Financial markets were again a little choppy over the week, reflecting the lack of any clear direction post the recent reporting seasons in the US and Aust. The biggest driver for the week was the slightly higher than f’cst CPI print out of the US. While equity markets shrugged off the news, with global equities able to continue to move higher, bond markets were challenged with yields higher across the major markets. Locally, the ASX 200 Index was lower, impacted by the sharp decline in iron prices over the week. This was on the back of a build up in inventory levels from China, which continues to reflect the weakness in the Chinese economy. Given the overall weakness in the near term outlook for China we do not expect any short term destocking, and this is likely to continue to pressure iron ore prices. This week sees two major central bank meetings with the US Fed and the BoJ. While we expect no change to the policy framework out of the US, the probability that the BoJ will look to increase its cash rate for the first time since 2007 is high, with (Feb) headline inflation f’cst to rise to 2.9% y/y (+0.7% pcp). With the USD/ JPY trading around 150, its highest level in over 20 years, should the BoJ increase cash rates back into positive territory its likely that the JPY may move higher. However, given the relative disparity between US and Japanese rates (currently 560 bps) we would not expect a significant appreciation of the JPY in the near term, and more importantly for the US, its unlikely that Japanese investors would look to repatriate the bulk of the US$4.3 trillion in assets held offshore back to Japan. This will reduce the near term risks to US bond and equity markets should the BoJ look to pivot from its current policy stance on rates. In Aust, the RBA meets this week (19th). We expect no change to the RBA’s policy despite some of the weaker data points in recent periods. In addition to the Fed meeting, housing and building permit data will be the major focus for markets. Housing starts are f’cst to climb 7.4% (Feb), with building permits up +2.0% (Feb). The outlook for the US housing market continues to gain momentum after a difficult period through 2022-23. In the UK there is a raft of price data (CPI, PPI, Housing & Retail) set for release, with CPI (f’cst 3.5% y/y, -0.5%) the major focus.
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