Written Commentary
- Digesting BoJ and RBA policy meetings, light day for statistics features German ZEW survey, Canadian CPI and US Housing Starts: China dominates earnings schedule, UK, Finland and US to auction debt, Italy syndicated I-L sale
- BoJ’s carefully stage managed exit from ultra-easy policy should be praised, end of negative rates and YCC ultimately more of a formality, still very dovish messaging from Ueda hints at very gradual further rate hikes, and great dependency on improvement in Personal Consumption and SME wage settlements
- Australia: RBA tones down hawkish rhetoric, but emphasizes that outlook risks are still two sided; upcoming jobs and CPI data likely key to any shift to neutral, or opening door to rate cuts
- Canada: uptick in headline CPI and renewed sideways move in core CPI likely to keep BoC very cautious on initiating rate cuts
- Recording of this morning’s GU Daily Energy Market Podcast
EVENTS PREVIEW
Today is all about the BoJ policy decision, along with that from the RBA. with only a smattering of statistics to digest: German ZEW zurvey, Eurozone Q4 Labour Costs, Canadian CPI and US Housing Starts. The govt bond auction schdeule has UK 10-yr, Finnish & 9-yr and US 20-yr TIPS, while Anhui Conch Cement, Huaneng Power, Xiaomi and Xpeng top the run of corporate earnings. In the commodity sector, this week’s Iron & Steel conferences get under way in Australia and CHina, while Berlin is the venure for the Energy Transition Summit.
** Japan – BoJ rate decision **
– Reaction to the BoJ rate hike and ending of its Yield Curve Control has been very muted, outside of the JPY giving back its post Rengo wage settlements gain. While the consensus had looked for no change, it was still totally unsurprising. Indeeed, as we have argued previously the BoJ has been tightening policy for over a year since it started the process of widening the YCC target range from 10 bps to 100 bps. Given that both the BoJ and many other major central banks had been fearful of it ending its ultra easy policy, it has to be given credit for stage managing the gradual stealth tightening over the past year and a bit, without unleashing a torrent of disruptive capital flows. To be sure, the fact that it could do this while other major central banks tigtened policy aggresively in 2022/23 obviously helped its cause enormously. The message on further tightening was also very cautious, with a modest reduction in the cap on JGB purchases, while emphasizing that the battle against deflation was not over, and that further rate hikes would be contingent on incoming data on the economy, inflation and wages all underliing a still very dovish policy stance. Per se Japanese rates are set to remain at a relatively large discount to other major economies, even with the prospect of rate cuts elsewhere.
** Australia – RBA rate decision **
– As expected the RBA kept rates unchanged, and while toning down its hawkish rhetoric, and placing emphasis on risks to the outlook are ‘finely balanced’ and lie in both directions, with governor Bullock noting ‘All we can do is tread carefully and be prepared to act if we see the risk moving in one direction or the other’. For choice, the message was a little less ‘neutral’ than many had expected, and the focus is now very firmly on Thursday’s labour data and next week’s monthly CPI.
** Canada – February CPI **
– CPI is expected to see headline up a relatively sharp 0.6% m/m, to push the y/y rate up to 3.1% (vs. 2.9%) and core measures to be unchanged at 3.3%/3.4% y/y, having finally registered a larger than expected dip in January, after months of trending sideways. As with the US, there continues to be persisent upward pressure from Housing/Shelter and Services, and latterly some upward pressure from energy, and less downward pressure from good prices. As Boc Governor Macklem noted at the BoC press conference, the BoC wants to see a broader based disinflationary profile to CPI before it initiates rate cuts, today’s report is unlikely to offer the BoC the sort of comfort that it is looking for.
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