Macroeconomics: The Day Ahead for 20 March

Central bank policy meetings dominate an also quite busy day for statistics, with the BoE following on from an as expected 25 bps rate cut from Switzerland’s SNB and a very firm hold from Sweden’s Riksbank, while the EU leaders meeting will be dominated by defence and budget discussions. There are UK and Australian labour market reports, German PPI and NZ Q4 GDP to digest, while ahead lie the UK CBI Industrial Trends survey, Canadian PPI, and US weekly jobless claims, Philly Fed Manufacturing, Q4 Current Account (expected to post an all-time record $330 Bln deficit) and Existing Home Sales, and a busy run of ECB and BoC speakers. France and Spain hold multi-maturity debt auctions, while the US sells 10-yr TIPS.

** U.K. – MPC rate decision **

– The MPC is seen holding rates steady at 4.50%, consistent with the cautious gradualist approach to rate cuts that it has been signalling for some time. Of interest will be the extent of those dissenting in favour of a further 25 bps cut, with Dingra, de nouveau dove Mann and perhaps even Taylor in that camp. The dissenters will doubtless note the dip in January GDP, and look past the just published labour data, and view yesterday’s Brightmine pay settlements holding steady at 3.0% y/y for a third month as being consistent with CPI going back to target. Of interest will be how the minutes depict the array of risks to the economic outlook, both from the upward pressures on inflation domestically, and the impact of escalating trade tensions on both growth and inflation. By way of an aside, and as much as the MPC generally only discusses its QT programme in H2, I am starting to wonder whether it will opt for an early signal that it will end the programme. It is unlikely to be at this meeting given that it would smack of political interference coming just days ahead of the Spring Budget and OBR report, but an they might make an oblique reference to it exercising upward pressure on l-t yields, and per se hampering investment. In that vein yesterday’s research note from BofA suggesting that the Treasury should work with the DMO on a long gilt buyback programme, replacing these with shorter dated Gilts and an expansion of the T-Bill market is a very sound idea, which would give Reeves some extra fiscal headroom given lower interest payments, and if BoE did stop QT, that would ba an additional benefit.

** U.K. – Jan/Feb labour market indicators **

–  There were few surprises in today’s labour data, with Average Weekly Earnings dropping 0.3 ppt in headline terms, but Private Sector Wages easing just 0.1 ppt to 5.9% and 6.1% y/y respectively, and still far above levels consistent with a 2.0% CPI target. It remains wise to largely ignore the LFS survey data, while the monthly data on labour demand sent mixed singals, with HMRC Payrolls unexpectedly rising for a second month, Vacancies edging up for the first time in a while, though little changed in quarterly, while the Claimant Count rise accelerated, pushing thew Claimant Count Rate up to 4.7% from 4.5%, matching last September’s recent peak. On balance this implies a broadly steady picture of labour demand, with official wage data overstating upward pressures, given the array of surveys suggesting only modest upward pressure on pay.

** U.S.A. – FOMC post mortem **

– The Fed stuck resolutely to its ‘wait and see’ stance, holding rates steady as expected, and continuing to see two 25 bps rates cut this year and next. The modest upward revisions to its PCE deflator forecasts, and relatively sharp, though not surprising cuts to GDP forecast for 2025, and modestly for 2025 were equally unsurprising. The decision to cut the US Treasury QT to just $5.0 bln from $25.0 Bln (while preserving a $35 Bln pace for MBS holdings) looks to be more a case of risk management given the looming ‘debt ceiling’ wrangle in Congress, though Powell also stressed that this was not a temporary measure. It suggests that by keeping what is a largely symbolic drawdown pace for its Treasury holdings, it wanted to avoid sending an outright policy easing signal, which would not be commensurate with its ‘wait and see’ stance.