US Conference Board Consumer Confidence fell from 110.9 to 106.7 in February, below expectation of 114.9. Present Situation Index fell from 154.9 to 147.2. Expectation Index fell from 81.5 to 79.8.
“The decline in consumer confidence in February interrupted a three-month rise, reflecting persistent uncertainty about the US economy,” said Dana Peterson, Chief Economist at The Conference Board.
US durable goods orders fell -6.1% mom to USD 276.7B in January, worse than expectation of -4.4% mom. Ex-transport orders fell -0.3% mom to USD 186.9B, below expectation of 0.3% mom rise. Ex-defense orders fell -7.3% mom to USD 260.2B. Transportation equipment orders were down -16.2% mom to USD 89.8B, down three of the last four months, led the overall decline.
In its latest Quarterly Predictions, NZIER noted there are “signs of further easing in inflation pressures” in New Zealand. But the pivotal question for RBNZ is whether this easing is “occurring at a fast enough pace” to bring inflation back to target band of 1-3%.
“Based on the balance of risks, we expect “no further OCR increases in this cycle,” NZIER said.
Highlighting the New Zealand economy’s “resilience,” NZIER acknowledges the potential for inflation to persist above RBNZ’s target, suggesting a “cautious approach” from the central bank, gearing towards understanding the “lag effects of the monetary policy tightening” already implemented.
Meanwhile, NZIER forecasts RBNZ OCR cuts to start mid-2025, “once it is confident it has reined in inflation sufficiently to keep it around the 2 percent inflation target mid-point over the coming year.”
Germany Gfk Consumer Sentiment for March ticked up from -29.6 to -29.0, matched expectations. In February, economic expectations rose from -6.6 to -6.4. Income expectations improved notably from-20.0 to -4.8. Willingness to buy fell from -14.8 to -15.0. Willingness to save jumped from 14.0 to 17.4.
Rolf Bürkl, a consumer expert, highlighted the prevailing uncertainty among consumers, driven by persistently high prices and dimming economic projections for Germany. German government’s downgrade of its growth forecast for 2024 from an initial 1.3% down to a mere 0.2% underscores the challenges ahead.
Japan’s CPI core (all items ex food) slowed from 2.3% yoy to 2.0% yoy, above expectation of 1.9% yoy. This marks the third consecutive month of decline, reaching the lowest level in 22 months and aligning precisely with BoJ’s inflation target of 2%.
The headline CPI also saw a decrease, moving from 2.6% to 2.2% yoy. Nevertheless, CPI core-core (ex-food and energy) showed only modest improvement, edging down from 3.7% to 3.5% yoy.
A significant factor contributing to the overall CPI’s decline a -12.1% yoy drop in energy prices, resulting from government interventions to mitigate utility bills through subsidies for oil wholesalers. In contrast, food prices saw 5.9% yoy increase, while accommodation fees surged by 26.9% yoy.
The latest inflation data should fortify the argument for BoJ to terminate its negative interest rate policy soon. However, the decisive factor for the exact timing—be it March or April—hinges on the forthcoming wage negotiations between large enterprises and unions scheduled for March 13.
Kansas City Fed President Jeffrey Schmid emphasized a cautious approach to adjusting Fed’s monetary policy. With inflation persistently above the target, coupled with tight labor markets and strong demand, Schmid argues there is “no need to preemptively adjust the stance of policy.”
His stance highlights a preference for a measured response, suggesting that “the best course of action is to be patient,” a sentiment that underscores the importance of observing the economy’s reaction to the already implemented policy tightening measures. He urged to wait for “convincing evidence that the inflation fight has been won.”
Schmid also addressed the current state of high inflation, indicating that “we are not out of the woods yet.” He pointed out that recent reductions in inflation have primarily resulted from decreases in energy and goods prices, thanks to the rebalancing of oil markets and the healing of supply chains.
In a speech delivered at the European Parliament overnight, ECB President Christine Lagarde emphasized the significant role of wage pressures. According to Lagarde, wage pressures “remain strong” across the region, anticipated to be an “increasingly important driver of inflation dynamics” in the coming quarters.
This shift towards wage-driven inflation comes as the contribution of profits, previously a significant factor in domestic cost pressures, begins to wane. Importantly, Lagarde pointed out that labor cost increases are being “partly buffered by profits”, preventing a full pass-through to consumer prices.
Lagarde also touched on the risks associated with second-round effects, a concern for economies dealing with inflation. She reassured that ECB’s current restrictive monetary policy, combined with a notable decline in headline inflation and well-anchored longer-term inflation expectations, serves as a “safeguard against a sustained wage-price spiral”.
Looking ahead, Lagarde expects continued deceleration in inflation rates as the effects of previous shocks diminish and tighter financing conditions exert downward pressure.
Nikkei index surged to new record today, signaling robust appetite for risk among Japanese investors, while Yen faces downward pressure, in particular against European majors. Consumer inflation data is in the spotlight in the upcoming Asian session.
Core CPI, which excludes food prices, is forecasted to decelerate from 2.3% to 1.8% in January, below BoJ’s 2% target for the first time in nearly two years. However, for the BoJ, the crucial figure lies in the core-core CPI (excluding both food and energy), which is awaited to see if it will decelerate from December’s 3.7%.
Governor Kazuo Ueda has consistently highlighted the significance of the outcomes from this year’s annual wage negotiations as a pivotal factor in determining the timeline for phasing out the negative interest rate policy.
With large businesses scheduled to conclude wage talks with unions on March 13, just days before BoJ’s next meeting on March 18-19, March is seen by some as a candidate for a rate hike. Yet, April, with the availability of new economic projections, remains a more plausible window for such policy adjustments.
However, any unexpected strength in the inflation report could fuel speculation about an earlier rate hike.
USD/JPY has been losing much momentum after breaking 150 handle. Threat of intervention by Japan could be a major factor keeping USD/JPY bulls from aggressive buying. Nevertheless, rally from 140.25 is still in tact as long as 148.79 support holds. But the path to 151.89/93 resistance zone would be slow.
As for Nikkei, it should be rather undeterred by the inflation data. Near term outlook will stay bullish as long as 38095.14 support holds. Next target is 40k psychological level, or even further to 261.8% projection of 30538.28 to 33853.46 from 32205.38 at 41017.01.
New Zealand Dollar weakens broadly in Asian session, as market participants are likely adjusting their positions in anticipation of the upcoming RBNZ rate decision. This cautious approach stems from a blend of profit-taking and hedging against surprises that might deviate from some market expectations. Despite a robust rally earlier in the month, spurred by rate hike speculations, the prevailing market consensus leans towards a steady rate with a side of hawkish rhetoric from RBNZ. Investors are currently scaling back, wary of any outcomes that could fall short of the hawkish forecast.
Technically, with today’s decline, immediate focus for NZD/USD is now on 55 4H EMA (now at 0.6153). Sustained break there will argue that the rebound from 0.6037 has completed as a three-wave corrective move to 0.6217. In this case, NZD/USD could be ready to resume the fall from 0.6368 through 0.6037 to 61.8% projection of 0.6368 to 0.6037 from 0.6217 at 0.6012 next.
Bearish divergence condition in 4H MACD argues that a short term top was already formed at 93.42 in NZD/JPY. Risk will now stay on the downside as long as 93.42 holds. Deeper fall would be seen to 55 4H EMA (now at 92.31) and below. But for now, considering the overall weakness in Yen, downside should be contained by 38.2% retracement of 89.24 to 93.42 at 91.82 to bring rebound.
Ethereum staged an upside breakout over the weekend, and edged above 3100 mark. For the moment, it’s outperforming Bitcoin is stuck in range after breaching 53000 briefly earlier in the month. There is prospect for Ethereum to continue to outshine Bitcoin in the near term, in anticipation of a new wave of spot crypto ETF on the world’s second-largest digital asset.
The approval of the first spot Bitcoin ETFs by US regulators in January has already marked a significant milestone. These ETFs have attracted over USD 5B in net inflows since their inception on January 11. There is growing speculation that Ether ETFs could receive regulatory approval as soon as the second quarter, possibly in May.
Technically, Ethereum is in upside acceleration mode as seen in D MACD, and the break of channel resistance. Next target is 100% projection of 1519 to 2715 from 2164 at 3360. Considering overbought condition as seen in D RSI, upside might be limited there on first attempt and bring consolidations first. But in any case, outlook will stay bullish as long as 2715 resistance turned support holds. Meanwhile, decisive break of 3360 will pave the way to 161.8% projection at 4099 next, which is above 4k psychological level.
As for Bitcoin, outlook will stay bullish as long as 55 D EMA (now at 46376 holds). Decisive break of 61.8% projection of 24896 to 49020 from 38496 at 53404 will pave the way to 100% projection at 62620.
ECB President Christine Lagarde described Q4 wage figures as “obviously encouraging numbers”. However, she underscored the importance of caution, stating that the Governing Council needs to gain “more confidence” in the sustainability of the disinflationary process currently underway.
Lagarde also pointed to ongoing wage negotiations across various sectors and employee groups, expected to conclude in Q1, with data becoming available in May. The outcomes of these negotiations are anticipated to be a critical factor in the ECB’s assessment of the inflationary outlook.
“Those numbers will — especially if they continue to be encouraging — will be important for us to assess going forward in order to reach confidence,” Lagarde remarked in a press conference today.
ECB’s Consumer Expectations Survey for January showed that inflation expectations for the upcoming year have seen a slight uptick, increasing by 0.1% to 3.3%, while the forecast for three years ahead remains steady at 2.5%.
On a more optimistic note, the survey indicates a slight improvement in expectations for economic growth over the next year. The mean expectation for economic growth has become less negative, adjusting from -1.3% to -1.1%.
Furthermore, the expected mean unemployment rate for the next 12 months shows a slight decrease, moving from 10.8% to 10.6%.
In the annual report from Bundesbank, ECB Governing Council member Joachim Nagel emphasized the importance of caution and patience. “Even though it may be very tempting, it is too early to cut interest rates. This is because the price outlook is not yet clear enough,” Nagel stated.
Furthermore, Nagel’s call for perseverance reflects an understanding of the challenges inherent in steering monetary policy towards achieving price stability. “We should not let ourselves stray away from the path we have embarked on,” he advised, emphasizing the need for consistency and resilience in ECB’s policy stance.
In an interview with Bloomberg TV, ECB Governing Council member Robert Holzmann pointed out that historically, ECB tends to follow Fed’s policy adjustments with a delay, typically around half a year.
“Typically the Fed always in the last few years has always gone first by about half a year so I would assume, ceteris paribus, as things are, that we would also follow with delay,” he stated, indicating a likelihood that ECB would not preempt Fed in cutting its policy rates.
The Governing Council member also highlighted ongoing inflation risks, particularly from geopolitical tensions affecting shipping routes in the Red Sea. Holzmann cautioned that these factors could contribute to persistent inflationary pressures.
He specifically mentioned the possibility of an escalation in the Red Sea conflict affecting oil prices, a scenario that, while slim, poses a real risk to inflation and economic stability.
Holzmann also expressed skepticism towards market expectations for significant policy easing in Eurozone this year. He warned that market bets for 90 basis points of easing “may be much too high”.
German Ifo Business Climate ticked up from 85.2 to 85.5 in February, matched expectations. Current Assessment Index is unchanged at 86.9, a touch below expectation of 87.0. Expectations Index rose slightly from 83.5 to 84.1, above expectation of 83.8.
By sector, manufacturing fell from -15.8 to -17.4. Services rose from -4.8 to -4.1. Trade fell from -29.7 to -30.87. Construction rose from -35.8 to -35.4.
Ifo said that the German economy is “stabilizing at a low level”.
New Zealand’s retail sales volumes dropped by -1.9% qoq, a figure far below the expected decline of -0.2% qoq. This also marked the eighth consecutive quarter of contraction. Excluding auto sales, the decline was marginally less severe but still substantial at -1.7% qoq, again well below the anticipated -0.1% qoq decrease.
Melissa McKenzie, business financial statistics manager, highlighted the extent of the downturn, noting that “Ongoing falls in retail activity over the last two years were marked by a fall in most industries in the December quarter.”
The contraction in retail sales was widespread, with 14 out of 15 retail industries reporting lower sales volumes compared to the previous quarter. The most significant downturns were observed in motor vehicle and parts retailing, which fell by -2.5%, food and beverage services, which saw a -2.4% decline, and fuel retailing, which dropped by -3.6%.
In terms of retail sales value, there was a qoq decrease of -1.5%, with ten of the sixteen regions experiencing lower seasonally adjusted sales values.
Fed Governor Christopher Waller advocated for Fed to “wait a little longer,” suggesting that “at least another couple more months” of economic data would be crucial before commencing any policy easing.
In a speech overnight, Waller expressed concerns regarding the recent high CPI inflation reading, describing it as potentially “a bump in the road” or a more serious indication that the significant progress made in controlling inflation over the past year could be “stalling.”
This uncertainty solidifies his viewpoint that a patient approach to policy adjustments is warranted, allowing more time to assess whether January data represents “a speed bump or a pothole”.
While Waller anticipates that it may become appropriate to begin easing monetary policy sometime within the year, he clarified that the timing and extent of policy adjustments would heavily rely on incoming economic data.
In a speech overnight, Fed Governor Lisa Cook articulated her stance on waiting for more definitive signs of inflation moving towards 2% target before considering any policy rate reductions.
“I would like to have greater confidence that inflation is converging to 2% before beginning to cut the policy rate,” she said.
Further, Cook shared an optimistic view on the inflation outlook, suggesting that a forecast showing 12-month PCE inflation moving towards target over time remains a “reasonable” baseline scenario.
However, Cook also advocated for a measured and data-driven approach to policy decisions. “We should continue to move carefully as we receive more data,” she advised, stressing the importance of maintaining the current level of policy restriction to achieve “sustainable” price stability.
Philadelphia Fed President Patrick Harker did not dismiss the possibility of a rate cut as early as May meeting. But he emphasized the importance of observing “a couple more months” of economic data before making such a decision. “I think we’re close,” Harker stated overnight, advocating for patience by suggesting, “just give us a couple meetings.”
“We may be in the position to see the rate decrease this year,” he remarked. But he also tempered expectations with a reminder of the need for deliberate consideration: “But I would caution anyone from looking for it right now and right away. We have time to get this right, as we must.”
Harker acknowledged the challenges inherent in the disinflation process, describing it as “bumpy and uneven at times.” This acknowledgment underscores the necessity for the Fed to demand “more evidence” before altering its policy course, aiming to discern genuine economic trends from the “vagaries of monthly data.”
In contemplating the initiation of policy easing, Harker advocated for a cautious approach: “let’s start on a steady, slow reduction, because that to me minimizes risk.”
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RBNZ keeps OCR at 5.50%, door still open for another hike
RBNZ decided to hold Official Cash Rate unchanged at 5.50%. The central bank expressed its confidence that the current OCR level is effectively restraining demand. However, it underscored the need for a “sustained decline in capacity pressures” to ensure that inflation re-aligns with 1 to 3% target range. This necessitates maintaining OCR “at a restrictive level for a sustained period of time”.
The updated economic forecasts in the MPS projects that CPI inflation will return to the target band by Q3 this year, then falls further to 2% midpoint by Q4 2025. These projections indicate a “slightly lower” inflation rate over the forecast period compared to previous estimates made in November.
Regarding future movements, the central bank anticipates OCR path to echo the trajectory outlined in the November MPS. It suggests OCR could peak at 5.6% in Q2 this year, leaving room for a marginal possibility of another rate hike.
Absent further increases, interest rate reductions are expected to commence in the Q2 2025, with OCR gradually decreasing to 3.2% by Q1 of 2027.
Full RBNZ statement here.