Drivers for the Week of March 24, 2024

March 24, 2024
Here's a look at the main drivers in Developed Markets this week.

The broad dollar recovery continued last week as the dovish Fed was offset by dovish surprises elsewhere. CAD, AUD, and EUR outperformed, while SEK, JPY, and NZD underperformed. PCE data this week is likely to show persistently high inflation, preventing the Fed from cutting rates anytime soon. In turn, this should help the dollar extend its rally.


The dovish Fed was not enough to derail the dollar rally last week. Instead, the greenback ended the week higher after we got an unexpected cut from the SNB, dovish holds from the RBA and BOE, as well as a dovish hike (!) from the BOJ. This was the best two week stretch for DXY since mid-May 2023, and the price action just goes to show how important the relative story is for FX. Despite the market's dovish take on the Fed, developments in the rest of the world have helped maintain the dollar’s relative attractiveness. We still believe the dovish Fed take is wrong, and so the greenback should see another leg higher when market expectations adjust.

Fed speakers will command attention after last week’s FOMC meeting. Late Friday, Bostic acknowledged that he shifted his 2024 Dot from two cuts to one, which keeps him firmly in the hawkish part of the Fed spectrum. Recall that in the latest Dot Plots, 1 saw four cuts, 9 saw three cuts, 5 saw two cuts, 2 saw one cut, and 2 saw no cuts. As such, the unchanged 2024 median boiled down to just one dove that kept their Dot at three. We expect other FOCM members to reveal their Dots in the coming days. Bostic, Goolsbee, and Cook speak Monday. Waller speaks Wednesday. Daly and Powell speak Friday.

February PCE data Friday will be the data highlight. Headline is expected to pick up a tick to 2.5% y/y while core is expected to remain steady at 2.8% y/y. The Cleveland Fed’s Nowcast model suggests headline at 2.5% y/y and core at 2.8% y/y, smack at consensus. Looking ahead to March, the model suggests headline at 2.6% y/y and core at 2.7% y/y. If so, the data would support our belief that inflation remains too sticky for the Fed to cut anytime soon. After Powell’s dovish press conference last week, the odds of a June cut have risen to around 85% vs. 60% at the start of last week.

Personal income and spending will be reported at the same time. Income is expected at 0.4% m/m vs. 1.0% in January, while spending is expected at 0.5% m/m vs. 0.2% in January. Real personal spending is expected at 0.1% m/m vs. -0.1% in January. February retail sales data rebounded from January weather-related weakness, and we expect a similar rebound in the personal spending data, which includes services.

March consumer confidence measures will be closely watched. Conference Board reports its confidence measure Tuesday. Headline is expected at 106.8 vs. 106.7 in February. University of Michigan reports its final March reading Friday. Headline is expected to remain unchanged from the preliminary at 76.5. While both measures are down from their highs, we believe they remain high enough to support solid consumption as we move into Q2.

February Chicago Fed National Activity Index will be reported Monday. Headline is expected at -0.34 vs. -0.30 in January. If so, the 3-month moving average would fall to -0.21 vs. -0.02 in January. This would be the lowest since October but still quite far away from the -0.7 threshold that signals recession.

March Chicago PMI will be reported Thursday. Headline is expected at 46.0 vs. 44.0 in February. Last week, S&P Global preliminary March PMIs came in mixed, with the composite falling to 52.2 vs. 52.5 in February. ISM PMIs won’t be reported until next week.

Regional Fed surveys for March will continue rolling out. Dallas Fed manufacturing index will be reported Monday and is expected at -11.5 vs. -11.3 in February. Philly Fed non-manufacturing, Richmond Fed manufacturing (-5 expected) and services, and Dallas Fed services readings will all be reported Tuesday. Kansas City Fed manufacturing index will be reported Thursday and its services index will be reported Friday. February durable goods order will be reported Tuesday and expected at 1.2% m/m vs. -6.2% in January.

More housing data will be reported. February new home sales will be reported Monday and are expected at 2.1% m/m vs. 1.5% in January. January HHFA and S&P CoreLogic house price indices will be reported Tuesday, with both expected to climb m/m. February pending home sales will be reported Thursday and are expected at 1.3% m/m vs. -4.9% in January. Last week, existing home sales, housing starts, and building permits all came in much stronger than expected as the housing sector continues to recover.

We get another revision to Q4 GDP data Thursday. Growth is expected to remain unchanged at 3.2% SAAR. However, this is old news as markets are already looking ahead to Q1 and Q2. The New York Fed’s Nowcast model is tracking Q1 growth at 1.9% SAAR, up from 1.8% previously. Looking ahead, it is tracking Q2 growth at 2.2% SAAR, up from 2.1% previously. This model is updated every Friday. Elsewhere, the Atlanta Fed’s GDPNow model is tracking Q1 growth at 2.1% SAAR and will be updated Tuesday after the data.

Canada highlight will be January GDP data Thursday. Growth is expected at 0.4% m/m vs. 0.0% in December, while the y/y rate is expected at 0.8% vs. 1.1% in December. However, softness in retail sales, manufacturing sales, and wholesale trade in January points to downside risks to GDP growth. In turn, slowing activity and falling inflation have pushed forward Bank of Canada easing expectations, with odds of a June cut now around 85% vs. less than 50% at the start of last week.


Eurozone March CPI data will start rolling out. Spain reports Wednesday. Its EU Harmonised inflation is expected at 3.2% y/y vs. 2.9% in February. Spain is one of the few eurozone countries to report core inflation and it is expected to fall a tick to 3.4% y/y. France and Italy report Friday. France’s EU Harmonised inflation is expected at 2.8% y/y vs. 3.2% in February, while Italy’s is expected at 1.5% y/y vs. 0.8% in February. Germany reports next Tuesday and eurozone reports next Wednesday.

The ECB is on track to cut rates in June. Official messaging has led the market to largely price in the first cut at the June 6 meeting. Cuts are then fully priced in for September 12 and October 17, while the market sees 75% odds of a fourth cut December 12. Holzmann speaks Monday. Cipollone speaks Wednesday. Villeroy speaks Thursday.

Eurozone reports February money supply data Thursday. M3 is expected to rise 0.3% y/y vs. 0.1% in January. If so, it would be the third straight month of positive growth and the strongest since June 2023.

Germany reports some key data. April GfK consumer confidence will be reported Tuesday and is expected at -27.3 vs. -29.0 in March. February retail sales and March unemployment will be reported Thursday. Sales are expected at 0.4% m/m vs. -0.4% in January, while unemployment is expected to remain steady at 5.9%.

Other eurozone countries report consumption data. Spain reports February retail sales Wednesday. France reports February consumer spending Friday and is expected at 0.3% m/m vs. -0.3% in January and -0.6% y/y vs. -0.7% in January. Last week, France reported retail sales at -1.4% y/y vs. -2.0% in January.

Market expectations for Bank of England have adjusted after it delivered a dovish hold last week. The market now sees 85% odds of a cut June 20, up from 50% at the start of last week. Mann speaks Monday. Her comments will be of particular interest after she shifted her vote last week to steady rates vs. a 25 bp hike for the past several meetings. The BOE releases the minutes from its financial policy committee meeting Wednesday.

The U.K. data calendar is limited. Revisions to Q4 GDP will be reported Thursday. The final print is expected to confirm that the economy fell into a technical recession last year. Preliminary GDP fell -0.3% q/q following a fall of -0.1% in Q3. The decline in net exports, household spending and government consumption was partially offset by an increase in gross fixed capital formation. That said, forward-indicators already point to an encouraging recovery in economic activity. Q4 current account data will also be reported Thursday and is expected at -GBP21.4 bln vs. -GBP17.2 bln in Q3.

Riksbank meets Wednesday and is expected to keep rates steady at 4.0%. The focus will mainly be on the bank’s policy guidance offered in the updated Monetary Policy Report. At the last meeting February 1, it delivered a dovish hold. It kept rates steady at 4.0% but warned that “the policy rate probably can be cut sooner than was indicated in the November forecast.” Recall that the November projections implied no rate cuts before end-2025, but we now expect a dovish shift in the expected rate path. Sweden’s OIS curve already implies nearly 90% probability of a 25 bp cut over the next three months. As such, the bar for a dovish surprise is high considering inflation in Sweden is largely tracking the Riksbank’s projections.


Bank of Japan releases the summary of opinions from the March 18-19 policy meeting Thursday. The BOJ raised the policy rate from -0.10% to a target range of 0 to 0.10% and ended yield curve control. However, the decision to end the negative policy rate was not unanimous. Two BOJ policymakers preferred to continue with the negative interest rate policy. The BOJ also emphasized that it “anticipates that accommodative financial conditions will be maintained for the time being,” suggesting a muted tightening cycle is underway. The summary of opinions may shed more light on the bank’s thinking.

Bank of Japan releases the minutes of the January 22-23 policy meeting Monday. Policy was left unchanged at this meeting, but Governor Ueda spooked financial markets with a less dovish tone when he pointed out that labor unions are asking for higher pay gains in annual wage negotiations and also warned of some side effects of negative rates. In hindsight, it appears that Ueda was preparing the markets for liftoff at the March meeting. Board member Tamura speaks Wednesday.

Japan data highlight will be March Tokyo CPI Friday. Headline is expected to fall a tick to 2.5% y/y, core (ex-fresh food) is expected to fall a tick to 2.4% y/y, and core ex-energy is expected to fall a tick to 3.0% y/y. With inflation ebbing, the bar for an aggressive BOJ tightening cycle is high and so we think it’s only a matter of time before USD/JPY makes new cyclical highs.

Key real sector data for February will also be reported Friday. Labor market, retail sales, IP, and housing starts will all be reported. Unemployment is expected to rise a tick to 2.5%, while the job-to-applicant ratio is expected to remain steady at 1.27. The labor market remains relatively tight, which explains why labor unions so far have been able to get significant wage concessions from many firms.

Activity is expected to remain mixed. Sales are expected at 0.6% m/m vs. 0.2% in January, while IP is expected at 1.5% m/m vs. -6.7% in January. In y/y terms, sales are expected to pick up to 2.3% while IP is expected to worsen to -3.8%.

Australia highlight will be February CPI data Wednesday. Headline is expected at 3.5% y/y vs. 3.4% in January. If so, it would be the first acceleration since September and would move further above the 2-3% target range. Keep an eye on trimmed mean CPI for confirmation that underlying price pressures are easing. In January, trimmed mean inflation came in at 3.8% y/y, the lowest since March 2022. The RBA just delivered a dovish hold and so the data may not have much impact. As things stand, the market sees around 90% odds of a cut in either August or September.

February private sector credit and retail sales Friday will also be important. Sales are expected at 0.4% m/m vs. 1.1% in January. However, after the blockbuster jobs report, we see upside risks to consumption data. A major reason the RBA dropped its tightening bias last week was because of concerns that “household consumption growth remains particularly weak.” As such, the March Westpac consumer confidence index Monday along with February private sector credit and retail sales will offer a fresh glimpse at the state of household spending activity.

New Zealand reports some March sentiment indicators this week. The ANZ consumer confidence index Wednesday and the ANZ business activity outlook survey Thursday will likely remain consistent with improving domestic economic activity. Despite elevated confidence measures, GDP fell -0.1% q/q in Q4 vs. -0.3% q/q in Q3.

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