March 01, 2024

“Markets took a sigh of relief yesterday as the highly anticipated core PCE release eased fears that the data may come in even higher than expected, although the dollar still managed to push through a short rally. Eurozone CPI is the main event today, with the door likely to remain open for a Q2 rate cut.”

Sam Cornford – Head of Trading

Main Headlines

The Democratic-led US Senate passed a short-term spending bill on Thursday to prevent a partial government shutdown, following approval from the Republican-led House of Representatives just hours before funding was set to expire. The bipartisan bill, passed by a vote of 77-13 in the Senate, will now head to President Joe Biden for his signature. It includes funding deadlines for different parts of the government, with one portion funded until March 8 and the other until March 22.

British house prices saw their first annual increase in over a year in February, according to mortgage lender Nationwide Building Society. The rise of 1.2% compared to February 2023 suggests a recovery in the housing market following a decline in mortgage costs.

GBP

Sterling inched modestly lower against both the dollar and the euro in February, having slipped in choppy trading over the last two days. With no impactful catalyst for the pound this week, it was ultimately dented by strong inflation prints in  the US. That said, mortgage approvals jumped to a 15-month high in January and, combined with this morning’s upbeat HPI, will have bolstered hopes for a recovery in the battered housing sector. Today, the final manufacturing PMI should reconfirm a sector still stuck in contraction, and BoE Chief Economist Pill will give some commentary on the monetary policy outlook this afternoon.

EUR

The euro was left vulnerable to a bounce in the dollar yesterday as the assessment of the French and German CPI figures scanned as dovish overall. Price growth in France surprised to the upside at 2.9% but still pointed to a sustained downwards trend, while the German equivalent slipped to 2.5%, firmly keeping the door open to the June cut pencilled in by the derivatives markets. The bloc-wide figure comes this morning and the consensus estimate of 2.5% will make a hawkish stance increasingly difficult to justify for the ECB, as a downside surprise here would surely weigh on credibility if policymakers continued to resist near-term cuts in next week’s policy meeting.

USD

Some volatile intraday trading saw the dollar index finish the day a leg up in a big afternoon for data. Core PCE met expectations on a month-on-month basis at 0.4%, alleviating worries for a higher print that many were expecting. The greenback slipped initially alongside short-term rate expectations, but eventually rebounded throughout the afternoon. The ISM manufacturing PMI is the central focus for today, which should inch closer towards the 50.0 expansionary mark as the US economy continues to show few signs of weakening. We also get some revised UoM consumer sentiment survey data, although traders will undoubtedly begin to start looking to next week’s non-farm payrolls release for their next big cues.

Markets

A quiet core PCE release prompted joyful mood in the equity markets as traders became comfortable to push stocks higher. Wall St’s Nasdaq and S&P 500 both reached fresh record highs, as did Germany’s DAX and Japan’s Nikkei, the latter of which jumped over 2% in the session.

Main Economic Events (All Times CET)

2:30am: Chinese Manufacturing and Non-Manufacturing PMI
10:00am: Eurozone Final Manufacturing PMI
10:30am: UK Final Manufacturing PMI
11:00am: Eurozone Flash CPI
3:45pm: US Final Manufacturing PMI
4:00pm: US ISM Manufacturing PMI and Revised UoM Consumer Sentiment

To learn more about Ballinger Group, please visit our website or our LinkedIn page.