Ahead of the game: 15 March 2024

US equity markets dipped from record peaks, pressured by solid US CPI and PPI figures boosting yields near yearly highs, sparking debate over Fed rate cut timing and magnitude.

Meanwhile, the ASX 200 declined after a hefty sell order on Monday, worsened by Wall Street's downturn and a major local broker's downgrade of three top Australian banks.

• Crude oil surged 3.94% to above $81.00, driven by increased 2024 demand forecasts and geopolitical tensions in the Middle East and Europe
• US core inflation rose to 3.8% YoY, slightly down from 3.9% but surpassing the 3.7% forecast
• Headline CPI in the US increased to 3.2% in February, up from January's 3.1%
• US Headline PPI saw a significant 0.6% MoM jump, marking the largest increase since last August, with Core PPI up 0.3% MoM against a 0.2% prediction
• Gold prices dropped 0.80% as strong US CPI and PPI data boosted yields, impacting bullion
• UK unemployment ticked up to 3.9% in January from 3.8%
• UK's GDP for January rose by 0.2%, surpassing the 0.1% expectation
• Japan's GDP for Q4 2023 was revised to a 0.1% increase from an initial -0.1% estimate
• Australian Business confidence fell to 0 in February, down from January's +1
• Wall Street's VIX index decreased to 14.39 from 14.73.

• AU: RBA Interest rate meeting (Tuesday, 19 March at 2:30pm AEDT)
• AU: RBA Press Conference (Tuesday, 19 March at 3:30pm AEDT)
• NZ: Q4 2023 GDP (Thursday, 21 March at 8:45am AEDT)
• AU: Unemployment (Thursday, 21 March at 11:30am AEDT)
• AU: RBA Financial Stability Review (Friday, 22 March at 11:30am AEDT)

• CH: Industrial Production and Retail Sales (Monday, 18 March at 1pm AEDT)
• JP: Bank of Japan (Tuesday, 19 March at 2pm AEDT)
• JP: Inflation (Friday, 22 March at 10:30am AEDT)

• US: FOMC interest rate decision (Thursday, 21 March at 5am AEDT)

• GE: ZEW Economic Sentiment Index (Tuesday, 19 March at 9pm AEDT)
• UK: Inflation (Wednesday, 20 March at 6pm AEDT)
• GE: HCOB Manufacturing PMI Flash (Thursday, 21 March at 7:30pm AEDT)
• UK: BoE interest rate decision (Thursday, 21 March at 11pm AEDT)
• UK: Retail Sales (Friday, 22 March at 6pm AEDT)
• GE: IFO Business Survey (Friday, 22 March at 7pm AEDT)

• JP

Bank of Japan’s (BoJ) interest rate decision

Date: Tuesday 19 March 2024 11am

At the previous meeting, the BoJ discussed the possibility of exiting from its negative interest rate policy (NIRP), with growing views among policymakers that the wage and inflation conditions for a policy pivot have ‘increasingly been met’.

With stronger wage growth in January and the Japan’s economy avoiding a technical recession since then, the odds of a negative-rate policy exit next week is now seen as almost a coin flip. The BoJ has also emphasised the importance of the spring wage negotiations (Shunto) in its policy thinking and results have been encouraging, with major firms agreeing to fully meet union demands for pay hikes.

Even in the event of a status-quo in policy settings next week, eyes will be on whether the BoJ will lay the groundwork for an exit of its NIRP in the April meeting. Focus will also be on any plans around the dismantling of its current yield curve control (YCC) policy, considering that policymakers have loosened its grip on the 10-year bond yield cap since last year.

BOJ policy chart

• AU

RBA Interest rate meeting

Date: Tuesday, 19 March at 2.30pm AEDT

As widely expected, the Reserve Bank of Australia kept its official cash rate on hold at 4.35% at its board meeting in February.

The RBA noted that higher interest rates were working to establish a more sustainable balance between demand and supply. Reflecting this progress, the RBA revised its unemployment forecasts higher and lowered its growth and inflation forecasts.

The RBA noted that while inflation is easing, it remains too high and doesn’t expect inflation to return to its 2-3% target until the middle of 2026. The RBA retained a mild tightening bias to aid the return of inflation to target.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks, and a further increase in interest rates cannot be ruled out.”

RBA Governor Michele Bullock softened the tone a little in the press conference, noting that they have not “haven’t ruled anything in or out” with respect to future rate hikes or rate cuts.

We expect the RBA to keep rates on hold at 4.35% at its board meeting next week, and its communication will likely echo the tone of the February meeting. We expect the RBA to cut rates by 25bp in August before a second cut in November, which will see the cash rate end the year at 3.85%.

RBA official cash rate

• UK

UK inflation rate

Wednesday, 20 March 2024 5pm AEDT

The February UK consumer price index (CPI) release will offer the last piece of inflation data for the Bank of England (BoE) to digest, before deciding on their policy rate on Thursday.

Thus far, UK consumer prices have been on an easing trend, with headline inflation moderating from its peak of 11.1% in October 2022 to the 4.0% in January 2024. The core aspect has also touched a near one-year low at 5.1% in January this year, down from its peak of 7.1% in May 2023, which reflects some success in current restrictive policies in bringing inflation back to its 2% target.

With market rate expectations split on whether the BoE will move to cut rates in the June or August meeting, the inflation data may help to anchor some views. If the inflation numbers were to reflect further progress, that may offer more room for the central bank to consider earlier cuts, especially with BoE Governor Andrew Bailey’s recent remarks that he is now less concerned about a wage price spiral developing.

UK inflation rate chart

• US

FOMC interest rate decision

Date: Thursday, 21 March at 5am AEDT

At its last meeting in late January, the FOMC kept the Fed Funds rate unchanged at 5.25%-5.50% for a fourth straight meeting. In the accompanying statement, the Fed signalled that while it is open to cutting interest rates, it is in no rush and wants to gain greater confidence that inflation is moving sustainably toward 2%.

The Fed said: “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

This month, the FOMC is expected to keep the Fed Funds rate unchanged at 5.25%- 5.50%. The statement is expected to be similar to the January statement and reiterate that while the Fed expects to cut rates at some point in 2024, it is not in any great rush.

After an extended run of firm economic data in 2024, the main point of interest will be in the Feds dots. If just two participants lower their projections, the median dot will show that the Fed expects just two rate cuts in 2024, down from three cuts and well below the seven cuts that the rates market was forecasting in the second week of January.

Chart Fed Funds rate

• AU

Labour force report

Date: Thursday, 21 March at 11.30am AEDT

In January, the Australian economy added 0.5k jobs, less than the 25k gain expected, as the unemployment rate surged to 4.1%, the highest since January 2022. The participation rate was unchanged at 66.8% compared to the 66.9% expected, while the underemployment rate increased to 6.6%.

The ABS noted that the soft jobs growth in January might have overstated the weakness in the labour market due to seasonal factors. A higher-than-usual number of people said they were not employed, but expected to start work shortly, a trend that had been increasing in recent January’s and not likely fully accounted for by the seasonal adjustment.

This month, the market is looking for the economy to add 30k jobs and for the unemployment rate to ease to 4% from 4.1%. The participation rate is expected to remain at 66.8%.

AU unemployment rate chart

• UK

BoE interest rate decision

Thursday, 21 March 2024 11pm AEDT

Like its previous meeting in February, the BoE kept its policy rate unchanged at 5.25% for the fourth consecutive meeting, but opened up the possibility for rate cuts, by saying that inflation was "moving in the right direction” and that the current high borrowing costs are “under review”.

Opinions among policymakers were more divided however, with the Monetary Policy Committee (MPC) voting 6-3 in favour of holding rates versus the 8-1 expected by markets. Two members were seeking another 25 bp hike, while one member was rooting for a 25 bp rate cut.

For the upcoming meeting, wide consensus is for the BoE to keep its policy rate unchanged at 5.25% once more, but market participants will be watching for whether policymakers will be more aligned in their rate views. That may help to anchor market expectations, which are also very much split on whether the central bank will kickstart its rate-cutting process in the June or August meeting.

BoE policy rate chart