Week Ahead: Fed’s Powell, US NFP; China Two Sessions, CPI; RBA, BoC, BoJ

• MON: Swiss CPI (Feb), EZ Sentix Index (Mar), EZ
  Retail Sales (Jan), South Korean GDP Revised (Q4).
• TUE: RBA Policy Announcement, EIA STEO, Australian
  Trade Balance (Jan), Chinese Trade Balance (Feb).
• WED: BoC Policy Announcement, NBP Policy
  Announcement, German Retail Sales (Jan), EZ GDP Revised (Q4), US ADP National
  Employment (Feb), Japan GDP Revised (Q4).
• THU: Chinese Inflation (Feb).
• FRI: BoJ Policy Announcement, German Final CPI
  (Feb), Norwegian CPI (Feb), US Jobs Report (Feb), Canadian Jobs Reports (Feb).

NOTE: Previews are listed in day-order

China Two Sessions (Sat):

The
first session of the week-long 14th National Committee of the Chinese People’s
Political Consultative Conference (CPPCC) will begin on March 4, 2023, in
Beijing. The 14th National People’s Congress (NPC) will open its first annual
session in Beijing on March 5, 2023, according to the Global Times. Chinese
President Xi is expected to open the first meeting with a speech on Saturday.
The “two sessions” is expected the keep the theme of power consolidation going,
in a continuation of October’s Party Congress. This year marks the first two
sessions after China optimized its COVID-19 response in early January. The
meetings are expected to bring about major reforms, with Government
appointments expected, whilst economic targets are to be unveiled. The meetings
will provide a stage for the final formalisation of Xi Jinping’s unprecedented
third term as Chinese President. A new Premier is expected to be announced
alongside new Senior Financial and PBoC appointments in Xi Jinping’s bid to
bring the financial system under his control. Desks suggest that changes at the
central bank may not signal a major shift in monetary policy, but the PBoC’s
approach could be slightly less hawkish amid the pro-growth age. Another focal
point of the two sessions will be the GDP growth target – China may aim for a
higher target than the 4.5-5.5% band proposed in November, and this could range
between 5.0%-5.5% or even be as high as 6.0%, according to sources involved in
policy discussions cited by Reuters. Recent data backs the notion of a higher
GDP target, with the latest Official NBS PMIs notably topping expectations in
February. ING’s Greater China chief economist said in a note that this upbeat
data gives the Government strong reasons to set a high growth target of 5.5% to
6%. Reuters sources added that, in a bid to spur growth, the Government is
expected to widen its annual budget deficit to around 3% of GDP this year and
issue some CNY 4tln in special bonds to support investment spending.

Swiss CPI
(Mon):

February’s
CPI YY is, according to Credit Suisse, expected to dip back down to 2.9%,
predominantly due to reduced prices for petroleum-related products; if correct,
this will be welcomed by the SNB ahead of its March gathering. To recap,
January’s CPI YY was hotter-than-expected at 3.3% vs exp. 2.9% (prev. 2.8%), a
reading which takes YY CPI back towards its recent peak of 3.5% in September
2022 and meaningfully above the SNB’s 2.0% long-term target. We haven’t had any
pertinent SNB commentary since the January CPI, but prior, “Chairman Jordan
made clear that further rate hikes cannot be ruled out and reiterated a
willingness to be active in FX, if necessary. On inflation explicitly, Jordan
acknowledged that inflation is above the level of price stability, but that a
wage-price spiral is not seen. Reminder, at the December gathering the SNB
hiked by 50bps and did not rule out additional tightening. Desks generally
expect a 25bps hike from the SNB in March; though, if February’s inflation is
once again hotter-than-expected it may prompt a hawkish revision to this
guidance. Particularly given the broader backdrop of hawkish Central Bank
repricing.

RBA Announcement (Tue):

The
RBA is expected to continue hiking rates at its meeting next week with 27 out
of 28 economists surveyed by Reuters forecasting that the central bank will
raise the Cash Rate Target by 25bps to 3.60%, while money markets are pricing
in around a 74% probability of a 25bps increase and a 26% likelihood that it
keeps rates unchanged at the current level of 3.35%. As a reminder, the central
bank increased rates by 25bps to a fresh decade high at the last meeting which
was widely expected as money markets had priced in over a 90% probability of
such a move, while attention was on the RBA’s commentary which noted that the
Board expects further rate increases and is resolute in its determination to
return inflation to target. Furthermore, the minutes from that meeting revealed
that the Board considered a hike of 25bps or 50bps and a pause was not an
option. The signal for more rate increases was the key highlight and prompted
economists to raise their terminal rate view to 3.85% from 3.60%, while ANZ has
since further increased its peak rate forecast to 4.10% and CBA now sees hikes
in both March and April compared with a previous view for no more rate hikes
after the February meeting. Conversely, the data releases from Australia have
begun to soften, including the Employment Change which contracted for two
consecutive months and the Unemployment Rate rose to 3.7% from 3.5%, while Q4
GDP missed forecasts Q/Q at 0.5% (exp. 0.8%) and although Y/Y GDP matched
estimates at 2.7%, this was a notable slowdown in pace from the 5.9% growth
rate during the prior quarter. Furthermore, CPI Y/Y in January was softer than
expected at 7.4% vs Exp. 8.0% (Prev. 8.4%) which eases some of the hawkish
pressure on the RBA and has spurred some cautious optimism from Australian
Treasurer Chalmers that inflation may have peaked, although it is too early to
declare a softening trend and the data is unlikely to influence the central
bank enough to pause given that monthly CPI was still the second highest
reading since the series began and as inflation remains very far from the 2-3%
target range.

Australia Trade Balance, Retail Sales (Tue):

The
data may induce short-term volatility in Australian assets, but markets will
almost certainly be more focused on the RBA announcement due three hours after
the data. Nonetheless, Australia’s Trade Balance is seen expanding to a surplus
of USD 12.70bln in January (prev. +USD 12.237bln), while M/M Retail Sales are
seen rising 1.9% (prev. -4.0%). On the Trade Balance, analysts at Westpac
suggest “Export earnings are forecast to rise by 1.2%, +USD 0.7bln, supported
by a rise in commodity prices and the ongoing recovery in service exports post
the national border reopening”, while “Imports are forecast to rise by around
1%, +USD 0.4bln. Service imports likely posted another strong rise, as more of
us holiday abroad, and goods volumes are trending higher.” As mentioned above,
the RBA will likely take centre stage during the session, in which the central
bank is expected to continue hiking by 25bps to 3.60%, while money markets are
pricing in around a 74% probability of a 25bps increase and a 26% likelihood
that it keeps rates unchanged at the current level of 3.35%.

China Trade Balance (Tue):

China’s
Trade Balance in Dollar terms is expected to widen to a surplus of 80.90bln
from the prior surplus of 78.00bln. Exports are expected to fall 10% Y/Y (prev.
-9.9%) and imports decline 5.3% Y/Y (prev. -7.5%). Using the Caixin
Manufacturing PMI as a gauge, the release suggested “Both manufacturing supply
and demand expanded last month, as production gradually returned to normal,
while both domestic and external demand improved after a Covid policy shift. The
readings for output, total new orders and new export orders all rose into
expansionary territory, each logging a new high in eight, 21 and eight months,
respectively.” Meanwhile, the Caixin Services survey added “Services supply and
demand continued to grow last month. The shift in China’s Covid policy
continued to drive up both, with the readings for business activity and total
new business each jumping by more than 2 points further into expansionary
territory. External demand also rose, with the measure for new export orders
reaching the highest since April 2019.” That said, China’s MOFCOM offered some
contradictory remarks on Thursday and warned that many Chinese businesses are
reporting falling export orders. Saturday will mark the start of China’s annual
“two-sessions”, with market participants eyeing the GDP target announcement.
One source cited by Reuters, who favours a more modest GDP growth target,
suggested: “the property sector is still falling and it’s difficult to fill the
gap while foreign trade is likely to drag on economic growth this year.”

Fed Chair Powell Testimony (Tue, Wed):

Fed
Chair Powell will deliver his Semi-annual Monetary Policy Report to Congress
this week, starting with the Senate Banking Committee on Tuesday, and will
likely repeat his remarks to the House Financial Services Committee on
Wednesday. Analysts have noted that the Fed Chief’s testimony will come ahead
of any key economic data releases (the NFP report is on Friday, CPI on March
14th and PPI on March 15th), and accordingly, that might leave little scope for
him to alter messaging. The hot run of data in January and February has seen a
hawkish repricing of the Fed’s expected rate hike trajectory, with money
markets now discounting the terminal rate rising to between 5.25-5.50% (pricing
even tilted into the bracket above this during times following some of the
hawkish data). Powell’s message is likely to remain data-dependent, and
reiterate that the Fed’s job on managing inflation has not yet concluded,
despite the progress made.

BoC
Announcement (Wed):

The
BoC is expected to pause and hold rates at 4.50% after it said in January that
if economic developments evolve broadly in line with its outlook, it expects to
hold the policy rate at its current level while it assesses the impact of the
cumulative interest rate increases. Recent GDP data showed the Canadian economy
grew less than expected in Q4 (in fact stagnated in Q/Q annualised terms and
contracted 0.1% m/m in December), and was worse than the BoC had forecast,
which many analysts say has cemented the pause. Additionally, the January CPI
data decelerated, and was below market expectations, with a fall to within the
BoC’s 1-3% target band now within the realms of possibility for 2023, and
adding to the argument for the BoC to pause.

China Inflation (Thu):
CPI Y/Y is expected to tick higher to 2.2% in February from 2.1% the prior
month, but the M/M index is seen at 0.7% (prev. 0.8%) and Y/Y PPI is forecast
at -0.5% from -0.8%. Using the Caixin PMI as a proxy, the release suggests
“Prices remained stable. In February, the measures for input costs and prices
charged in the services sector both posted gains, albeit marginal ones under
mild inflationary pressure. Surveyed service providers reported elevated costs
of raw materials, labour and office supplies to different extents, but their
bargaining power for prices charged remained limited as the market was still in
recovery”. Meanwhile, China’s “two-sessions” will get underway on Saturday,
with Reuters sources suggesting that China is to stick to its long-standing
inflation target of around 3%. “Monetary policy is likely to relax more in the
coming months to counter the deflation pressure as well as the yuan
appreciation. Inflation for the full year in 2023 will nonetheless sit comfortably
below the official target”, according to a snippet from state-controlled CGTN,
published on February 11th, 2023.

BoJ
Policy Announcement (Fri):
The Bank of Japan is expected to keep policy settings unchanged at its meeting
next week with the BoJ likely to leave rates at -0.10% and maintain its QQE
with Yield Curve Control to flexibly target 10yr JGB yields at about 0%. This
will be the last meeting with Governor Kuroda at the helm who’s term ends in
early April, while Deputy Governors Amamiya and Wakatabe will also be finishing
their terms this month. As a reminder, the BoJ defied increased speculation for
a policy tweak at the last meeting in January and instead maintained its rate
and the parameters of its YCC, while it also stuck with the forward guidance on
rates and said it will continue large-scale JGB buying, as well as reiterating
that it will not hesitate to take additional easing measures as necessary.
Furthermore, it announced it will seek to improve market functioning by mixing
bond buying with supply operations against pooled collateral and the Outlook
Report was also dovish leaning as Real GDP forecasts were cut across the
projection horizon and Core CPI estimates for Fiscal years 2023 and 2024
remained below the BoJ’s target of 2% which is a level that could have paved
the way for policy normalisation. Rhetoric from the BoJ since that meeting has
remained dovish as Kuroda stated that he is resolved to keep ultra-loose policy
and that the BoJ expects core consumer inflation to slow beyond 2% in both
fiscal year 2023 and 2024, while Deputy Governor Amamiya also noted it is
appropriate to maintain ultra-loose monetary policy, but acknowledged that
there are demerits to their YCC policy. As an adjustment in policy is very
unlikely at Governor Kuroda’s last meeting after a 10-year stint which began
with the announcement of QQE way back in April 2013, markets will be looking to
the next central bank chief to steer the BoJ towards an exit from ultra-loose
policy, although his nominated successor, academic and former BoJ Board member
Kazuo Ueda doesn’t seem in a rush to normalise policy as he recently noted that
current monetary policy is appropriate and that Japan still needs more time for
inflation to sustainably hit the 2% target. Furthermore, Ueda has stated it is
appropriate to continue monetary easing from now on and suggested that the BoJ
would either need to move towards monetary policy normalisation or must
consider ways to maintain YCC depending on if inflation significantly improves
or not, while a source report also recently noted that the BoJ is said to
prefer watching how the impact of earlier policy tweaks work out for now.

Norway CPI
(Fri):
January’s release showed marked upside for both headline and core YY Norwegian
inflation. Prior to this, the Norges Bank held its rate at 2.75% in January and
guided participants to a hike most likely occurring in March. At the time,
Governor Bach said rate forecasts following the March meeting had not yet been
made. Even prior to the January CPI release, desks were making hawkish
alterations to their Norges Bank calls looking for 25bps hikes in March and
June. If the February release is hot once again, and as it comes amid a
backdrop of broader hawkish global re-pricing, we may well see some further
hawkish adjustments to the Norges Bank’s terminal rate; a level which desks,
broadly speaking, see at around 3.25% vs the current implied 3.10% terminal.
Albeit, while Norway’s domestic data has been a touch better in recent months,
the February Manufacturing PMI dropped back into contractionary territory; a
finding that if confirmed via hard data, could impact on the magnitude of
further tightening the Norges Bank is willing to deliver.

US Jobs Report (Fri):
The rate of US nonfarm payroll growth is expected to cool to 200k in February,
following the blockbuster 517k rise reported in January. If the consensus is
realised, it would be lower than the pace of the 3-, 6- and 12-month averages,
at 356k, 349k and 414k respectively. Analysts have argued that the January
upside may have been as a result of seasonal adjustments, which could become a
negative factor for the February data. The unemployment rate is forecast to
rise by one-tenth of a percentage point to 3.5%; the Fed projects this rate
will peak-out at 4.6% in 2023, although the central bank will update its
economic projections at the March 21-22nd confab. Credit Suisse said there is a
chance that the jobless rate could be unchanged this month, and cites the
Conference Board’s data, which shows job openings remaining elevated, and the
‘labour differential’ within the most recent consumer confidence report has
rebounded back towards the top of its recent range. To get a pulse on how
compensation pressures are being impacted by high inflation, analysts will closely
monitor the average hourly earnings data; the street expects this will rise by
0.3% M/M, matching the pace seen in January, while average workweek hours are
seen narrowing to 34.6hrs from 34.7. CS writes that due to an “easy base
effect,” the annual average hourly earnings measure should increase to 4.7% Y/Y
from 4.4% in January, but adds that “underlying wage growth appears to be
moderating across a range of measures and lead indicators, but the current pace
of growth is still uncomfortably high for the Fed.”

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