March 15, 2024

“The hotter-than-expected PPI data confirmed the hawkish picture painted by the CPI report earlier in the week yesterday, sparking a strong rally in the dollar as markets have questioned whether the Fed really can cut in June. Next week’s central bank decisions are dominating the chatter in the markets.”

Sam Cornford – Head of Trading

Main Headlines

US President Joe Biden holds a slight 1 percentage point advantage over his Republican predecessor, according to a recent Reuters/Ipsos poll. According to the poll, 39% of registered voters surveyed indicated they would vote for Biden, while 38% expressed support for Trump. However, it’s important to note that Biden’s lead falls within the survey’s margin of error of 1.8 percentage points.

Britain’s John Lewis Partnership announced a return to annual profit yesterday, attributed to enhanced trading in its food business and cost-saving measures. The employee-owned retailer, operating John Lewis department stores and the Waitrose supermarket chain, also forecasted further improvement in the upcoming year. As part of its strategy, the company plans to increase investment in the 2024-25 period to £542 million, up from £312 million in the previous year.

GBP

Sterling has consolidated at its lowest level in a week after it shed 0.5% against a rallying dollar yesterday. With domestic data limited to a house price survey, the pound followed the rest of the G10 downwards against a greenback fuelled by receding expectations for a Fed cut in June. This morning, we have the Inflation Attitudes Survey, which records where consumers expect year-on-year inflation to stand in twelve months’ time – this is something the BoE keep their eye on, because of its implications for wage demands and price-setting activity in the economy. Next Thursday’s interest rate policy decision will be the big mover for sterling, though, and we will get the final input for this on Wednesday morning with the February CPI report.

EUR

A quiet data week and a string of relatively dovish ECB commentary has left the euro defenceless to moves higher in the dollar. It too fell around half a percent yesterday, although we also note that it is up 0.4% against sterling this week, which slipped on Tuesday on slowing wage growth figures. We have a few more speakers from the ECB today, including Panetta, Vujcic and Lane, but the euro is again more likely to take its cues from elsewhere.

USD

Hot producer price inflation corroborated the uptick in the CPI figure yesterday, rocketing the dollar towards its first weekly gain in four. The month-on-month print doubled the consensus estimate at 0.6%, while the core measure slightly beat expectations at 0.3%, further reinforcing the sideways trend in US inflation that has trimmed hopes for rate cuts this year. The data unlocked a wave of dollar strength that had been building with the CPI report but had been somewhat resisted over the past couple of days. Meanwhile, retail sales were lower than markets had expected, coming in at 0.6% versus the 0.8% consensus, but still eased concerns about a meaningful slowdown and signalled a growth outlook that will continue to allow the Fed to be patient in cutting rates. There is some consumer sentiment and industrial production data this afternoon, but the Fed meeting next Wednesday is at the forefront of minds in the FX markets now, with particular focus on the dot plot rate projections, where a downward revision to the number of cuts this year – or over the next three years – could light a fire under the dollar.

Markets

The major indices slid towards the end of yesterday’s session as PPI-induced yield rallies weighed on the rate-sensitive tech sector. 10-year Treasury yields rose 10bps in just one day and Wall Street and Japan’s Nikkei fell 0.3% and futures point to a slower open this morning.

Main Economic Events (All Times CET)

8:45am: French Final CPI
10:30am: UK Consumer Inflation Expectations
1:30pm: US Empire State Manufacturing Index
2:15pm: US Industrial Production m/m
3:00pm: US Prelim UoM Consumer Sentiment

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