Week of 4 MARCH

The focus of the last week was slowing inflation, with US PCE hitting a new low since the pandemic and European prices growing at a slower pace, reigniting speculation of sooner rate cuts. The forthcoming week marks the beginning of a fresh round of central banking meetings, with gatherings scheduled for both the ECB and BOC. Attention will also focus on the closely-watched NFP released at week's end, influencing perceptions of the Fed's policy direction in the coming months.

Week in Review

Markets reacted last week following the release of inflation figures in the US. Data from the Fed's preferred inflation measure, the Core PCE index, aligned with expectations and fell to its lowest point since April 2021. This fuelled speculation that the central bank may accelerate interest rate cuts over the year.

Additionally, US durable goods orders declined at a sharper than forecasted rate, while a secondary review of Q4 GDP revealed a minor downward revision to economic growth. They suggest the US economy may not be as robust as initial estimates had implied. Finally, the US Congress reached a deal to fund government operations for another month as negotiations continue around a full-year budget.

Inflation in the Eurozone also came in below forecasts. However, several ECB policymakers indicated that prices still need to fall further. ECB President Christine Lagarde reiterated this view in separate interviews, stating inflation remains short of the bank's target.

Canadian Q4 GDP proved softer than anticipated, but the country avoided a technical recession. USDCAD rose to 1.36, facing resistance with 1.3634 as the next short-term handle.

Meanwhile, the RBNZ staggered markets by keeping interest rates on hold rather than hiking as some had predicted. Governor Robert Orr later commented that an increase was discussed, but concerns over overreacting ultimately prevailed, given that rates remained above neutral levels.

Japan experienced higher inflation than expected last week, but several government officials emphasised the need to preserve an accommodative policy stance to support the economy.

The SNB announced that Chair Thomas Jordan will resign in September. The USDCHF pair could head towards 0.89 should prices remain above 0.8793.

Biggest Market Movers

• The New Zealand dollar lost 1.7% against its US counterpart after the RBNZ opted to leave its policy interest rate unchanged.
• The USDJPY pair exhibited fluctuations over the week, falling below the 150 level but climbing back above after BOJ's Ueda characterised speculation around an interest rate hike in March as premature.
• New closing highs were reached on both the Nasdaq and S&P 500 indexes in the wake of PCE data signalling slower inflation than anticipated.
• WTI hit a 3-month high after an over 4% gain due to expectations that OPEC+ will extend its production cut agreement at its March meeting.

Top Events in the Week Ahead

Monetary Policy Decisions and Guidance This Week

Two major central banks will announce monetary policy decisions this week.

On Wednesday, the Bank of Canada (BOC) is widely expected to leave interest rates unchanged. There are diverging views, however, on when the next rate cut may occur, with some analysts forecasting early April. The BOC's forward guidance will be closely watched to clarify how close policymakers judge the next move.

On Thursday, the ECB is unanimously anticipated to keep policy unchanged too. Attention will focus on any signals around future rate cuts, with markets currently pricing in the first cut in June. ECB President Christine Lagarde's post-meeting press conference will be scrutinised for hints on the outlook and whether her tone is seen as more hawkish or dovish. EURUSD consolidated last week, forming an ironside bar pending a breakout past 1.0865 or 1.0795.

US Labour Market Anticipated to Remain Tight

Following an unexpected surge of 317K in US job gains in February, some believe a downward revision is likely. Forecasts for March are more modest at 195K, with the unemployment rate projected to remain at 3.7% and average hourly earnings growth expected above inflation. As with every report, observers will assess signs of loosening in labour market conditions.

In contrast, Canada's jobless rate is forecast to climb to 5.9% from 5.7% amid a less resilient economy in the northern nation.

Global Trade Flows Point to Slowing Activity

Economists remain concerned that moderating trade volumes signal an impending global recession. China's trade data for February will be closely tracked after exports and imports both rebounded in January. Figures from Australia may have benefited from increased Chinese demand. Germany's disappointing PMI earlier in the month means its trade balance will be scrutinised too. Canada's trade deficit is predicted to have widened further, while the US deficit is anticipated to grow more on stronger imports outstripping exports.

Other Events and Earnings

On Monday, Switzerland will publish its inflation rate figures for the month. Global services PMIs for March will be released on Tuesday, indicating economic activity in the tertiary sector across major economies. We will see data on Australia's Q4 GDP and the highly anticipated UK Spring Budget announcement on Wednesday. Thursday should bring figures relating to UK house prices from Halifax. Japan's current account balance for February is scheduled for Friday.

The earnings season begins to wind down this week, with several major companies slated to disclose their latest earnings results. These include CrowdStrike, Target, Ferguson, Dollar Tree, Brown Forman, Broadcom, Costco, Marvell and The Buckle.