Summary
United States: A March Rate Cut Bites the Dust
- It was a busy week for economic data, but Friday’s employment report stole the show. Nonfarm payrolls rose 353K in January, almost double the consensus expectation. While we suspect the Federal Reserve will put more weight on the Employment Cost Index’s soft reading on labor cost growth in Q4, the pickup in average hourly earnings and overall strength in hiring suggest the odds of a rate cut in March are quickly fading.
- Next week: ISM Services (Mon.), Trade Balance (Wed.), Consumer Credit (Wed.)
International: Eurozone Inflation Slows as Growth Remains at a Standstill
- Eurozone GDP was flat in Q4, while CPI inflation eased slightly further in January. As long as growth remains weak and inflation trends keep improving, we believe the European Central Bank could cut its policy rate as early as April. This week also saw monetary policy announcements from several other foreign central banks, which saw rate cuts delivered in Brazil, Chile, Colombia and Hungary and rates held steady in the United Kingdom and Sweden.
- Next week: RBA Policy Rate (Tue.), Japan Labor Cash Earnings (Tue.), Banxico Policy Rate (Thu.)
Interest Rate Watch: FOMC Removes “Bias” to Tighten
- As universally expected, the FOMC decided to make no changes to its monetary policy stance, keeping the fed funds target range at 5.25%-5.50% and maintaining the current pace of quantitative tightening. Importantly, the Committee removed its implicit “bias” to tighten policy further in its post-meeting statement.
Topic of the Week: China’s Property Crisis Grows Ever Grander
- On Monday, a Hong Kong court ordered the liquidation of Evergrande, China’s second-largest property developer, marking the most significant blow yet to China’s struggling real estate sector. China’s real estate crisis has intensified over the past couple of years, but challenges for the sector have been evident for some time.
