Weekly Market Outlook (04-08 March)

UPCOMING EVENTS:

• Monday:
  Switzerland CPI.
• Tuesday: Tokyo
  CPI, China Caixin Services PMI, Eurozone PPI, US ISM Services PMI.
• Wednesday:
  Australia GDP, Eurozone Retail Sales, US ADP, BoC Policy Decision, US Job
  Openings, Fed Chair Powell Testimony.
• Thursday: Japan
  Wage data, Switzerland Unemployment Rate, ECB Policy Decision, US Jobless
  Claims, Fed Chair Powell Testimony.
• Friday: US
  NFP, Canada Labour Market report.

Monday

The Switzerland CPI Y/Y is expected to
fall further to 1.1% vs. 1.3% prior. The last
report missed expectations by a big margin
and sparked a strong dovish reaction with the market pricing a 60% chance of a
25 bps rate cut in March. Another miss should seal the rate cut this month,
but even if it beats, it shouldn’t change much for the market.

Tuesday

The Tokyo Core CPI Y/Y, which is seen as a
leading indicator for National CPI, is expected to rise to 2.5% vs. 1.6% prior.
Inflation in Japan has been falling steadily and it’s now basically at target
(excluding the ex-energy/food measure). Nevertheless, the BoJ is solely
focused on wage growth and the spring wage talks will dictate their policy. BoJ’s
Takata recently said that the momentum is
rising in wage talks and that the achievement of the 2% inflation target is
getting in sight. That sparked a strong reaction in the market with the Yen
rallying across the board before giving back most of the gains.

The US ISM Services PMI is expected at
53.0 vs. 53.4 prior. The recent US
S&P Global Services PMI surprisingly
missed expectations with the commentary noting that “services output held its
positive momentum, consistent with a positive change in new business, although
the pace of growth fell to a three-month low. In the meantime, service
providers continued to increase their headcounts. Still, the pace of hiring
slowed as the downtrend in sales growth drove companies to grow cautious of
slowing orders. On the price front, cost inflation faced by firms waned
during the period, but service providers continued to increase their output
charges.

Wednesday

The BoC is expected to keep interest rates
steady at 5.00% with the market expecting the first rate cut in June. As a
reminder, the central bank dropped the tightening bias at the last
meeting and the recent economic data
suggests that the BoC is likely to keep everything unchanged and maintain its
patient stance. Therefore, this particular meeting should be a non-event.

The US Job Openings are expected to fall
to 8.895M vs. 9.026M prior. This will be the first major US labour market
report and, although it’s old (January data), it’s generally a market
moving release. The market will likely focus on the hiring and quit rates as
they both fell below the pre-pandemic trend recently.

Fed Chair Powell will testify to Congress
and, as always, market participants will be attentive to any view or hint about
the monetary policy trajectory. The text is generally released before the
testimony so that will be scanned for clues or “bias”, but the market will also
be focused on the Q&A session following the opening remarks.

Thursday

The Japanese Average Cash Earnings Y/Y will
be a data point to watch given the BoJ’s sole focus on wage growth. The
last month, the data missed forecasts rising by 1.0% Y/Y vs. 1.3% expected and
0.2% prior. The attention though remains on the spring wage negotiations but
the easing in inflation might help to bring real wages into positive territory.

The ECB is expected to keep the deposit
rate unchanged at 4.00%. The central bank members continue to support a
patient stance and the consensus is to wait for the Q1 2024 wage data before
considering a rate cut in June, which is also the current market’s
expectation. The recent data supports the ECB stance as the Eurozone
CPI beat expectations and the labour
market remains historically tight.

The US Jobless Claims continue to be one
of the most important releases every week as it’s a timelier indicator on the
state of the labour market. Initial Claims keep on hovering around cycle
lows, while Continuing Claims remain firm around cycle highs. There’s no consensus
at the time of writing but the last week Initial Claims came at 251K vs.
210K expected and Continuing Claims at 1905K vs. 1874K expected.

Friday

The US NFP report is expected to show 200K
jobs added in February vs. 353K in January and the Unemployment Rate to remain
unchanged at 3.7%. The Average Hourly Earnings Y/Y is expected at 4.4% vs. 4.5%
prior, while the M/M measure is seen at 0.3% vs. 0.6% prior. The Average Weekly
Hours are expected to rise to 34.3 vs. 34.1 prior. The last
report surprised the markets with a huge
beat with the only bad readings in the household survey showing the second
consecutive drop in employment and the average weekly hours falling sharply to
recessionary levels, which also skewed the average hourly earnings print.

The Canadian Labour Market report is
expected to show 20K jobs added in February vs. 37.3K in January
and the Unemployment Rate to tick higher to 5.8% vs. 5.7% prior. The focus
will also be on the wage growth figure as that’s what the BoC is more concerned
with.