The yo-yoing in bond markets looks set to continue this week with the latest all-important US inflation data released on Tuesday. (Note that US daylight saving means this will be published an hour earlier than normal). Money markets have gone from pricing in too many rate cuts (150bps+), to the same number as the Fed’s median bet (75bps), and back to currently more easing for the rest of the year (90bps+).

This recent addition of rate cuts was boosted by Friday’s non-farm payrolls report which pointed to a less robust labour market than initially portrayed by the strong headline print. Big revisions, both positive last month and negative in February, highlight the erratic nature of the data and how we should look at a range of measures. Those like leading indicators such as ISM survey data are weakening which point to the economy potentially slowing in the months ahead, though rate cuts will not be needed in a few weeks’ time or the May FOMC meeting.

Risk markets and gold have reacted to falling yields and USD with all-time highs. The latter’s record, parabolic run has astounded, with prices set for a correction after printing at $2,185. A key risk will be the US CPI report which could show a still-solid monthly core print, which strips out volatile food and energy costs. That might cause more yo-yoing in market rate cut bets which get pushed out again, meaning some support for the dollar. The FOMC are now in blackout mode so we will not hear from officials until their meeting next week when we also get updated economic projections and a fresh dot plot. Chair Powell reiterated last week that the Fed will be patient and cautious on policy changes, with the disinflation process ongoing.

One currency making waves and clawing back losses on the year is the Japanese yen. There has been much speculation that the Bank of Japan will tighten policy soon, though JPY is still the worst performing G10 currency in 2024. Crucial to this will be the wage negotiations with the Rengo Trade Union on Friday, which could set the stage for an interest rate hike. We’ve had mixed comments from various officials in recent weeks. But USD/JPY hasn’t blinked and has collapsed, with yen bulls eyeing up the 200-day simple moving average at 146.15.

The UK sees some important data on Tuesday in the form of wage growth figures which are set to continue cooling, though they remain elevated. These numbers, along with next week’s services inflation data, are key inputs into the Bank of England’s decision-making process. The Spring Budget didn’t materially alter the MPC calculation on rate cut timing, but it does underpin support for GBP as it could make the bank more hawkish at the margin. GBP is the major outperformer this year versus the dollar and April seasonality along with too hot wage and inflation data might continue to help the pound. Recent consensus upgrades to UK growth have also helped GBP/USD to multi-month highs.

In Brief: major data releases of the week

12 March 2024, Tuesday

– UK Jobs: The key data point will be wage growth, with the unreliability of the jobless rate still evident. Expectations are for earnings to print at 5.7% and ex-bonus at 6.2%. The first rate cut is fully priced in by August.

– US CPI: The February core print is forecast to fall one-tenth to 0.3% m/m and two-tenths to 3.7% y/y. The headline is seen at 0.4% m/m and 3.1% y/y. Shelter costs, which contributed to two-thirds of January’s upside surprise, remain sticky.

13 March 2024, Wednesday

-UK GDP: Consensus sees a reading of 0.2% for growth in January. Strong retail sales are the chief tailwind, while buoyant PMI data in February augurs well for first quarter growth, likely leaving behind the mild Q4 recession.

14 March 2024, Thursday

–US Retail Sales: Analysts predict a 0.8% February print. Freezing conditions saw sales fall by the most in ten months in January. But improved weather and higher gasoline prices are likely to help activity, while a still-tight labour market should underpin support for consumer spending.

15 March 2024, Friday

–Japan Wage Negotiations: The “shunto” wage talks will be used by the Bank of Japan to potentially exit NIRP in March or April. Latest reports suggest the biggest trade union in Japan could demand wages above 5% for the first time in 30 years.