ECB: Weekly ECB Speak Wrap (Feb 25 – Mar 3)
Mar-03 17:12
In the following publication, we provide a summary of ECB speak between February 25 and March 3: 250303 - Weekly ECB Speak Wrap.pdf
The final week of ECB speak before the March 6 decision did not bring too many surprises, with Schnabel and Nagel’s hawkish communique balanced by the characteristically dovish Stournaras. A 25bp March cut is unanimously expected and essentially fully priced in ECB-dated OIS, leaving focus on the policy statement guidance and updated macroeconomic projections. MNI’s ECB preview will be released tomorrow.
- The MNI Policy Team’s pre-meeting sources piece helped separate the signal from noise ahead of Thursday’s decision. While the bank’s inflation projections are likely to be revised a little higher, this is seen as a temporary blip. Meanwhile, hawkish officials are already pushing to remove a reference to policy being at restrictive levels from the ECB’s statement, though dovish resistance could limit the change to a mention of the need to closely monitor the degree of restriction.
- Schnabel argued that the ECB’s balance sheet run-off would contribute to a higher neutral rate of interest, which underscores her view that “we can no longer say with confidence that our policy is restrictive”. These comments were broadly consistent with her hawkish FT interview the week before last.
- Meanwhile, Kazaks (speaking on monetary policy for the first time since prior to the January decision) argued that the direction for monetary policy is “still clear” – a sentiment shared by Stournaras.
- In an interview with the MNI Policy Team, Bank of Cyprus Governor Patsalides provided a pragmatic outlook for policy, noting that “while our policy remains restrictive at this stage, going forward the appropriate degree of restrictiveness is continuously reassessed based on evolving economic conditions at each meeting”.
- The ECB’s January accounts were also released last week. For a summary, see here, here and here.
- Last week’s dovish repricing in ECB-dated OIS has largely been unwound today, with long-end yields pushed higher amid prospects of increased Eurozone (especially German) defence spending.
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FED: Powell To Deliver Semi-Annual Testimony In Mid-Feb
Jan-31 21:48
The House Financial Services Committee's website confirms that Fed Chair Powell will deliver his semi-annual Monetary Policy Report on Wednesday Feb 12 at 1000ET.
- The Semi-annual testimony will be closely eyed as Powell's first scheduled appearance since the January FOMC - and the House testimony on the 12th is the same day as the release of January CPI (and the week after nonfarm payrolls and benchmark revisions) so will be of particular interest.
US OUTLOOK/OPINION: Nonfarm Payrolls, Revisions Highlight Next Week In US Macro
Jan-31 21:39
Friday’s nonfarm payrolls for January highlights the US macro week. It's a highly anticipated report that could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- The preliminary estimate for the benchmark revision pointed to the level of payrolls being some 818k lower than currently reported for back in March 2024. There’s a broad expectation from what we can gather that the hit seen next week won’t be as large but it could still be significant. We also watch the seasonal revisions closely, as whilst they should have a zero-sum impact over the calendar year, we’ve noted some particularly favorable seasonal factors in recent months that have biased seasonally adjusted jobs growth higher.
- With these considerations in mind, the early days of the Bloomberg consensus points to nonfarm payrolls growth of 150k after a solid three-month average of 170k. Note that the unemployment rate from the separate household survey won’t be affected by these revisions, having already seen its own seasonal factor revisions last month. A population control will complicate month-on-month changes in the levels of employment and unemployment but shouldn’t be significant for the rate, which is seen unchanged at 4.1% having surprised lower with 4.09% in December. The recent high is technically 4.23% in November having first popped to 4.22% back in July.
- Two other special mentions for the week are: 1) rare remarks from FOMC Vice Chair Jefferson speaking on the economic outlook and monetary policy late on Tuesday with both text and Q&A, having last spoke on Oct 9. 2) ISM services on Wednesday after its priced paid series jumped 5.9pts to 64.4 in December for the highest since Feb 2023.
- Away from macro but still material, the coming week brings the US Treasury's quarterly refunding process - our preview is here.
MACRO ANALYSIS: MNI US Macro Weekly: Uncertainty Vindicates Fed’s Patience
Jan-31 21:37
In a largely positive week for economic activity data, including in core durable goods and MNI Chicago PMI, the Q4 GDP accounts stood out by showing a very strong end to 2024 for the consumer.
- As we go to press, though, President Trump has confirmed that tariffs would be imposed on Canada, Mexico, and China beginning this weekend – while also threatening further action against the likes of the European Union and across various import categories.
- The combination of solid growth and policy uncertainty, along with stubborn “supercore” PCE inflation for December, seemingly vindicated the Federal Reserve’s “hawkish hold” at its January meeting.
- A March rate cut is still a possibility but the bar for such an outcome has been set high.
- That gets us to the first key release between now and then: Friday’s nonfarm payrolls for January is the highlight of the US macro week, and could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- Other highlights in the upcoming week include ISM Services and the Treasury’s quarterly Refunding announcement (Wednesday), while FOMC Vice Chair Jefferson delivers commentary on the economic outlook and monetary policy Tuesday.
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