Weekly Outlook: Feb 21 — Feb 25: RBNZ Interest Rate Decision, EU Inflation And US PCE Index
The Reserve Bank of New Zealand is set to release its interest rate decision on Wednesday, followed by the eurozone inflation numbers for January. And of course, Friday’s PCE figures from the U.S. will be carefully monitored by the Fed.
Monday will be a relatively quiet day in terms of economic data releases. The U.S. and Canada exchanges will be closed, due to the President’s Day and Family Day celebrations respectively. From some individual European countries, we will receive the preliminary services and manufacturing PMI figures. Germany’s manufacturing and services numbers are believed to have declined slightly, but the French readings are believed to have either stayed the same or have improved fractionally. Overall, the eurozone preliminary PMI figures are forecasted to come out on the mixed side. The services ones are expected to improve from 51.1 to 52.2 and the manufacturing reading is believed to have fallen slightly, going from 58.7 to 57.5.
On Tuesday, the Asian morning will kick off with Hong Kong releasing its YoY CPI figure for the month of January. The current expectation is for a small decline, going from +2.4% to +2.1%.
Later on, during the European trading session, Germany will deliver its Ifo business climate index, which is forecasted to have ticked down a bit. The reading is expected to go from 95.7 to 94.7. If the actual number comes out lower than the forecast, we may see the euro taking a slight hit against some of its major counterparts, such as USD. However, the negative impact might be a temporary occurrence, as the main focus would lie on the CPI figures, delivered on Wednesday.
In terms of other economic events on Tuesday, the U.S. will deliver its manufacturing PMI number, together with the preliminary services PMI figure. Currently, there are no available forecasts for the two indicators.
During the early hours of the Wednesday Asian morning, the Reserve Bank of New Zealand is set to release its interest rate decision. The Official Cash Rate is expected to go higher, from +0.75% to +1.00%. RBNZ has a target to bring the rate closer to 2.50% by November this year. Given that this could be seen as a positive for NZD, it seems that most of the future hikes are already priced in. Also, other major central banks are planning their rate hikes, which means that NZD gains against some of its major counterparts might be on the modest side.
The Japanese market will be closed due to the Emperor’s Birthday celebration.
From Europe we will receive the eurozone inflation numbers for the month of January. For now, the core MoM and YoY figures are expected to have risen. The YoY one is forecasted to have moved from +2.3% to +2.6%, whereas the MoM reading is believed to have grown strongly, from -0.8% to +0.4%. In terms of the headline MoM CPI number, there is currently no forecast available, however, the headline YoY reading is believed to have slid by a tenth of a percent, from +5.1% to +5.0%. Let’s not forget that the ECB’s inflation target is to keep it stable at around 2% over the medium term. The 2% mark has already been surpassed back in August 2021. And with inflation, which is already double the initial target, the ECB will have think of measures of how not to allow the CPIs to get out of hand. One of the options is, of course, to raise interest rates. That said, the ECB is not yet willing to take such measures.
Thursday will start off with Hong Kong releasing its QoQ and YoY Q4 GDP figures. Currently, there is no forecast available, but as we can see from the previous readings, since Q2 2021, both QoQ and YoY readings have been on a decline.
In terms of other economic data releases on Thursday, the focus will fall on the U.S. The country will deliver its initial and continuing jobless claims numbers. Currently, the expectation for the initial ones is to go down from 248k to 235k. However, the continuing ones are believed to have increased slightly, going from 1539k to 1605k.
Also, the U.S. will release its preliminary Q4 QoQ GDP figure. For now, it is believed that the number might have ticked up by a tenth of a percent from the previous one, going to +7.0%. If that’s the case, or if the actual reading shows up higher than expected, this may prove to be positive for the U.S. dollar. New home sales will also be carefully monitored, as the number has been on an upmove for the past couple of months. The current expectation is to see a slight decline, from the previous 811k to 803k. That said, because of the potential rate hikes that Fed is planning to introduce in the near future, the consumer might be in a rush to secure mortgages at a slightly lower rate. Now, this does not mean that those mortgages would be mostly for new houses, but there is a good chance that people might opt in to purchase new homes, because of the ongoing government support, when buying a new-built house.
Friday will kick off with Japan delivering its February Tokyo core and headline CPI readings on a YoY basis. There is now available forecast for the headline reading, however the core one is expected to have grown to +0.4%, which would be double the number released last month.
Germany will take the spotlight during the European morning, as it will release its Q4 QoQ and YoY GDP figures. The current forecast is for the same numbers as previous. The QoQ figure is believed to have remained at -0.7% and the YoY one is expected to have stayed at +1.4%. However, if the actual readings show up better than expected, this may help strengthen the euro against some of its major counterparts.
However, the main spotlight might fall on the data, which we will receive later on from the U.S. We are talking of course about the core and headline PCE price index readings for January. From 2012, the U.S. Federal Reserve uses this measure, when making its monetary policy decisions. The core MoM PCE price index is believed to have stayed the same, at +0.5%. However, the YoY figure is expected to tick up by two tenths of a percent, rising from +4.9% to +5.1%. For the headlines numbers there are currently no forecast available. From May 2020, the core and headline YoY readings continue to rise, but from around April of last year, the growth had intensified. The Fed is keeping a close eye on the readings, because if they start getting out of hand, then adjustments in the monetary policy would have to be made.
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