Weekly Macro Matters
Macro Matters – Weekly review, w/c March 18
US inflation data surprised to the upside, with warmer-than-expected CPI and PPI reports fueling concerns about persistent price pressures. Treasury yields surged in response, heightening anticipation for the upcoming Fed meeting, where focus will be on the dot plot projections for future rate decisions.
TradeDay Macro Matters
Macroeconomic / Geopolitical Developments
• US CPI warmer than expected
• US PPI reinforces warm CPI
• US yields surge higher
• Focus on dot plot chart at March Fed meeting
• Bank of England and Bank of Japan meet, BoJ hike anticipated
US CPI Warmer Than Expected
US inflation accelerated in February, with the Consumer Price Index (CPI) rising 0.4% month-over-month and 3.2% year-over-year. Gasoline and rent costs were the primary drivers, with housing accounting for over 60% of the monthly increase. Core CPI, which excludes food and energy, climbed 3.8% year-over-year, above expectations. Despite moderation from last year’s 9.1% peak, inflation remains well above the Fed’s 2% target.
US PPI Reinforces Warm CPI
The Producer Price Index (PPI) jumped 0.6% in February, its largest monthly increase in six months, driven by energy and food costs. Core PPI, excluding volatile components, rose 0.3% month-over-month and 2% annually. The strong PPI data underscores inflationary pressures that may slow the Federal Reserve’s ability to ease monetary policy, as elevated wholesale costs could ripple across sectors.
US Yields Surge Higher
US Treasury yields spiked following the CPI and PPI data releases. The 30-year bond yield surged nearly 10 basis points as inflation concerns grew. While demand for recent auctions provided temporary relief, market sentiment remains focused on higher yields and a steepening curve as investors brace for sustained inflationary pressures.
Focus on Dot Plot Chart at March Fed Meeting
The upcoming Federal Reserve meeting is expected to keep rates unchanged, but attention is on the dot plot chart, which outlines policymakers’ interest rate projections. The bond market now expects three rate cuts in 2024, down from earlier forecasts of six. Insights from the dot plot will shape market expectations, with many analysts predicting two rate cuts for the year amid persistent inflationary challenges.
Bank of England and Bank of Japan Meet, BoJ Hike Anticipated
The Bank of England is expected to maintain its Bank Rate at 5.25% but signal a cautious outlook on inflation. Meanwhile, the Bank of Japan is likely to end its negative interest rate policy, marking a historic departure from ultra-loose monetary measures. This anticipated hike reflects optimism over rising wages and improving domestic demand, positioning the BoJ to normalize policy gradually.
What’s Ahead
Central Bank Watch:
• Tuesday (03/19): BoJ and RBA rate decisions
• Wednesday (03/20): PBoC and FOMC rate decisions
• Thursday (03/21): BoE rate decision
Macro Data Watch:
• 03/18/2024: China Retail Sales and Industrial Production, EU CPI
• 03/19/2024: German ZEW Economic Sentiment Survey, Canada CPI
• 03/20/2024: UK CPI, FOMC projections
• 03/21/2024: Global Flash PMI, Australian employment
• 03/22/2024: Japan CPI, UK and Canada Retail Sales
This week’s packed calendar, featuring inflation data and multiple central bank meetings, will provide crucial insights into global monetary policy trajectories.
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