Macroeconomics: The Day Ahead for 8 March

A busy day for data and events, though markets will continue to focus on Powell’s hawkish message, above all the threat of upping the size of rate hikes if necessary, which will doubtless be repeated as he reprises his semi-annual testimony to the House Financial Services Committee. There are Japan’s Economy Watchers (services) survey and Current Account along with German Industrial Production and Retail Sales to digest, while ahead lie the now very historical final Eurozone Q4 GDP, though it will be the US ADP Employment and JOLTS Job Openings which grab the headlines, which are accompanied by US and Canada Trade data. The Fed publishes its Beige Book, while the Bank of Canada holds its policy meeting and the USDA publishes its monthly WASDE report, and there are numerous other central bank speakers. A busier day for govt debt sales see the UK 28-yr, Germany 6-yr and the US 10-yr.

In terms of Powell’s messaging, it is still quite unlikely that the Fed would revert to 50 bps or 75 bps, above all because it would damage their credibility, having only recently reverted to a more normal 25 bps pace, but he also underlined that the Fed was keeping an eye on the cumulative (lagging) effects of their policy tightening to date. But by dangling the threat of a more aggressive move, the Fed effectively lets markets do some of their work for them, by pricing in a more aggressive move, and at the same time, this also unwinds the unwanted easing in financial conditions seen at the turn of the year. As for today’s data and the Beige Book, the ADP Employment measure is seen posting a solid 200K rise, but given the very large miss in January (ADP 106K vs. Private Payrolls +443K, markets are likely to pay more attention to JOLTS Job Openings, which are seen dropping to a still sky high 10.546 Mln from 11.102 Mln in January, but would need to fall more consistently in coming months to genuinely hint a significant easing in labour market conditions. Close attention needs to be paid to the Beige Book after recent economic data suggested that growth may have picked up from the weakness at the end of 2022. It will above all be interesting to note whether this converts to greater optimism on the economic outlook, as well as whether companies are seeing any benefits from lower input price pressures, and whether they intend to continue to pass on prior price increases to customers in order to defend margins.

As for the Bank of Canada, no change from the current 4.50% rate is expected, though markets continue to price in the risk of one further rate hike mid-year. This is a statement only meeting, with no forecast updates. But given the tumble in the C$ due to expectations of widening rate differential with the US, it will be interesting to note whether the statement offers any suggestions that imported inflation risks are a point of concern.