It’s a very busy week coming up with top tier data and major central bank meetings. With markets now finally agreeing with the Fed’s 75bps of policy easing this year, it’s time for the economic data to cement this pricing. The dollar has lost some of its shine after peaking in mid-February, so more upside surprises will be needed to kick off another upleg. The soft landing scenario is now baked in, but there are some concerns about small banks in the US and their exposure to commercial real estate. A blow-up here could potentially see some risk-off and stocks come under pressure, though the bulls do look very strong with more fresh highs made last Friday .

Fed Chair Powell testifies in front of Congress on Wednesday, where he will probably show a willingness to take rates out of restrictive territory when the FOMC have full confidence in the data. But we are not there yet and while, the monthly US employment report is not expected to run as hot as the blockbuster data we saw in January, the labour market still remains tight. Those blowout figures added to the other strong data we have been seeing in recent weeks like inflation and GDP.

At some point, the most aggressive rate hike cycle in decades, and tight credit conditions should hurt the economy as household finances suffer due to high borrowing costs. But the NPF data has continued to astound, even though the household survey in the US points to fewer employed people each month over the last 12 months.

The ECB meeting could be a major market mover for the euro as bulls try to keep EUR/USD above 1.08. Policy settings will be kept unchanged, but the bank could lay the ground for a June rate cut. We’ve heard from a varied chorus of Governing Council members over recent weeks. Interestingly, the doves have avoided fuelling rate cut expectations while the hawks have been more explicit in dismissing the chance of an early rate cut. The latest macro data has been soft, and inflation has ticked lower. However, underlying prices pressures remain sticky so any changes to the inflation outlook will be key. For example, a “balanced” risk assessment would be a strong signal in favour of rate cuts and hit the euro.

The Bank of Canada meeting will also be of interest even though rates will be kept unchanged. Policymakers don’t expect inflation to fall to the target of 2% until 2025. But small dovish shifts by the bank have been evident and cooling growth should mean concerns about elevated inflation fade. For now, Canada has a high correlation with the US regarding rate cut expectations. That means a concerted push back against early rate reductions will be needed to help the CAD. Aside from the yen and CHF, the loonie has been the weakest major currency in the last few weeks.

In Brief: major data releases of the week

05 March 2024, Tuesday

– Japan CPI: The authorities will release its annual economic targets and overall policy direction for 2024. GDP of around 5% and a more supportive fiscal stance is expected.

– US ISM Services: The February print is predicted to fall modestly to 52.9 from 53.4. A reading above 50 indicates growth in the services sector, which accounts for over two-thirds of the economy. Input prices will be in focus after the 11-month high in January.

06 March 2024, Wednesday

-Australia GDP: Consensus sees a reading of 0.2% for Q4 growth. Headwinds include high interest rates and a surge in mortgage payments, stubborn inflation and global uncertainty. This would still mark a ninth straight quarter of growth.  

-UK Spring Budget: The Chancellor has made it clear he would like to cut taxes ahead of a general election. But how much “headroom” he has is open to debate. Any meaningful cuts could help GBP as that could fuel spending and inflation, meaning rates might have to remain higher for longer.  

-Bank of Canada Meeting: Rates will be left unchanged at 5.0%. Recent data has been mixed with falling inflation but stronger retail sales and GDP. Markets price in 75bps of rate cuts this year, down from the 105bps priced in after the last meeting.

-Fed Chair Powell Testimony: Powell testifies on the state of the economy and monetary policy. He is likely to repeat the FOMC need more confidence in the data to start policy easing.

07 March 2024, Thursday

–ECB Meeting: The ECB is expected to keep rates unchanged and reiterate it wants to see more evidence of disinflation. That also likely means emphasising the importance of Q1 wage data before considering rate cuts. New staff projections aren’t likely to see major revisions.

08 March 2024, Friday

–US Non-Farm Payrolls: Analysts expect a headline print of 190k, down from the prior huge 353k. The jobless rate is forecast to remain at 3.7% and average hourly earnings tick down three-tenths to 0.3%. Household employment has shown persistent weakness.

–Canada Jobs: More job gains are forecast after 37k in January. The unemployment rate is predicted to tick one-tenth higher to 5.8%, after its first drop in 13 months in December. The job market remains resilient with wage growth still relatively hot.