Home ForexForecasts Week ahead: Rate cut hopes hinge on US jobs report, flash Eurozone CPI

Week ahead: Rate cut hopes hinge on US jobs report, flash Eurozone CPI

by SuperiorInvest
  • Non-farm payrolls report and European flash CPI will shape bets on rate cuts
  • ISM PMIs will also be important for Fed and US Dollar expectations
  • Canadian employment and Chinese PMIs also on the agenda

Federal Reserve hawks raise their ugly heads

The March round of monetary policy meetings reinforced June as the likely date when most central banks will begin cutting rates. However, questions remain about whether or not inflation is on a sustainable downward trajectory, especially in the United States.

Although FOMC members maintained their projection of three rate cuts this year, they appear to have become more reluctant to commit to a specific time frame for cutting rates. Inflation in the United States has stagnated at around 3.0%, while the labor market remains very tight.

The concern is that cutting rates pre-emptively in such scenarios could reignite inflationary pressures. From the Fed's perspective, the damage to its credibility would be greater in such a scenario than if it maintained a restrictive policy for longer than necessary.

But for markets, the base case scenario of a soft landing is imperative to fuel risk appetite, so any change in that outlook risks ending the rally on Wall Street and possibly giving the US dollar an advantage. Therefore, the best hope for investors is that the incoming data is neither too cold nor too hot.

Is the US job market really cooling?

That has mostly been the case for the labor market, although it has been cooling so gradually that it has kept the Fed on edge over concerns about overheating. But the slowdown became more evident in February, when the unemployment rate rose to 3.9% and wage growth moderated to 4.3% year-on-year.

However, employment growth has remained strong, with nonfarm payrolls increasing by 275,000. The forecast for March is that the economy added 198,000 new jobs and the unemployment rate remained stable at 3.9%, while average hourly earnings growth is expected to have slowed to 4.1%. year-on-year.

Friday's data will be preceded by the ISM PMIs. The manufacturing PMI will be published on Monday and the services PMI on Wednesday. The former is expected to have improved slightly in March, but the latter is expected to have decreased.

If there is a broadly positive set of numbers, particularly if there is a better-than-expected NFP number, this would likely deal a further blow to rate cut bets, providing another boost to the dollar.

Eurozone CPI on the horizon as June rate cut nears

While the Federal Reserve grows nervous that inflation persists above the 2% target, there has been better progress for the European Central Bank. The headline CPI declined to 2.6% in February and is expected to fall further to 2.5% in March. The core CPI, which excludes food, energy, alcohol and tobacco prices, is expected to decline to 3.0%.

ECB policymakers have been out in droves lately, all calling for a rate cut at the June meeting. A downside surprise would support such a move, putting pressure on the euro, but stronger-than-expected readings could reduce the chances of a cut in June.

However, any boost to the euro from stronger numbers would likely be limited and short-lived, as one month's data would not be seen as changing expectations very significantly when there is such a strong consensus within the ECB for a cut. Of summer.

could ignore Canadian employment data

In Canada, the highlight will be the March employment statistics, which will be released on Friday along with the Ivey PMI. The Bank of Canada is another central bank that is on track to begin its easing cycle in June. A cut became more certain after inflation fell more than expected in February, falling below 3.0%. The labor market has also slowed in recent months, with the unemployment rate rising to 5.8%.

Employment is likely to have increased slightly, by 20,000 people, in March, which probably won't have a big impact on the odds of rate cuts unless there is a big mistake or delay.

The Canadian dollar has seen a slight downtrend against the greenback in 2024 as US data has been mostly strong. Therefore, much of Friday's reaction will be driven more by US dollar dynamics when the NFP report is also released.

Bank of Japan Tankan survey and Chinese PMIs also on the way

Fed rate cut expectations will also be crucial for the Japanese yen, which has come under attack following the Bank of Japan's dovish rate hike and speculation about possible intervention.

Investors are not convinced that the Bank of Japan will be in a position to tighten policy again in the near future after the huge measures taken at the March meeting. Accommodative policy may be required for a while longer to support the economy and ensure inflation does not fall below 2% again. But Monday's quarterly Tankan survey may offer some support to the battered yen if it points to growing optimism on the part of Japanese companies. Household spending figures due to be published on Friday will also be closely watched.

Elsewhere, Chinese PMI numbers are likely to attract some attention on Monday. The official Manufacturing PMI is expected to rise to 49.9 and the Caixin Alternative PMI is expected to improve marginally to 51.0.

Signs that the recovery in the global industrial powerhouse is gaining pace could lift sentiment at the start of the week, when volumes are expected to be light due to the long Easter weekend in many markets.

!function(f,b,e,v,n,t,s){if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)};if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;n.queue=[];t=b.createElement(e);t.async=!0;t.src=v;s=b.getElementsByTagName(e)[0];s.parentNode.insertBefore(t,s)}(window, document,’script’,’

Source Link

Related Posts