March 18, 2024

“This would be a bumper week for the FX markets without the six central bank decisions. A full set of PMIs and UK CPI will complement policy meetings in Japan, Australia, the UK, the US, Switzerland, and Norway.”

Tim Hallinan – Trading Director

Main Headlines

China’s factory output and retail sales exceeded expectations during the January-February period, signalling a strong beginning to 2024, despite ongoing challenges in the property sector. Industrial production jumped 7.0% year-on-year, versus the 5.3% median estimate by economists. These developments offer early encouragement for Beijing’s aspirations of achieving a robust 5.0% GDP growth target for the year.

British home prices surged by the most in almost a year as the housing market continues its recovery and boosts seller confidence. According to Rightmove asking prices for residential properties rose by 1.5% in the four weeks leading up to 9^th March. Despite these gains, asking prices still remain nearly £5,000 below their peak in May 2023.

GBP

Sterling suffered its worst weekly performance against the dollar since early December last week, as cooling wage growth and a rally in US yields dragged the pound down by 1%. Thursday’s US PPI surprise catalysed the majority of the slump, after which trading on Friday was fairly muted. The UK macro diary is quiet in the early stages of the week, but the second half will be huge for sterling, with a steep fall in CPI on Wednesday likely to set the tone for the March Bank of England decision on Thursday. Headline inflation is expected to cool from 4.0% to 3.5%, which will undoubtedly be an encouraging sign for policymakers, although no major move towards cutting rates is expected on Thursday. With no press conference or updated projections, the FX impact will depend strongly on tweaks to the language within the statement.

EUR

The euro fell only about half as much as sterling versus the dollar, and this week’s moves are more likely to be guided by developments in the UK and US. There are what would usually be headline events in the eurozone, the most significant of which is Thursday’s PMI surveys, where the consensus is for an uptick in both the manufacturing and services data. We also get the ZEW economic sentiment survey tomorrow and a speech from ECB President Lagarde on Wednesday, but ultimately these are likely to be overshadowed by the six G10 central bank decisions. Two of these come from the continent on Thursday: the Swiss National Bank is likely to hold but a cut is partially priced in given the deflationary concerns, while its Norwegian counterpart should stay relatively hawkish and support the NOK.

USD

The focus for the dollar this week is on the FOMC’s rate projections at its Wednesday meeting. A 24bps surge in front-end US bond yields propelled the dollar to its first weekly gain in four last week after surprisingly strong prints on both the CPI and PPI inflation gauges, as traders dialled back implied probabilities for the June cut to 58%. The broad expectation is that Powell will remain undeterred about cutting rates this year, however, as he did a few weeks ago, although the key talking point in markets right surrounds how few need to change their projections for the year-end Fed Funds Rate to price in only two cuts this year. The last set from December still exerts a strong influence on rate cut expectations, with the three cuts pencilled in fort this year acting as an effective floor for how few markets will price in.

Markets

Most major equity indices cooled off last week as US-inflation-induced surges in developed market bond yields took a chunk out of investor risk appetite. The S&P 500 slipped only slightly in only its second weekly loss in nine and the Nasdaq 100 fell 1%, while Japan’s Nikkei slumped by 2.5% as increasing expectations for a BoJ hike tomorrow weighed on stocks in the country.

Main Economic Events (All Times CET)

1:01am: UK Rightmove HP
3:00am: Chinese Industrial Production & Retail Sales
10:00am: Eurozone Final CPI
3:00pm: US NAHB Housing Market Index

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