March 14, 2024

“The markets took a breather yesterday as investors geared up for a wave of data this afternoon and look ahead to six central bank decisions in the G10 next week. The dollar is struggling to get going at the moment, with PPI and retail sales set to determine today’s market direction.”

Tim Hallinan – Trading Director

Main Headlines

On Wednesday, the US House of Representatives passed a bill with an overwhelming majority that gives Tiktok’s Chinese owner ByteDance approximately six months to divest the US assets of the short-video app or risk a ban, marking the most substantial challenge to TikTok since the Trump administration. However, the bill’s fate in the Senate remains uncertain, with some advocating for alternative approaches to regulating such apps.

Britain’s housing market showed signs of improvement in February, according to a closely monitored industry survey. The Royal Institution of Chartered Surveyors (RICS) reported that the gauge of new buyer enquiries increased to a net balance of +6 last month. This figure remained unchanged from a downwardly revised +6 in January but marked the joint-strongest reading since February 2022. However, property surveyors cautioned that uncertainty surrounding the Bank of England’s interest rate trajectory could potentially dampen demand in the future.

GBP

Sterling price action evaporated in yesterday’s session as GDP met expectations and FX consolidated between two data-heavy days. The UK returned to marginal growth in January after a small taste of a technical recession last quarter, something that will ease the urgency with which the Bank of England will need to cut rates later in the year, and reinforces the high yields that have kept sterling buoyed early this year. An ongoing improvement in the housing market was expected this morning, although sterling seems to have been given a small lift on the positive note. Now that the biggest pieces of data have passed this week, next Thursday’s interest rate decision and PMI figures will be at the forefront of investors’ minds.

EUR

The euro made some modest gains yesterday but has inched lower overnight amid some dovish commentary from ECB officials. Villeroy expressed some optimism on the level of inflation and the possibility of cutting rates over the next few months, although he was clear that this was more likely to happen in June rather than April. The head of the Central Bank of Greece, Stournaras, went a step further to de-emphasise the importance of the wage-price spiral that has been the overarching focus of late, arguing that rate cuts should start soon and happen four times before the end of the year. Policymaker rhetoric should continue to be the biggest domestic driver for the common currency this week, but most of its moves will likely come from today’s US diary.

USD

The next deluge of data comes this afternoon for the dollar, whose CPI-induced gains have fully dissolved despite steadily rising yields. The market’s dovish bias continues to obstruct a higher dollar trade despite successive strong inflation prints, with Powell’s confident testimony in the back of minds. PPI inflation, retail sales, and jobless claims are the next test for the June cut this afternoon, with PPI in particular likely to draw attention given that many of its components feed directly into the Fed-favoured PCE gauge. The month-on-month PPI print is expected to stay stable at 0.3% but the core measure, which strips out volatile food and energy components, should fall sharply from 0.5% to 0.2%. A strong print here would likely spark a meaningful recalibration of the probabilities for cuts at the summer meetings. Retail sales should recover from last month’s surprise 0.8% contraction, but a miss would certainly cast some doubt on the current strength of the US economy.

Markets

Equities moved mainly sideways in a day of consolidation yesterday ahead of today’s data deluge out of the US. Wall Street edged down slightly on a tech pullback as rising yields finally took a bite out of investor optimism, while Japan’s Nikkei is set for its sharpest weekly fall in three months as expectations mount for the BoJ’s first rate hike in 14 years.

Main Economic Events (All Times CET)

8:30am: Swiss PPI m/m
1:30pm: US PPI, Retail Sales, & Unemployment Claims
1:30pm: Canadian Manufacturing Sales
3:00pm: US Business Inventories

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