If last week was about inflation then this week is all about Central Banks. The RBA, BOJ, FED and BoE all make announcements and for the first time in a while the Bank of Japan's announcement will be the most eagerly awaited, as they are the last bastion of a negative rate policy. Over the course of last week US 2-year yields posted gains every day to close the week up over 25bps higher at 4.73%, 'higher for longer the mantra' and the S&P500 picked up on the move by closing lower for the second week in a row. That hasn’t happened since October of last year and then the Santa Rally began....
Back to the CB activity, the BOJ announcement is Tuesday, with markets pricing a 55% probability of an end to the negative interest rates policy (NIRP) and return to ZIRP (zero interest rates policy) is seen as a 70% probability by the April meeting, or 96% by June. Markets noted that Japanese unions delivered strong wage gains for their members. Rengo, Japan’s largest labour union, last week secured wage increases of 5.25% for members. This is the first time in more than 30 years that wage gains have exceeded 5%. BOJ Governor Kazuo Ueda has stressed in the past that he would need to see evidence of persistent wage growth to be convinced that inflation will converge on the 2% target. Given the events of last week, a lift in the policy rate tomorrow has been telegraphed to the market but will the BoJ move to a positive rate environment of just back to flat.
Tomorrow also brings the RBA’s March policy meeting no change to the policy rate is expected, especially since the RBA meeting will predate the February labour market report by two days. Now on the Fed, again no change to the Fed Funds rate is expected but when will the first cut arrive May or June? The Fed will give in-depth consideration to the pace of balance sheet runoff at this week’s meeting. Any lowering of $95bn ‘passive QT’ combined monthly cap for Treasuries, MBS and agency debt would be an encouragement for equity managers looking for a fresh round of monetary stimulus. Finally, the Bank of England will publish their decision on the Bank Rate on Thursday. We’re expecting no changes, but there could be a 3 way split.
As for data today Rightmove data published this morning confirmed that UK house prices rose by 1.5% in January, China retail sales for February printed one-tick short of expectations at 5.5% YTD, and the China jobless rate for February rose to 5.3%, Iron Ore is back above $100. Then later today we will see trade balance figures for Spain, the New York Fed’s services activity index and Canadian industrial product price data for February. The ECB’s Mario Centeno will be speaking in Lisbon and dont forget to carry out your Central Bank research.
