Week of 19 February

The week was driven by surprises in measures of inflation as the divergence between economic growth in the US and other major economies solidified. The coming week is expected to be relatively quiet as China returns from its week-long Lunar New Year holiday, the FOMC releases its latest minutes, and the first look at global PMIs for February is published.

Week in Review

Inflation was the week's theme, with a particular focus on US inflation coming in hotter than expected, giving equities and bonds a rough start to the week. Core inflation remained unchanged, while annual headline inflation saw the largest jump since September last year. Later in the week, retail sales were weaker than anticipated. Still, the impact was offset by a sudden increase in prices paid being reported in the February Empire State Manufacturing survey. Gold was able to recover above the $2000 per ounce handle after sliding to a 2-month low of $1980. 

UK inflation came in well below expectations, creating more expectations for interest rate cuts by the BOE. However, the rise in services inflation might keep bank members wary, as Chief Economist Huw Pill had explicitly said rising prices in services were a concern. Subsequently, the preliminary reading of UK GDP for the fourth quarter put the country into a technical recession. UK's benchmark, Footsie, rose around 3% off its weekly low following earnings beats, China-exposed stocks rebounding, and the UK's improved retail sales data. 7730 is next up.

Action in Asia was driven from Japan, as authorities spoke out repeatedly to try to support the yen. Japan's economy contracted for a second time, also entering a technical recession. BOJ Governor Kazuo Ueda said in parliament that monetary easing will remain in place even if negative interest rates end. In New Zealand, inflation expectations survey was cut to 2.5% from 2.8% prior.

ECB speakers through the week pushed back against speculation of interest rate cuts, sticking to the standard line that it was too early to discuss such a move. EUR/USD reversed most losses from earlier in the week when it slid under $1.07 -  a 3-month low, bringing $1.085 in focus. In geopolitics, the EU proposed the first trade curbs on Chinese firms trading with Russia.​

Biggest Market Movers

The US dollar rose against the Japanese yen, surpassing 150, following the release of US CPI figures. However, some of these gains were pared back later in the week. This brings 152 back into the spotlight.

Crude oil prices failed to surpass $78 per barrel due to an inventory build and a US EIA report suggesting slower demand.

Japan's Nikkei index traded higher throughout the week on easing monetary policy expectations and strong corporate earnings results, bringing it close to reaching a new all-time high not seen since December 1989.

Top Events in the Week Ahead

Due to Monday's US public holiday, the coming week will be shortened again.

Minutes to Give Hints on Policy Trajectory

Attention will turn to central bank minutes, with investors keen to gain further insight into the deliberations of the last FOMC meeting. Of particular interest will be understanding the rationale behind the forceful pushback against raising interest rates.

The RBA will also publish minutes from its latest policy decision, which investors will assess in the context of the surprise rise in unemployment. There will likely be interest in finding confirmation for an earlier than anticipated timeline for interest rate cuts. AUD/USD sliding to 0.6643 but reversing could see a revisit of 0.66.

Canada is expected to bring up the rear in terms of inflation, with price increases forecast to continue slowing in line with economic indicators, affirming the case for a future, albeit not imminent, rate cut. USD/CAD gained around 1% through the week but was seen recoiling nearly all gains under 1.35 at the time of writing.

PMIs to Signal Continued Soft Patch

Thursday will provide the first glimpse of PMI figures from major global economies, with a few bright spots emerging from an otherwise lacklustre picture.

Australia is anticipated to see both manufacturing and services activity return to expansion. Japan's manufacturing PMI is projected to remain in contractionary territory, albeit with mild improvement, a theme also expected for Germany and France.

The UK PMI is forecasted to demonstrate marginal improvement but remain below the Eurozone composite reading, projected to come close to 49. The cable might see a break of either the top or bottom swings at 1.2685 or 1.2534.

Meanwhile, the US is expected to register expansionary readings for manufacturing and services activity comfortably.​

Other Events, Earnings

Japan is scheduled to release machinery orders data on Monday. Tuesday will see China's loan prime rate announcement. Wednesday brings Japan's trade balance as well as Australia's wage price index. Canadian retail sales figures are anticipated on Thursday. Friday includes Germany's Ifo business climate index reading. Meanwhile, the corporate earnings season will continue winding down, with several notable companies expected to report results, including HSBC, Walmart, Anglo American, Home Depot, Palo Alto Networks, Nvidia, Rio Tinto, Intuit, Lloyds Banking Group, and Berkshire Hathaway.​