Week Ahead for FX, Bonds : ECB Decision, U.S. Jobs Data, Key China Meetings in Focus

Below are the most important global events likely to affect FX and bond markets in the coming week.

In Europe and the U.S., focus remains on when central banks will start cutting interest rates and attention will center on a European Central Bank rate decision on Thursday, U.S. monthly jobs data on Friday and the U.K.'s spring budget on Wednesday.

In Asia, China takes center stage as the National People's Congress gets underway on Monday. Other events include economic growth data from Australia and a central bank decision in Malaysia, peppered by a slew of inflation and service-sector activity data that takes the pulse of the region's recovery.

EUROZONE: The European Central Bank is expected to leave its deposit rate unchanged at 4.00% at its meeting on Thursday. Any reaction in the euro and eurozone bond yields will depend on the ECB's new staff forecasts and accompanying commentary for clues on the timing of a first rate cut and on how much rates will fall in 2024.

Money markets currently price in a high likelihood of a June rate cut, though some analysts expect the ECB won't cut rates until July. An earlier reduction in April is unlikely but still possible. Eurozone inflation has come down significantly but growth shows signs of improving and the ECB remains concerned about high wage growth. Any possibility that rate cuts will come later than expected could cause the euro and eurozone bond yields to rise.

Final eurozone services PMI data are due on Tuesday, while the final estimate of fourth-quarter eurozone GDP will be released on Friday. German factory orders on Thursday and industrial production on Friday will be watched to gauge whether Germany's beleaguered manufacturing sector is showing any signs of improvement.

Upcoming bond auctions include Germany's sale of 5-year bonds and bond sales from Austria on Tuesday, followed by Spain and France on Thursday. In Scandinavia, auctions from Denmark and Norway will take place on Wednesday and from Sweden on Thursday.

U.S.: Non-farm payrolls data for February are due on March 8 and will be watched closely to gauge the health of the U.S. economy and to assess how far interest rates will fall this year and when rate cuts will begin.

The Federal Reserve has penciled in three rate cuts this year. June or July currently look the most likely month for rate cuts to start, according to market pricing, but uncertainties remain due to the recent strength of the economy even as inflation slows.

January's bumper jobs data suggested that the U.S. labor market was much more resilient than previously thought and contributed to investors pushing back rate-cut expectations. February's report is expected to be weaker than January's but should still point to a resilient economy, while the Fed's most recent minutes showed policymakers were in no rush to cut rates.

U.S. ADP and JOLTs job openings data on Wednesday, as well as weekly jobless claims figures on Thursday, will be watched for further clues on U.S. labor-market health.

U.S. ISM services PMI data on Tuesday will give further indication of how the U.S. economy is faring.

U.K.: The spring budget will be presented on Wednesday, where fiscal giveaways in the form of tax cuts or increased public spending are expected ahead of a likely election later this year. Fiscal stimulus could boost the economy and potentially add to expectations that the Bank of England will cut interest rates later than the European Central Bank and U.S. Federal Reserve, supporting sterling.

Investec analysts warn that the recent rise in gilt yields could limit the government's scope for fiscal stimulus, however. The Debt Management Office's gilt remit for the 2024-25 fiscal year will be released alongside the budget. TD Securities expects GBP240 billion of gilt supply, with issuance skewed towards medium-dated gilts.

The DMO is scheduled to auction three-year gilts on Tuesday. Final U.K. services PMI data are due on Tuesday.

CHINA: Eyes will be on Beijing's growth target for 2024 as the annual "two sessions" meetings begin amid government efforts to restore confidence in a slumping equities market and reassure investors that the economy is on the road to recovery.

A 2024 GDP growth target of "around 5%" would likely have a positive effect on the market, Deutsche Bank China Chief Economist Yi Xiong said, exceeding consensus projections of 4.6%. But the magnitude of the impact will depend on accompanying policy measures.

"Investors should also watch out for government plans to stimulate consumption including through trade-in programs, promoting 'large-scale equipment upgrade,' attracting foreign investment, and reforming the financial sector and capital markets," DB Research said.

More aid for the property sector will also be welcome news, after the latest home-price data pointed to continued declines, denting confidence that recent stimulus is having the desired effect.

JAPAN: On Tuesday*, fresh inflation data from Japan, in the form of Tokyo CPI for February, will be closely watched.

Weakening inflation would make it difficult for the BOJ to make a significant policy shift, economists say.

Market bets that the Bank of Japan will exit its negative interest rate policy this spring firmed last week after the national inflation print exceeded expectations and stayed above target, even as consumer prices rose at the slowest pace in nearly two years.

AUSTRALIA: In Australia, fourth-quarter GDP numbers will be closely watched on Wednesday. After a weaker-than-expected third quarter, a disappointing reading could stoke worries that the Reserve Bank of Australia may have hit the policy brakes too hard.

Some economists still see a high probability that the economy will fall into recession this year, especially with the RBA continuing to warn that further interest-rate increases remain possible even as unemployment appears to be rising quickly and with inflation in sharp retreat.

SOUTH KOREA: Final growth figures for 4Q 2023 due Tuesday* will likely confirm that South Korea's economy posted its lowest annual growth since 2020, when the pandemic roiled the economy and GDP contracted. Inflation figures due the next day are tipped to show that headline inflation picked up again in February, snapping a three-month run of easing. The median forecast from 13 economists polled by The Wall Street Journal is for inflation to accelerate to 3.0% from 2.8% in January.

MALAYSIA: Eyes will be on Malaysia's central bank on Thursday as the ringgit's sharp depreciation against the dollar draws verbal intervention from officials. Bank Negara Malaysia has defended the currency twice in recent weeks, saying it is undervalued and not representative of Malaysia's robust economic fundamentals and bright outlook.

The ringgit has been trading at its weakest levels since the Asian financial crisis in 1998.

ASIA CPIs & PMIs: The week will also see inflation prints from the Philippines, Thailand, Taiwan and South Korea, coming against broad weakness in the region's currencies. A string of PMIs will shed light on the strength of services sectors in Asia, including a private gauge of China's services activity, which has been a primary growth engine during its economic malaise.

*All references to days for Asian events are in local times.

Additional reporting by James Glynn, Ying Xian Wong, Kwanwoo Jun, Megumi Fujikawa, Miriam Mukuru and Emese Bartha

Write to Jessica Fleetham at [e-mail] and Fabiana Negrin Ochoa at [e-mail]

(END) Dow Jones Newswires

03-04-24 0314ET