What to Look For From RBNZ This Week

This week's February Monetary Policy Statement is one of the most anticipated OCR reviews since late 2022, when the RBNZ kicked off a further boost in the OCR from the then 3.5% towards the current 5.5% level. Right now, there is considerable divergence in views about the economic outlook and future path of interest rates. Our report last week canvassed the arguments supporting both hawkish and dovish perspectives.

Attention Shifts to Economic Data

This week, investors’ attention will gently shift from earnings to economic data. At this point, the US economy has been resilient and the latest uptick in the CPI data helped investors understand that the Fed will not be cutting its rates any time before summer. The first Fed cut expectation is seen coming by June, with a little less than 70% probability and the Fed is seen cutting the rates by 80bp this year.

USD/JPY: All Eyes on Japan's Core-Core Inflation Tomorrow

In addition, market participants are likely to have a “fearful” recency bias at around the 151.95 level of the USD/JPY where the Bank of Japan (BoJ) under the instructions of MoF intervened in the foreign exchange market “vigorously” via the sale of US dollars on 21 October 2022 after the USD/JPY hit an intraday high of 151.95.

EUR/USD Going Nowhere North of 1.08

We expect both bond and currency markets to display technically insignificant moves in the run-up to these data. The US 10-y yield is nearing first intermediate support around 4.18%. The German one is set for a lower open with 2.29% acting as support parallel to the US. EUR/USD is going nowhere north of 1.08.

US Dollar Eyes PCE Inflation Data After CPI Scare

Even though the Fed has made great progress in its bid to bring inflation in the US under control, the next phase to get it all the way down to 2% is proving to be a little more difficult. The CPI measure of inflation has been stuck above 3.0% for some time now and core CPI was unchanged at 3.9% in January.

Sunset Market Commentary

US President Trump easily beat his remaining contender in the Republican primaries, Nikki Haley, in her home state South Carolina this weekend. He cements his grip over the GOP and is gearing up for a duel against President Biden (?) in November elections. We assumed that Trump momentum and USD momentum would go hand in hand, but there’s little evidence of that so far.

Inflation in Japan Surprises to the Topside

In Japan core CPI rose 2.0% y/y in January (cons.: 1.9%, prior: 2.3%). It marked the 22nd straight month in which inflation matched or exceeded the Bank of Japan's target. Core CPI excludes fresh food. Stripping away both fresh food and energy, CPI rose 3.5% y/y in January (cons.: 3.3%, prior: 3.7%).

Calm Before the Data

European and American stocks kicked off the week with a pause, as investors took a breather after sending major stock indices in these regions to record highs. The Stoxx 600, the S&P500 and Nasdaq 100 all retreated from an ATH level on Monday. MAMAA stocks were down around 1%, Amazon – which had it first day at Dow Jones Industrial index fell 0.15% whereas Nvidia managed to eke out a small gain.

Inflation Still Matters for ECB

With global stock markets attracting lots of interest due to their consecutive all-time highs, the countdown to the March 7 ECB meeting has commenced. This gathering is considered to be a key one as, apart from the overall rhetoric that could shape market expectations, the updated quarterly staff projections could lay the path for a more accommodative monetary policy stance for the rest of 2024.

Bitcoin Tears the Bears Apart Again

Nevertheless, bitcoin sees no significant barriers to growth to levels just above $60K. Bitcoin can quickly go there or around the historical highs at $69K, but the subsequent growth may require a few months of consolidation.