A preview of the upcoming day in European and global markets by Wayne Cole
This week, the focus is on inflation in the markets, with expectations of increased risk for the core U.S. inflation rate, and a possibility of lower consumer prices in Europe and Japan.
The Federal Reserve’s core measure of personal consumption expenditures (PCE) prices is anticipated to rise by 0.4%, with a potential risk of 0.5% month-over-month. This is a significant change from previous hopes of a more modest 0.2% increase.
The rise in prices at the beginning of the year, known as the “January effect,” along with the bull market on Wall Street, are contributing factors to the expected increase in inflation. The core services ex-housing PCE measure is projected to increase by 0.6% month-over-month, the largest gain since December 2021.
Market expectations for the timing of the first Fed rate cut have shifted to June from May, partly due to the anticipated rise in inflation rates.
Several Fed speakers, including New York Fed chief John Williams, are scheduled to speak this week, with Chair Powell giving testimony on March 7.
In Europe, the headline CPI is expected to slow to 2.5% from 2.8%, prompting the ECB to revise its inflation forecasts at the March meeting. However, the market does not foresee a rate cut at that time, with probabilities indicating a potential easing in April or June.
Inflation reports from Germany, France, and Spain will be released on Thursday, providing further insight into the economic landscape.
Japan’s CPI is forecasted to decline to an annual rate of 1.8%, with the core measure remaining above the Bank of Japan’s 2% target. Despite the slowdown in inflation, BOJ officials are considering a policy tightening based on rising wages.
The Treasury market is bracing for new supply this week, with $127 billion of two- and five-year notes due on Monday, and an additional $42 billion in seven-year paper on Tuesday. There is also a risk of U.S. government agencies facing a shutdown if Congress fails to reach a borrowing extension agreement by Friday.
Key events to watch on Monday include the UK CBI Distributive Trades report for February, speeches by Bank of England Deputy Governor Sarah Breeden and chief economist Huw Pill, participation by ECB president Christine Lagarde in a plenary debate, and a speech by Fed Bank of Kansas City President Jeffrey Schmid on economic and monetary policy outlook.
(By Wayne Cole; Editing by Edmund Klamann)
