February 29, 2024

“Markets are braced for the headline core PCE release in the US this afternoon, with much of the G10 taking a hit yesterday as the dollar rebounded. Eurozone inflation is showing signs of some persistence this morning, and economists are looking for a large jump in US prices in January.”

Tim Hallinan – Trading Director

Main Headlines

Polish Prime Minister Donald Tusk announced plans to meet with leaders of protesting farmers on Thursday amid ongoing demonstrations throughout the country. The protests are part of a broader movement across Europe, with farmers voicing grievances against EU regulations aimed at addressing climate change, as well as concerns over escalating costs and perceived unfair competition from non-EU sources.

British Chancellor Jeremy Hunt will likely aim to bolster Prime Minister Rishi Sunak’s election prospects with some tax cuts in his pre-election budget next week, but Hunt faces the challenge of avoiding a resurgence of concerns among bond investors regarding the country’s public finances. Despite the intention to provide tax relief, Hunt’s options are constrained by the need to address the substantial £2.5 trillion national debt inherited from former premier Liz Truss.

GBP

Sterling dipped against the dollar yesterday, as nervous traders sought some safety in the dollar in anticipation of a hot US PCE release this afternoon. Although likely to be overshadowed by US and eurozone inflation data, we do get some UK economic data this morning in the form of mortgage approvals and consumer lending data, which should give an insight into credit conditions and the housing market. The pound will take most of its cues from foreign catalysts today.

EUR

French preliminary CPI figures have modestly boosted the euro this morning, printing at a higher-than-expected 2.9% for February. The German figures will hold the most weight today and as usual are released state-by-state this morning – the consolidated print this afternoon is expected to fall to 2.6%. The eurozone-wide data comes tomorrow morning and should fall sharply to 2.5%, with the core measure ticking below 3.0% for the first time since March 2022, a threshold that could make it increasingly difficult for the ECB to justify standing pat on rates. Elsewhere in Europe, a stable 0.3% Q4 GDP growth figure in Switzerland has done little to prop up the weakening franc, despite expectations for a more modest 0.1% rise.

USD

The dollar inched up yesterday as jitters crept in, with anticipation for this afternoon’s core PCE data having had investors on hold for much of the week. The second estimate for Q4 GDP fell slightly to 3.2% yesterday, but it did little to unnerve hopes for the policy easing cycle or for growth, given that there were few signs of an incoming slowdown for the US economy. While consensus points to a softening year-on-year figure for core PCE, it is surprises on the monthly print that are likely to drive the dollar’s direction today. At 0.4%, on an annualised basis markets are looking for a running inflation rate of nearly 5%, likely a result of seasonal factors that should generate large contributions from the medical and insurance sectors. The bar is high for a significant dollar rally, given loud whispers of a 0.5% upside surprise that is probably heavily discounted already. Unemployment claims should tick up slightly without causing concern and, across the northern border, the Canadian economy is set to remain inert with a 0.2% GDP growth figure in December.

Markets

A cautious tone in the markets put equity moves largely on hold yesterday as investors brace for the US core PCE data this afternoon. Stocks globally slipped but remain hovering near record peaks reached by many indexes last week, relatively undeterred by this month’s round of hot inflation data.

Main Economic Events (All Times CET)

1:30am: Australian Retail Sales
8:45am: French Prelim CPI
9:00am: Swiss GDP q/q
10:30am: UK Mortgage Approvals
2:30pm: Canadian GDP m/m
2:30pm: US Core PCE Price Index and Unemployment Claims
4:00pm: US Pending Home Sales
7:15pm: Fed’s Mester speaks

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