US: Economic Resilience Remains on Full Display in Q4 GDP Data, Despite Slight Downward Revision

If possible, there was mostly good news in the downward revision to GDP growth in the fourth quarter. Final domestic demand was revised up to 3.1% (2.7% prev.). This strength in domestic demand provides a solid base for momentum heading into 2024 . We won't have to wait long to find out how consumers started the year, with personal income and spending for January due tomorrow.

Kiwi Dollar Flies Down

The New Zealand Dollar is down 1.2% since the start of the day on Wednesday due to disappointment with the RBNZ’s actions and comments. The country’s central bank left its key interest rate unchanged at 5.5% and signalled its willingness to keep it at current levels. This is much softer than expected, as markets had been pricing in some chance of a hike at this meeting. To meet such expectations, the RBNZ would have had to at least warn that it was ready to do so in the near future.

Canadian January CPI Growth Edged into BoC's Target Range

Bottom Line: The first CPI report in 2024 came in softer than expected with the breadth of inflation still showing signs of gradual easing, but also still wider than would be consistent with the Bank of Canada’s 2% inflation target. Shelter inflation will remain sticky as higher interest rates feed through to mortgage interest costs with a lag and undersupply of housing continues to boost rent prices.

Sunset Market Commentary

Canadian inflation was flat in January whereas markets feared a new acceleration to 0.4% M/M. Y/Y-inflation slowed more than hoped, from 3.4% to 2.9%. The largest contributor to headline deceleration was lower Y/Y-prices for gasoline in January (-4%) compared with December (+1.4%). Prices growth for food purchased from stores and lower prices for airfares and travel fares also contributed to the deceleration.

Dollar Turns to Fed Minutes for More Fuel

We have heard from several Fed officials since their latest meeting in January. Most of them have preached patience, warning against cutting interest rates too early, as that would raise the risk of inflation becoming stickier.

Bank of Canada's Policy Pirouette Not Yet Complete

With the economy downshifting to a lower gear, the Bank of Canada shifted focus at their January monetary policy announcement. The central bank held rates steady and, acknowledging slower growth and some improvement in inflation, said it has shifted from discussing whether the policy rate is restrictive enough to restore price stability, to how long it needs to stay at the current level.

Will FOMC Minutes Give Clues on the Timing of Rate Cuts?

Tonight, minutes from the FOMC's January meeting will be released. Markets will keep a close eye on any clues regarding the timing of the first rate cut, which we now expect to come in May. In addition, the Fed's Bostic and Bowman will be on the wires ahead of the release.

Australian Dollar Pares Gains after Strong Wage Growth

Australia’s wage price index (WPI) rose 4.2% y/y in the fourth quarter, up from a revised 4.1% gain in the third quarter and above the market estimate of 4.1%. This was the highest reading since Q1 of 2009, as wages rose in both the public and private sectors. Significantly, this was the first time since 2021 that the WPI has exceeded consumer price inflation, which is running at 4.1%.

Sunset Market Commentary

The Japanese Cabinet Office downgraded its growth assessment for the first time since November in today’s monthly report. Weakness in private consumption and production are to blame. The economic recovery is likely to remain tepid after unexpectedly slipping in recession in H2 2023.

January FOMC Minutes Confirmed Most Participants Noting Risk of Moving Too Quickly to Ease

January FOMC Minutes confirmed that view with most participants noting the risk of moving too quickly to ease the stance of policy. Only two of them highlighted the risks of keeping rates too high for too long. On the balance sheet, many participants suggested that it would be appropriate to begin in-depth discussions at the March meeting to guide an eventual decision to slow the pace of its runoff (at some point later in time).