Week Ahead for FX, Bonds : Focus on U.S. Inflation, China Data

Below are the most important global events likely to affect FX and bond markets in the coming week starting March 11.

In the U.S. and Europe, economic data will be watched closely--with U.S. inflation figures on Tuesday to be the highlight--as focus remains on when central banks are likely to start cutting interest rates.

In Asia, the data docket is relatively light after an intense week dominated by China's economic blueprint for 2024. More Chinese data are on tap, with data also due from Japan and India, alongside comments from the Reserve Bank of Australia.

U.S.: U.S. inflation data for February will be released on Tuesday and be very closely watched given the current intense focus on when the U.S. Federal Reserve is likely to start cutting interest rates. Inflation figures for January were unexpectedly high and caused the market to scale back rate-cut forecasts. Investors will be looking to see whether this strong inflation trend continued into February. U.S. February producer price inflation data on Thursday will give an indication of pipeline inflationary pressures.

Further U.S. data will provide clues on the health of the U.S. economy, including February retail sales and weekly jobless claims data on Thursday, followed by February industrial production and the University of Michigan March preliminary consumer survey on Friday. Any evidence of the economy slowing could increase expectations for a U.S. rate cut in June, especially after Federal Reserve Chair Jerome Powell said in testimony before lawmakers that the central bank was on track to cut interest rates this year. The Fed's next meeting is the following week, on March 20.

EUROZONE: The European Central Bank left interest rates on hold at its meeting on March 7 and said any cut in interest rates--which most analysts expect in June--will be dependent on upcoming data. Final German CPI data for February are due on Tuesday, with Spanish inflation data due on Thursday. Eurozone industrial production figures for January are due on Wednesday and could give evidence of whether the eurozone's sluggish economy is starting to pick up.

The Netherlands, Germany, Italy and probably Portugal will conduct bond auctions in the eurozone, while Switzerland, Sweden and Norway will also issue bonds.

U.K.: U.K. unemployment and wages data on Tuesday, then monthly GDP and industrial production data for January on Wednesday, will give an indication of how the U.K. economy is holding up ahead of a Bank of England policy decision the following week, on March 21. Recent data have suggested the U.K. economy has held up reasonably well and any signs of it faltering could alter rate-cut expectations. Most commentators currently expect the BOE to cut interest rates after the U.S. Fed and the European Central Bank.

On Tuesday, the U.K.'s Debt Management Office will auction 10-year government bonds, or gilts.

CHINA: China's high-level policy meetings--known as the Two Sessions--wrap up with a speech by President Xi on March 11. While no more major headlines are expected, market focus will stay on any follow-up measures to back Beijing's target of around 5% growth for the year. The broad consensus is that it will be tough for China to hit that target.

There was also disappointment about the lack of detail on how the country plans to address weaknesses in its economy. More concrete measures would go a long way toward reassuring investors.

"Sentiment bottoming out and recovering will be the main catalyst for a sustainable economic recovery," says Lynn Song, ING's chief economist for Greater China. "The policy rollout in subsequent weeks and months will play a large role in determining whether or not this bottoming out will occur this year."

The policy implications of data on consumer inflation and factory prices released over the weekend will also be in focus. Deflation in the world's second-largest economy has been a major area of concern, with anemic demand powering down a key engine of growth. Any signs of reflation would likely be welcome.

Economists polled by The Wall Street Journal see CPI swinging back to positive territory at 0.3% in February from -0.8% in January, with PPI remaining in contraction at -2.5%.

Money and credit data for February are also due during the week. "Although February is typically a month with lower new loan flows, policymakers' guidance to smooth intra-year fluctuations in loan extension may have supported loan growth in February," said Arjun Varma and Hui Shan of Goldman Sachs.

The central bank has also lowered reserve ratio requirements for banks and guided lenders to lower a key lending rate in February. "These measures should be supportive to the broad credit growth," the GS strategists said.

JAPAN: On March 11, Japan will release revised growth estimates for the final quarter of 2023 amid heightened expectations about the central bank's exit from negative interest rates.

Preliminary data in February showed that the economy shrank 0.1% in the three months to December from the previous quarter, sparking concerns about a technical recession. However, the drop was small enough to leave room for doubt. The revised data could put the number back in positive territory.

Comments from Bank of Japan board member Junko Nakagawa last week that the economy is making steady progress toward achieving its price goal added to expectations that the end of negative rates will be announced in the coming month.

AUSTRALIA: The first public comments from the Reserve Bank of Australia's new chief economist will be closely scrutinized.

Assistant Governor, Economic, Sarah Hunter is in charge of the central bank's forecasts and her appearance on a panel in Sydney on Tuesday will be her first since data showed the economy slowed to a crawl in the final months of 2023.

Still, it is likely the RBA will want to stick to its recent warning that further interest-rate increases cannot be ruled out.

Elsewhere, business and consumer confidence data for February and March are expected to confirm that the mood across the economy remains downbeat as unemployment rises while relief for household budgets in the form of interest-rate cuts still seems some time off.

INDIA: On Tuesday, consumer and wholesale price data will show how inflationary pressures are holding up in India. The country's central bank has so far held rates steady amid easing inflation and economic resilience, but has said it will carefully monitor food prices.

Strategists at Goldman Sachs expect headline CPI inflation to remain unchanged for the month, with core inflation declining slightly but food price inflation remaining elevated.

SINGAPORE: On Wednesday, the Monetary Authority of Singapore will release its quarterly survey of professional forecasters, which offers a summary of forecasts of Singapore's key economic indicators by economists and analysts. In the December survey, the respondents estimated that for 2024, Singapore's GDP will expand by 2.3%, headline inflation will come in at 3.4%, and core inflation at 3.0%.

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

--Additional reporting by James Glynn, Ronnie Harui, Megumi Fujikawa and Emese Bartha

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

(END) Dow Jones Newswires

03-10-24 1714ET