Today’s podcast

Overview: False start

• A very quiet start to the week with the US out for President’s Day
• Biden’s surprise visit to Kyiv making headlines
• Little in the way of market moves or data flow
• Coming up: RBA Minutes, Global PMIs

It has been a very quiet start to the week with little in the way of data flow and the US out for the Presidents Day holiday. The big news of the past 24 hours was on the geopolitical front with a surprise visit from President Biden in Kyiv.

President Biden visited Ukraine, where he pledged ‘unwavering support’ for the country as the Russia’s invasion nears the one-year mark. That comes amid signs that Russia is preparing for a larger offensive which will involve more air power than used to date and reports, since denied to EU officials by State Councillor Wang Yi, that China may be planning to provide arms to Russia. Developments in Ukraine are a less significant driver for markets than earlier in the conflict, though the developments underscore that geopolitical risk remains elevated and that almost one year after Russia’s invasion, there is no endgame in sight.

In terms of market moves, the US was out for President’s day, but futures markets suggest no break from the recent trend of higher yields and marginally softer equities into the new week. S&P futures are currently down 0.3% while Treasury futures are weaker as well, pointing to a modest lift in yields. German 10yr yields were up around 2bp. ECB Governing Council member Olli Rehn said in an interview that “with inflation so high, further rate hikes beyond March seem likely, logical and appropriate,” adding that “ I assume that we will reach the terminal rate in the course of the summer.” Markets currently price a peak around 3.6% from July.

European equities were little changed, with a fall in consumer and technology stocks offsetting a rise in commodity-exposed equities. In what was elsewhere a quiet 24 hours, Chinese equities were an outperformer, the CSI 300 was up 2.5% for its best one-day performance since November. In FX markets, the dollar was flat on the DXY and moves against most major currencies were small. The AUD, though, did manage a 0.5% gain against the dollar to trade around 0.6913.

The only data of note was Euro area consumer confidence, which rose in February to -19 from -20.7. That’s in line with consensus and takes confidence to its highest level in a year. Confidence has rebounded from a trough of -28.7 in September, but remains mired at levels well below long run averages. A relatively mild winter, receding energy fears and slowing headline inflation have helped boost the index.

Attention for markets now turns to an update on growth momentum in the form of February flash PMIs tonight. On the growth outlook, the Bundesbank monthly report suggested the German economy may fair ‘a little better’ than its December prediction for -0.5% growth over 2023 but cautioned “there’s no significant improvement in sight. ” The report offered a more pessimistic outlook than the European Commission’s forecast last week for growth of 0.2%. Stubborn underlying inflation remains a clear concern in Europe, and underlying inflation pressures are likely to ease only slowly with the report noting that “noticeable second-round effects on prices can be expected.” That comes after comments late last week from the ECB’s Schnabel that “a broad disinflation process has not even started in the euro area” and that there is “a risk that inflation proves to be more persistent than is currently priced by financial markets”

Coming Up

• February RBA Minutes are released today but are unlikely to provide much new on top of recent communication, though with recent minutes outlining the options on the table, it will be interesting to see whether December’s options of 0bp, 25bp and 50bp will be retained even with the more hawkish shift in the broader messaging.
• NZ PPI for Q4 is released this morning.
• Global PMIs today are a gauge on whether the more positive view of Europe avoiding a recession holds – consensus sees the Eurozone wide measure at 50.7, up from 50.3, while the UK composite index is seen remaining below 50 at 49.0 from 48.5. The PMIs for the US are also worth watching for growth relativities, though the ISMs next week are given more weight.
• The German ZEW Survey is seen rising to 23 from 16.9 for the expectations component, while the current situation components is seen at -50.5 from -58.6.
• Canada CPI is expected to show the headline rate falling to 6.1% from 6.3%, while key core measures are seen inching down a tenth each, Median seen at 4.9% from 5.0% and trimmed mean at 5.2% from 5.3%. The BoC has communicated that “If economic developments evolve broadly in line with the MPR outlook, Governing Council expects to hold the policy rate at its current level ” with the inflation data a key test as to whether the data flow allows Central Banks to pause as rates reach levels that are expected to see the economy slow sufficiently to get inflation down over time. Markets price a 15% chance of a 25bp increase at the BoC’s March meeting. Also out overnight is Canadian retail sales.

Market Prices

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