FX Markets Turn to UK & US CPI, Aussie Jobs Ahead of Holiday
- In the holiday shortened week (Good Friday), there are a few events that appear each day that should move markets.
- Why was the March US labor market report not as bad as the headline NFP figure appeared at the surface?
- Why should traders be concerned with US data on Friday even if European and US markets will be on holiday?
The British Pound’s post-Brexit weakness and rise in oil prices over the past year will continue to make their presence known in the upcoming UK inflation report. Consensus forecasts are calling for a +0.3% m/m increase (down from +0.7% in February) and a +2.3% y/y increase (unchanged from February). Likewise, core CPI is expected to ease down to +1.9% y/y (from +2.0% last month). The Tuesday data release bears significant importance for the Sterling, as several Bank of England policymakers have expressed concerns of an “inflation overshoot.” In other words, if inflation continues to run higher above 3%, the BOE could be forced to raise rates. Currently, medium-term inflation expectations (5-year, 5-year inflation swaps) for the UK are the highest among all of the major currencies at +3.52%.
04/12 Wednesday | 01:30 GMT | CNY Consumer Price Index (MAR)
Chinese consumer prices rose by +0.8% y/y in February, the slowest rate since January 2015 (also +0.8%). There was a sharp slowdown in price pressures from January, when CPI was +2.5% y/y. Ahead of the February report, the official Chinese statistics agency noted that prices were probably boosted by a boost in output ahead of the Lunar New Year holiday. With consensus forecasts calling only for a +1.0% y/y reading for March, it appears that a decline in food prices will continue to weigh on the overall inflation reading. Continued weak readings (well-below the PBOC’s +3% target) could easily stoke concern about soft growth readings led by a slowdown in consumption.
The Bank of Canada has been in a neutral stance since December, and that doesn’t appear poised to change at their March rate decision this week. The BOC is widely expected to keep rates on hold at 0.50% despite recent labor market data starting to come in consistently above expectations. The key issue for the BOC will likely be the lack of demand-pull inflation, or higher prices resulting from faster rates of consumption. Recent figures from Statistics Canada showed that wage growth has remained below +2% for 28 consecutive months, and overall wage growth is at its lowest since 1990. Two-way volatility is more likely than direction in CAD-crosses around the BOC.
04/13 Thursday | 01:30 GMT | AUD Employment Change & Unemployment Rate (MAR)
Bloomberg forecasts suggest that Australian employment increased by +20.0K in March after declining by -6.4K in February. February’s decline was the first month of losses since September. Additionally, the unemployment rate is expected to remain on hold at 5.9%. The uneven pace of jobs growth appears to be a wrinkle in the outlook for the Reserve Bank of Australia, which last week noted that wage pressures aren’t strong enough to provoke a rate hike any time soon. Interest rate expectations (per overnight index swaps) show only a 6.7% chance of a hike by December 2017, while there is a 22.3% chance of a rate cut.
04/14 Friday | 12:30 GMT | USD Advance Retail Sales & Consumer Price Index (MAR)
Consumption is the most important part of the US economy, generating nearly 70% of the headline GDP figure. The best monthly insight we have into consumption trends in the US might arguably be the Advance Retail Sales report. In March, consumption weakened slightly, according to a Bloomberg News survey, with the headline Advance Retail Sales set to decrease by -0.2% (m/m). The Retail Sales Control Group, the input used to calculate GDP, is due in at +0.3% from +0.1% (m/m). Higher consumer confidence after the US elections (highest since December 2000) has yet to translate into faster growth, however.
According to a Bloomberg News survey, US consumer prices were flat on a monthly-basis in March, but up by +2.6% from +2.7% (y/y). The core readings should be similar, at +0.2% m/m (unch), and at +2.3% from +2.2% (y/y). These figures aggregately have just started to push through the Fed’s +2.0% medium-term target, which not only means they should be strong enough to keep the Fed on track to hike rates at least twice more this year. A faster rate of inflation may be the result of the tightening labor market (as well as base effects from oil prices), which just produced a cycle-low unemployment rate of 4.5% in March.
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--- Written by Christopher Vecchio, Senior Currency Strategist, Nick Cawley, Analyst
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