BoJ’s Uchida: Interest rate to gradually approach neutral by late FY 2025 to FY 2026

    BoJ Deputy Governor Shinichi Uchida reinforced today that interest rates will continue to rise if the bank’s economic projections hold. He highlighted in a speech that BoJ expects inflation to stabilize around the 2% target in the second half of fiscal 2025 to fiscal 2026, with “effects of the cost-push wane” while underlying inflation strengthens with wages growth.

    “The policy interest rate at that time is considered to approach an interest rate level that is neutral to economic activity and prices,” he added.

    However, Uchida acknowledged that determining the “neutral” interest rate level remains uncertain. While in theory, it should be around 2% plus Japan’s natural rate of interest, estimates for the latter vary significantly from -1% to +0.5%.

    Given this wide range and estimation errors, BoJ will avoid relying solely on theoretical models and instead “examine the response of economic activity and prices as it raises the policy interest rate”

    Full speech of BoJ’s Uchida here.

    Japan’s PMI service finalized at 53.7, sector strengthens but confidence wanes on labor shortages and trade risks

      Japan’s PMI Services was finalized at 53.7 in February, up from January’s 53.0, marking a six-month high. PMI Composite also improved from 51.1 to 52.0, the strongest reading since September 2024.

      According to Usamah Bhatti, Economist at S&P Global Market Intelligence, service sector businesses saw higher sales volumes, with export demand contributing to the expansion. Meanwhile, the broader private sector recorded its steepest rise in activity in five months, supported by a milder contraction in manufacturing.

      Despite the growth, overall business confidence showed signs of softening. Bhatti noted Firms expressed concerns over labor shortages and uncertainty stemming from US trade policies, leading to the weakest sentiment since January 2021.

      Full Japan PMI final release here.

      RBA’s Hauser: Uncertain on further easing disputes market’s rate-cut outlook

        RBA Deputy Governor Andrew Hauser emphasized in a speech today that monetary policy is set to ensure inflation returns to the midpoint of the target range, which is crucial for maintaining price stability over the long run.

        He justified the February rate cut, stating that it “reduces the risks of inflation undershooting that midpoint.”

        However, Hauser pushed back against market expectations of a sustained easing cycle, saying the “Board does not currently share the market’s confidence that a sequence of further cuts will be required”.

        While Hauser acknowledged that interest rates will go where they need to go to balance inflation control with full employment, he made it clear that progress so far does not warrant complacency.

        He stressed that RBA will continue to assess economic developments on a “meeting by meeting” basis.

        Full speech of RBA’s Hauser here.

        Australia’s GDP grows 0.6% qoq in Q4, ending per capita contraction streak

          Australia’s GDP grew by 0.6% qoq in Q4, exceeding expectations of 0.5% qoq, while annual growth stood at 1.3% yoy. A key highlight was the 0.1% qoq per capita GDP growth, marking the first increase after seven consecutive quarters of contraction.

          According to Katherine Keenan, head of national accounts at the ABS, “Modest growth was seen broadly across the economy this quarter.” She noted that both public and private spending contributed positively, alongside a rise in exports of goods and services.

          Full Australia GDP release here.

          Fed’s Williams: Tariff adds to inflation risks, no rush for rate cuts

            New York Fed President John Williams acknowledged that tariffs could contribute to inflation pressures later this year, noting that consumer goods could likely see immediate price increases while other sectors may experience a more gradual impact.

            However, he emphasized the high level of uncertainty surrounding trade policies, stating, “We don’t know how long the tariffs will apply. We don’t know what other countries may do in response to this.”

            Beyond tariffs, Williams pointed out that fiscal and regulatory policies under the Trump administration would also play a key role in shaping the economic outlook and monetary policy decisions.

            Williams also reiterated that the current policy stance remains appropriate. “I think the current place for policy is good. I don’t see any need to change it right away,” he noted.

            While acknowledging that rate cuts could be a possibility later this year, he was noncommittal, adding that it’s “really hard to know” if further easing will be necessary.

            Eurozone unemployment rate unchanged at 6.2% in Jan

              Eurozone unemployment rate was unchanged at 6.2% in January, coming in better than expectations of 6.3%. Across the broader EU, unemployment rate also held firm at 5.8%.

              According to Eurostat, the number of unemployed individuals stood at 12.824 million in the EU, of which 10.655 million were in the Eurozone.

              On a monthly basis, Eurozone unemployment fell by -42k, while the overall EU saw a more modest decline of -8k.

              Full Eurozone unemployment release here.

              S&P 500 sinks as US tariffs on Canada, Mexico, and China set to begin

                US equities tumbled sharply on Monday, kicking off March with the biggest single-day decline in months, and the markets were rattled by the formal commencement of a US-led trade war.

                The selloff started in the afternoon after US President Donald Trump reaffirmed that 25% tariffs on imports from Mexico and Canada would go into effect as scheduled on Tuesday. Hopes for a last-minute deal to avert the full imposition of tariffs were dashed. The Federal Register confirmed that the new duties would be officially imposed at 05:01 GMT.

                Similarly, the additional 10% duty on Chinese goods was also slated to take effect at the same time, effectively raising the total tariff on thousands of Chinese products to 20%.

                In quick response, Canada announced retaliatory measures, with Prime Minister Justin Trudeau confirming that CAD 155B worth of US goods would be hit with 25% tariffs if Trump’s levies proceed as planned. China’s commerce ministry also vowed countermeasures, calling the US tariffs “unreasonable and groundless, harmful to others.”

                Technically, S&P 500’s rejection by 55 D EMA (now at 5988.77) is a near term bearish sign. Immediate focus is on 5773.31 support this week. Considering bearish divergence condition in D MACD, firm break of 5773.31 should confirm medium term topping that 6147.47. That would set up deeper correction to 55 W EMA (now at 5594.28) at least.

                 

                Australia retail sales rises 0.3% mom, driving by food-related spending

                  Australia’s retail sales turnover rose 0.3% mom to AUD 37.08B in January, matched expectations.

                  Robert Ewing, ABS head of business statistics, said: “While the pick-up in retail spending since mid-2024 has been boosted by more discretionary spending, this month’s rise is mostly driven by food-related spending.”

                  Full Australia retail sales release here.

                  RBA minutes: No commitment to further rate cuts

                    The minutes from RBA’s February meeting reinforced the central bank’s cautious approach to monetary easing, making it clear that the recent 25bps rate cut to 4.10% does “not commit them to further reductions” in subsequent meetings.

                    Policymakers acknowledged that inflation has been falling at a “somewhat faster pace than expected,” which helped ease concerns over upside risks. However, they stressed that the path to returning inflation to target while maintaining labor market gains is “not yet assured.” The Board ultimately deemed that the stronger case was to ease policy, given the downside risks to the economy.

                    Despite the decision to cut, RBA members debated the risks of “easing policy too soon”, recognizing that a premature policy shift could lead to resurgence in inflation.

                    They noted that if inflation proved “more persistent than expected,” holding the cash rate at 4.1% for an “extended period” or even tightening policy would be warranted.

                    Full RBA minutes here.

                    US ISM manufacturing falls to 50.3, tariff pressures mount

                      US ISM Manufacturing PMI slipped to 50.3 in February, down from 50.9, missing expectations of 50.8. The biggest red flag in the report was the sharp drop in new orders, which plunged from 55.1 to 48.6, marking a return to contraction after three months of growth. Production slowed to 50.7 from 52.5. Employment also fell back into contraction at 47.6 after briefly expanding in January. The figures suggest that while manufacturing activity remains in expansion territory, momentum is weakening.

                      One key concern is the rapid acceleration in price growth, with the Prices Index surging from 54.9 to 62.4. According to ISM, this reflects the initial shock of the new administration’s tariff policies, which have disrupted supply chains, caused new order backlogs, and led to supplier delivery stoppages.

                      Despite the decline in overall activity, ISM noted that the February reading still signals a 2.2% annualized growth in US GDP.

                      Full US ISM manufacturing release here.

                      Eurozone CPI falls to 2.4%, core CPI slows to 2.6%, both above expectations

                        Eurozone CPI ticked down from 2.5% yoy to 2.4% yoy in February, above expectation of 2.3% yoy. Core CPI (ex-energy, food, alcohol & tobacco), fell from 2.7% yoy to 2.6% yoy, above expectation of 2.5% yoy.

                        Looking at the main components of inflation, services is expected to have the highest annual rate in February (3.7%, compared with 3.9% in January), followed by food, alcohol & tobacco (2.7%, compared with 2.3% in January), non-energy industrial goods (0.6%, compared with 0.5% in January) and energy (0.2%, compared with 1.9% in January).

                        Full Eurozone CPI flash release here.

                        UK PMI manufacturing finalized at 46.9, job cuts accelerate

                          The UK manufacturing sector continued to struggle in February, with PMI Manufacturing finalized at 46.9, down from January’s 48.3, marking a 14-month low. Weak demand and declining confidence among clients have exacerbated the downturn, leading to falling output and new orders.

                          Rob Dobson, Director at S&P Global Market Intelligence, noted that UK manufacturers are facing an “increasingly difficult trading environment.” The combination of subdued demand, rising cost pressures, and uncertainty over future economic conditions is making it harder for firms to sustain growth.

                          Inflation fears are also rising, particularly due to changes in the national minimum wage and employer NICs announced in the Autumn Budget.

                          One of the most concerning trends is the acceleration in job losses. The pace of staff reductions in the sector is now at levels not seen since the pandemic-induced slump in mid-2020.

                          Full UK PMI manufacturing final release here.

                          Eurozone PMI manufacturing finalized at 47.6, a 24-mth high

                            Eurozone manufacturing activity showed signs of stabilization in February, with PMI finalized at 47.6, a 24-month high, up from January’s 46.6. While still in contraction territory, the improvement offers some hope that the sector may be finding its footing.

                            Among individual countries, Ireland led the rankings at 51.9, marking a 12-month high, while the Netherlands reached the neutral 50.0 mark for the first time in eight months. However, Spain dipped to a 13-month low at 49.7, and Italy, Austria, Germany, and France all remained below 50, despite showing some improvement.

                            Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, emphasized that while the data is encouraging, it’s “too early to call it a recovery”. New orders are still falling but at the slowest rate since May 2022, and production is inching closer to stabilization. After nearly three years of recession, there is potential for modest growth in the coming months.

                            Despite ongoing risks, most businesses remain optimistic about the future, with confidence slightly above its long-term average. This resilience is notable, given the looming threat of US tariffs. Additional positive factors include hopes that Russia’s war in Ukraine could come to an end this year, alongside expectations of greater political stability in Germany following the recent elections.

                            Full Eurozone PMI manufacturing final release here.

                            China’s Caixin PMI manufacturing rises to 50.8, but employment remains a concern

                              China’s Caixin PMI Manufacturing climbed to 50.8 in February, up from 50.1, exceeding expectations of 50.3.

                              Wang Zhe, Senior Economist at Caixin Insight Group, noted that new export orders rebounded, corporate purchasing increased, and logistics remained smooth. However, employment continued to decline, and output prices stayed weak.

                              Additionally, official PMI data released over the weekend further reinforced signs of recovery. The official PMI Manufacturing rebounded from 49.1 to 50.2, marking its highest level since November and moving back into expansionary territory. Additionally, the non-manufacturing PMI, which covers services and construction, ticked up to 50.4 from 50.2.

                              Full China Caixin PMI manufacturing release here.

                              Japan’s PMI manufacturing finalized at 49 in Feb, modest improvement but outlook remains weak

                                Japan’s manufacturing sector showed slight improvement in February, with PMI finalized at 49.0, up from 48.7 in January. However, the sector remains in contraction territory, reflecting ongoing struggles with weak demand.

                                According to Usamah Bhatti at S&P Global Market Intelligence, manufacturers cited soft global and domestic demand, with “muted conditions” in key markets such as the US, Europe, and China. Additionally, purchasing activity saw a solid and sustained decline.

                                The “near-term outlook remains clouded”. Business confidence fell to its lowest level since mid-2020, driven by growing concerns over the impact of US trade policies and a slower-than-expected global economic recovery.

                                Full Japan PMI manufacturing final release here.

                                US PCE inflation slows as expected, personal income surges but spending contracts

                                  The latest US PCE inflation data showed price pressures moderating slightly in January. Both headline and core PCE (excluding food and energy) price indices rose 0.3% month-over-month, aligning with market expectations.

                                  On an annual basis, headline PCE inflation slowed to 2.5% yoy from 2.6% yoy, while core PCE eased to 2.6% yoy from 2.9% yoy, reinforcing the view that disinflation remains on track despite persistent price pressures in some sectors.

                                  However, the consumer sector showed signs of strain. Personal income surged 0.9% mom, far exceeding expectations of 0.3%, but personal spending unexpectedly declined by -0.2%, missing the anticipated 0.2% gain.

                                  Full US Personal Income and Outlays release here.

                                  Canada’s GDP grows 0.2% mom in Dec, misses expectations

                                    Canada’s GDP expanded by 0.2% mom in December, falling short of the expected 0.3% growth. Both services-producing (+0.2%) and goods-producing industries (+0.3%) contributed to the increase, marking the fifth gain in the past six months. A total of 11 out of 20 industrial sectors posted growth.

                                    Looking ahead, preliminary data suggests GDP grew by 0.3% mom in January, with gains led by mining, quarrying, oil and gas extraction, wholesale trade, and transportation. However, retail trade remained a weak spot, partially offsetting the overall growth.

                                    Full Canada GDP release here.

                                    Swiss KOF falls to 101.7, manufacturing and services under pressure

                                      Switzerland’s KOF Economic Barometer declined from 103.0 to 101.7 in February, missing expectations of 102.1.

                                      The data suggests weakening momentum in the economy, with most production-side sectors facing increasing pressure. According to KOF, manufacturing and services sectors saw the most notable deterioration.

                                      However, the report also pointed to some stabilizing factors, as foreign demand and private consumption showed resilience, helping to offset some of the negative trends.

                                      Full Swiss KOF release here.

                                      BoE’s Ramsden sees inflation risks two-sided

                                        BoE Deputy Governor Dave Ramsden indicated a shift in his inflation outlook, stating that he no longer views risks to achieving the 2% target as skewed to the downside. Instead, he now sees inflation risks as “two-sided,” acknowledging the potential for “more inflationary as well as disinflationary scenarios”.

                                        Ramsden also raised concerns about the UK’s sluggish economic growth, highlighting the possibility that the economy’s supply capacity might be “even weaker” than previously assessed by BoE.

                                        If this proves true, the UK’s “speed limit” for growth would be lower, leading to prolonged tightness in the labor market and sustained wage pressures. That would result in “greater persistence in domestic inflationary pressures.”

                                        BoJ’s Uchida: Yield rise reflects market’s views on economic and global developments

                                          Speaking in parliament today, BoJ Deputy Governor Shinichi Uchida said recent rise in JGB yields “reflects the market’s view on the economic and price outlook, as well as overseas developments.”

                                          “There’s no change to our stance on short-term policy rates and government bond operations,” he emphasized, adding that the bond holdings “continue to exert a strong monetary easing effect” on the economy.

                                          When asked whether the prospect of further rate hikes and tapering would continue to drive yields higher, Uchida responded that it is ultimately “up to markets to decide.”