Financial markets enjoyed another solid week of gains with both equity and bond markets higher as global central banks maintained a ‘hold’ approach to official cash rate decisions (US Fed, RBA, BoE) outside the BoJ that increased official cash rates by 0.10% (to zero), the first upward move since 2007.
Comments from the US Fed continue to signal that inflationary pressures have peaked but that the Fed is looking for stronger evidence that continued disinflation remains on track before looking to cut rates. We still see decline in global cash rates a 2h24 story. Domestically, the challenge for the RBA is slightly more nuanced. While inflation continues to moderate, with non-tradeable inflation well above RBA target levels, the ability for the RBA to move is constrained. This is despite growing evidence that the economy is slowing.
While the recent labour market report surprised on the upside with the local Un rate falling back to 3.7% (-0.4%) for Feb, m/m data remains volatile and the focus on this weeks’ retail sales figures (f’cst +0.4%, -0.7% pcp) for Feb will be closely watched in addition to the release of both WBC Consumer Confidence data and monthly CPI figure (f’cst 3.5%, +0.1% pcp).
In China, while the release of both industrial production and fixed asset investment was better than forecast, retail sales and property investment remain weak, and continue to constrain the growth outlook. While the Chinese govt has announced a 5.0% GDP growth target for CY24, we believe a higher rate is required in order to manage the ‘slack’ that continues to pervade across the economy. With PMI (manufacturing and non-manufacturing) data set for release this week, markets will be looking for further signs that deflationary pressures have subsided.
For the US the release of the (4q23) core PCE inflation index (f’cst 2.1%, flat pcp) will be the focus of the Fed along with 4q23 GDP (f’cst 3.2%) along with (Feb) new home sales data (f’cst 675k, +14k pcp) and consumer confidence data (f’cst 106.8, +0.1% pcp), all of which is expected to highlight the resilience of the US economy.
Finally, in the UK, the release of the 4q23 GDP figures (f’cst -0.3%) will reiterate the view that with headline inflation falling more than expected (+3.4% y/y, -0.6% pcp), the potential for the BoE to look at early rates cuts remains. Overall, another busy week ahead.
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