Week of 26 February

Last week, monetary policy developments took a secondary role as minutes from the FOMC and ECB reinforced the narrative of awaiting further data prior to making decisions. Meanwhile, equity markets captured investors' attention.

Looking ahead, inflation numbers will form a central theme in the coming days. Key releases will include Eurozone CPI, US PCE and Japanese CPI.

Week in Review

The week started on a light footing as the US markets were closed for a public holiday on Monday. While China's central bank introduced some stimulus measures, the impact was insufficient to boost market sentiment globally significantly. For the initial part of the week, market movements were viewed as largely dependent on corporate earnings reports of major firms, with solid numbers from Nvidia lifting risk appetite closer to the week's end.

The minutes of the most recent FOMC meeting suggested most policymakers remained hesitant about interest rate cuts, leading Treasury yields to rise following their release. Similarly, the minutes of the ECB's recent gathering conveyed a consensus that the risks of tightening policy prematurely outweighed doing so too late. Flash PMI figures for Europe were better than forecasted, with the sole exception being Germany, which saw a big drop in manufacturing activity.

Various Japanese officials continued emphasising that accommodative policy will be maintained for a prolonged period, downplaying potential BOJ moves away from negative interest rates. This was perceived as supportive of the Nikkei index, which reached new record highs alongside a weaker Japanese yen.

Australian wage growth in the final quarter of last year kept pressure on the RBA to push the breaks on easing in the near future. Meanwhile, flash PMI undershot expectations and pointed to a contraction. Coupled with disappointing results from Japan as well, concerns of a broadening global economic slowdown resurfaced. Data from the RBNZ survey showed rising inflation expectations by year-end.

Biggest Market Movers

• The Nikkei 225 index reached a fresh record peak as the BOJ appeared hesitant to move towards a tighter policy stance, marking the 4th week of consecutive gains after rising over 3%.
• Natural gas edged higher after remarks from Chesapeake Energy regarding production levels, up some 20% in the week but recoiled to single digits at week's close.
• Nvidia rallied to an all-time high following its earnings release, recording the largest-ever single-day increase in market capitalisation for a U.S.-listed firm to hit a 10% upside.
• Both the Dow and S&P 500 touched new closing highs thanks to positive quarterly reports and the FOMC meeting minutes matching market expectations.
• Silver declined over 3% over the course of the week as yields on US government bonds rose to their highest level so far this year.

Week Ahead

Following recent communications from central banks that they would await further data before adjusting policy outlooks, next week brings key CPI that are closely monitored by policymakers.

Inflation on Docket for Major Bank Followers

Japan releases headline CPI figures first, projected to snap lower with the core rate dipping below the bank's target. The USDJPY currency pair may revisit 152 unless bulls fail to hold 150. Thursday likely presents a bigger day, as major European economies provide a preliminary view on inflation for February, with consensus forecasts signalling price growth is slowing but above targets.

The US then discloses the Fed's preferred inflation gauge, core PCE, which is expected to continue rising steadily in January. Eurozone CPI data follows a day later, with a modest decline from 2.8% in the prior period to an estimated 2.7% expected. The EURSUD currency pair may confirm further upside should bulls reclaim 1.09. Losing 1.077 could exert pressure towards 1.07.

Oceania Focus Returns with RBNZ and AU Inflation

When meeting on Wednesday, the RBNZ is expected to keep interest rates at current levels. The focus will be on guidance as investors speculate whether recent economic data may have impacted the bank's perspective and whether they will follow suit with a more accommodative stance. Kiwi might face resistance at 0.6235 should the upward movement continue. Otherwise, the NZDUSD pair could slide towards 0.61.

Inflation data covering the same period for Australia is also scheduled for release, with forecasts indicating the headline figure will experience a mediocre decline yet remain above the target range. Aussie is struggling to get through 0.66, with another rejection potentially opening the door to 0.6470.

Economic Growth Back into the Spotlight

Friday will see the release of the final PMI figures for the month, which are expected to confirm the mixed results observed in the flash reading last week. Chinese PMI will be a key focus area, with both the official and Caixin measures coming out around the same time. Consensus estimates suggest that manufacturing in China will remain in contraction.

Canada will report its GDP figures for the last quarter, expected to remain negative for the second consecutive period and into a technical recession. However, an expected uptick in monthly GDP may partly offset the expectation. Considering the weekly DOJI candlestick pattern, the USDCAD currency pair could consolidate between 1.3432 and 1.3544.

Durable goods orders in the US are projected to turn negative in January across both headline and core readings. Additionally, the US will provide an updated estimate of its GDP for the fourth quarter, which is expected to reaffirm an expansion of 3.3% annually.

Other Events, Earnings

The US new home sales will be released this coming Monday. Data on German consumer confidence as measured by the GfK indicator will follow on Tuesday. Canada's current account balance for the prior quarter will be available on Wednesday. Thursday will see the publication of the UK's Nationwide house price index and German retail sales for the most recent period. Friday concludes the week with the releases of Japanese consumer confidence readings and the US's preliminary UoM consumer sentiment index.

Meanwhile, the earnings season continues to draw to a close, with several companies expected to release their latest earnings results. This includes Lowe's, American Tower, Smith & Nephew, Salesforce, Baidu, Reckitt-Benckiser, HP, Anheuser-Busch InBev, Dell and Pearson.