected to keep monetary policy unchanged. The inflation in the U.K. has dropped, but remains high compared to the 2% Bank’s target. The economy is not performing very well and even though last week’s GDP m/m data rose from -0.1% to 0.2%, it’s too early to say if the country will exit the technical recession. The BoE is expected to cut rates in the summer, but this is data dependent.