Ahead of the game: 22 March 2024

Wall Street hit fresh record highs after the Fed kept rates on hold and maintained its outlook for three rate cuts this year. The Fed's commitment to cutting rates comes as the world's most important central bank shifts its focus from inflation to supporting growth prospects.

Meanwhile, the ASX200, buoyed by Wall Street's gains, has yet to offset last week's sharp decline, lingering about 1% short of its recent peak.

• The Australian economy added 116.5k jobs in February, outstripping expectations with a drop in the unemployment rate to 3.7% from 4.1%
• In the US, the Fed kept rates steady, signaling three upcoming rate cuts
• The Swiss National Bank unexpectedly cut rates, a first among G10 central banks
• China's Industrial Production and Retail Sales surpassed forecasts
• New Zealand faced a double-dip recession with its economy contracting again in Q4 of 2023
• The Bank of Japan exited negative interest rate policy and stopped buying ETFs and J-REITs, with Governor Ueda highlighting the dovish aspects of the decision
• In the UK, inflation slowed, and the Bank of England held rates steady, surprising with a dovish 8-1 vote
• Gold hit record highs above $2220, while crude oil prices remained steady at around $81.00 per barrel
• Wall Street's fear gauge, the VIX index, declined to 12.91

• AU: Westpac Consumer Confidence (Tuesday, 26 March at 10:30am AEDT)
• NZ: ANZ Business Confidence (Wednesday, 27 March at 11:00am AEDT)
• AU: Monthly CPI indicator (Wednesday, 27 March at 11:30am AEDT)
• AU: Retail Sales (Thursday, 28 March at 11:30am AEDT)

• JP: Bank of Japan Monetary Policy Meeting Minutes (Monday, 25 March at 10:50am AEDT)

• US: Durable Goods (Tuesday, 26 March at 11:30pm AEDT)
• US: CB Consumer Confidence (Wednesday, 27 March at 1am AEDT)
• US: Core PCE Price Index (Friday, 29 March at 11:30pm AEDT)
• US: Personal Spending and Personal Income (Friday, 29 March at 11:30pm AEDT)

• GE: GFK Consumer Confidence (Tuesday, 26 March at 6 pm AEDT)
• GE: Retail Sales (Thursday, 28 March at 7:30 pm AEDT)

• JP

Bank of Japan Monetary Policy Meetings

Date: Monday, 25 March at 10.50am

At its recent meeting, the Bank of Japan (BoJ) raised its short-term interest rates to around 0% to 0.1% from previous -0.1%, with a 7-2 majority. This marked the nation's first interest rate hike in 17 years and an exit from its negative interest rate policy (NIRP). However, the central bank stopped short of guiding for further tightening, maintaining its tone that it is in no rush in terms of policy normalisation.

The central bank also put an end to its YCC policy and exchange traded funds (ETF) purchases but will continue its Japanese Government Bond (JGB) buying with “broadly the same amount as before” – a sign for easy monetary conditions to remain for longer.

Given the dovish tone from the BoJ, market rate expectations have priced out any impending changes in rates, at least over the next two policy meetings. With that, the minutes will be scrutinised for policymakers’ views around prevailing economic risks and the factors that may prompt the central bank to take on a quicker pace of rate rises.

Bank of Japan policy rate chart

• AU

Monthly CPI indicator

Date: Wednesday, 27 March at 11.30am

In January, the Monthly CPI indicator rose by 3.4% YoY, unchanged from December and below market forecasts of 3.6%. Core inflation, which excludes volatile items, rose by 4.1% YoY in January, easing from 4.2% in December. Annual trimmed mean inflation fell to 3.8% from 4% in December.

While the data confirmed inflation made further progress towards the RBA's target, January's Monthly CPI indicator, being the first month of the new quarter, included mainly goods but very few services prices. Sticky services inflation has been a key concern and focus for central banks and was highlighted again at this week's RBA board meeting.

"The headline monthly CPI indicator was steady at 3.4 per cent over the year to January, with momentum easing over recent months, driven by moderating goods inflation. Services inflation remains elevated, and is moderating at a more gradual pace," the board said.

In February, the Monthly CPI indicator is expected to increase to 3.5% YoY due to higher petrol prices and the unwinding of electricity rebates. This is in line with the RBA's expectations of 3.5% year over year over the quarter.

CPI Monthly CPI indicator chart

• US

Core PCE Price Index

Date: Friday, 29 March at 11.30pm

Both the US headline and core PCE price index has been on a declining trend since September 2022, with the headline figure easing to 2.4% from previous 2.6% in January this year. The core aspect has also eased to 2.8% in January, down from previous 2.9%. This marked its lowest level in almost two years.

At the recent Federal Reserve (Fed) meeting, policymakers have revealed some tolerance for slightly higher inflation, and continued to pencil in three rate cuts through 2024. In the press conference, Fed Chair Jerome Powell noted that higher inflationary data has not changed its overall trend downward, and that the path of inflation towards its 2% target will be a “bumpy road”.

Further easing in pricing pressures will provide some validation for the Fed’s decision to stick to its path of rate cuts. Ahead, the US core PCE price index, which is the Fed’s preferred inflation gauge, is expected to come in at 0.3% month-on-month, down from the previous 0.4% in January. On the other hand, the headline PCE price index is expected to tick higher to 0.4%, up from the previous 0.3%.

US headline and core PCE price index chart

• GE

GFK Consumer Confidence

Date: Tuesday, 26 March at 6pm

Heading into March, German Consumer Confidence increased to -29 from an eleven-month low of -29.6. Expectations of ECB rate cuts are starting to filter through into some business sentiment surveys, such as the ZEW, which recently jumped to its highest level in two years.

This impact, along with slowing inflation and rising household incomes, should also be observed in upcoming consumer confidence surveys. However as can be viewed on the chart below, a good deal of improvement is required before consumer confidence returns to positive territory.

GFK Consumer Confidence chart