- Non-farm employment statistics and preliminary European CPI figures shape interest rate cut expectations
- ISM PMI is also important for Fed expectations and USD
- Canadian employment and China's PMI also on the agenda
Fed hawks rear their ugly heads
A series of policy meetings in March raised the possibility that most central banks would start cutting interest rates in June. But questions remain about whether inflation is on a sustainable downward trajectory, particularly in the United States.
FOMC members maintained their outlook for three rate cuts this year, but appeared reluctant to commit to a specific deadline for the cuts. Although the US inflation rate has stalled at around 3.0%, the labor market remains extremely tight.
The concern is that a preemptive rate cut under these conditions could increase inflationary pressures. From the Fed's perspective, such a scenario would do more damage to the Fed's credibility than if it continued restrictive policy for much longer than necessary.
However, for the market, the base case of a soft landing is essential to feeding risk appetite, so any change in that outlook risks ending Wall Street's bull run and possibly sending the dollar higher. . So the biggest hope for investors is that the incoming data is neither too hot nor too cold.
Is the US labor market really cooling down?
This is largely the case with the labor market, which has gradually cooled and the Federal Reserve continues to be wary of overheating. However, the economic slowdown became more apparent in February, when the unemployment rate rose to 3.9% and wage growth slowed to 4.3% year-on-year.
However, employment growth remained strong, with nonfarm payrolls increasing by 275,000. Forecasts for March show that economic growth will see him add 198,000 new jobs and that the unemployment rate will remain steady at his 3.9%, while average hourly wage growth is expected to slow to 4.1% year over year. I am.
The ISM PMI will be released before Friday's data. Manufacturing PMI will be released on Monday, and services PMI will be released on Wednesday. The former is expected to improve slightly in March, while the latter is expected to decline further.
If the numbers are generally positive, especially if the NFP results are better than expected, they are likely to deal further damage to interest rate cut expectations and push the dollar further higher.
Eurozone CPI attracts attention as June interest rate cut approaches
It's a positive development for the European Central Bank, as the Fed is nervous that inflation is above its 2% target. The headline CPI fell to 2.6% in February and is expected to fall further to 2.5% in March. Core CPI, which excludes food, energy, alcohol and tobacco prices, is expected to decline slightly to 3.0%.
ECB policymakers have been meeting en masse in recent days, all demanding a rate cut at the June meeting. A downside surprise would support such a move and put pressure on the euro, but stronger-than-expected data could make a June rate cut less likely.
However, if there is such a strong consensus within the ECB for a summer rate cut, the positive data in one month will not be seen as significantly changing expectations, so any boost to the euro from strong data will be limited and short-lived. Probability is high.
May ignore Canadian employment statistics
In Canada, the March jobs report will be released along with the Ivy PMI on Friday. The Bank of Canada is another central bank planning to begin its easing cycle in June. The inflation rate fell more than expected in February, falling below 3.0%, making it more likely that interest rates will be cut. The labor market has also slowed in recent months, with the unemployment rate rising to 5.8%.
Employment likely rose by a modest 20,000 in March, which is unlikely to have a major impact on the probability of a rate cut unless something unusual happens.
The Canadian dollar is likely to see a gradual decline against the US dollar in 2024 due to generally positive US statistics. Therefore, much of Friday's reaction will be driven by the USD movement, as the NFP is also expected to be announced.
Bank of Japan Tankan survey and China PMI also scheduled to be announced
Expectations for Fed rate cuts will also be important for the Japanese yen, which has come under attack following speculation about dovish rate hikes and possible intervention by the Bank of Japan.
Investors are not convinced that the Bank of Japan is in a position to tighten policy again anytime soon after taking major steps at its March meeting. Easing policy may be necessary for some time to support the economy and keep inflation from falling below 2%. But if Monday's quarterly Tankan survey shows growing optimism among Japanese companies, it could provide some support for the tattered yen. All eyes will also be on household expenditure statistics to be released on Friday.
Elsewhere, China's PMI numbers are likely to gain some attention on Monday. The official manufacturing PMI is expected to rise to 49.9, while the alternative Caixin PMI is expected to improve slightly to 51.0.
Signs that the recovery in the world's industrial powers is accelerating could boost sentiment early in the week, when many markets are expected to see lower volumes due to the long Easter holiday.
