Morning Bid: No holiday for US core inflation

By Thomson Reuters Mar 25, 2024 | 12:32 AM

A look at the day ahead in European and global markets from Wayne Cole.

It’s been a slow start to what will be a holiday-shortened week for many centres, though that won’t stop the U.S. from releasing the Federal Reserve’s favoured inflation measure on Friday even as markets there are shut.

The U.S. core personal consumption expenditures (PCE) price index is seen rising 0.3% in February, which would keep the annual pace at 2.8%. The headline index is seen up 0.4% for the month and 2.4% for the year.

Anything higher would be taken as a setback to hopes for a Fed rate cut in June, which was put back on the menu last week when Fed chair Jerome Powell sounded relaxed on the inflation outlook.

Futures have a June easing implied at 75%, from 55% a week earlier, and have three to four cuts priced in for the year.

Powell will participate in a moderated discussion at a policy conference on Friday, while Fed governors Lisa Cook and Christopher Waller are also appearing this week.

Following the surprise move by the Swiss National Bank (SNB) last week, markets are almost fully priced for a first rate cut from the ECB in June and have 91 basis points of easing pencilled in for 2024.

Europe has its own inflation tests this week with consumer price data out from France, Italy, Belgium and Spain, ahead of the overall EU CPI report on April 3.

ECB President Lagarde is speaking later on Monday and may offer more guidance on whether the market has it right.

One of the more hawkish Bank of England members is also talking later Monday and may have something to say about the market’s 76% probability for a June cut.

Sweden’s central bank meets on Wednesday and is generally expected to keep rates at 4.0%, though the sudden shift by the SNB suggests a surprise cannot be ruled out.

The People’s Bank of China (PBOC) sprang a surprise of its own last week by seemingly letting the yuan fall past 7.2 per dollar to a four-month low, though it set a firmer fix on Monday likely as a protest against too sharp a fall.

That was enough to pull the dollar back to 7.2000 yuan, from 7.2290. It also eased a touch on the yen, in part as Japan’s top currency official was out cautioning against extreme moves ahead of the 152.00 barrier where they intervened in the past.

Key developments that could influence markets on Monday:

– Participation by ECB President Christine Lagarde at EIB Group Climate and Environment Advisory Council

– Bank of England Monetary Policy Committee member Catherine Mann gives a speech

– UK CBI Distributive Trades for March

– Fed Board Governor Lisa Cook gives lecture

– Fed Bank of Chicago President Austan Goolsbee is interviewed on Yahoo Finance

– Fed Bank of Atlanta President Raphael Bostic participates in moderated conversation

– Data on U.S. February new home sales, Chicago Fed activity index, Dallas Fed index

(By Wayne Cole; Editing by Christopher Cushing)