Central banks in focus this week

Bank of Japan policy makers were likely encouraged by the 5.28% average wage increase secured by the country’s largest union at the end of last week. This is the biggest wage increase for the union in more than 30 years. Policy makers and the Governor have stressed that wage growth is a key consideration in their inflation outlook. The BoJ is meeting tomorrow but most economists expect rates to remain on hold, with an increase in the policy rate more likely in April. Other key central banks are meeting this week including Australia (hold), Brazil (50bp cut), UK (hold), Turkey (hold) and of course the Federal Reserve, where rates are expected to remain unchanged; the market focus will be on the Fed’s new economic projections and dot plot.

US economic data was mixed on Friday. The preliminary University of Michigan consumer sentiment index for March slipped slightly from February and was a little lower than expected at 76.5. The current conditions index was unchanged from February but the expectations component declined to 74.6 from 75.2 last month, probably due to higher petrol prices. Both short and long-term inflation expectations were unchanged at 3.0% and 2.9% respectively, with the latter still higher than the 10-year average before the pandemic.

US industrial production rose 0.1% m/m in February, a better-than-expected outcome although the January reading was revised lower. The decline in manufacturing output at the start of the year was attributed to disruptions on account of bad weather, and that partially reversed in February but output remains lower than at the end of 2023. The Empire State manufacturing index also fell sharply in March, reflecting lower new orders, shipments, and employment in New York state this month. The series is volatile.

Dubai property developers Nakheel and Meydan will be incorporated into Dubai Holding, according to an official statement over the weekend. The purpose of the consolidation is to create a larger, more efficient and more competitive entity that will support Dubai’s growth and diversification agenda, D33.

Today’s Economic Data and Events

14:00 Eurozone CPI (Feb, final) forecast 0.6% m/m and 2.6% y/y

14:00 Eurozone core CPI (Feb, final) forecast 3.1% y/y

Fixed Income

• US treasury yields rose sharply last week as markets pushed back their expected timing of the Fed’s first rate cut to July, following hotter than expected inflation data. The 10y yield rose more than 20bp w/w to end last week at 4.31%, while 2y yields rose 26bp w/w to 4.73% at Friday’s close.
• Benchmark 10y yields rose across the board in Europe last week as well, with 10y gilt yields up 13bp to 3.94% and bund yields up 14bp w/w to 2.44%.
• Kuwait’s AA- rating was affirmed by Fitch, with a stable outlook. S&P affirmed Saudi Arabia’s sovereign rating at A, with a stable outlook.

FX

• The USD index strengthened 0.7% w/w last week as treasury yields rose. All the major currencies weakened against the dollar with JPY and GBP the biggest losers at -1.4% and -1% w/w respectively. Among the commodity currencies, NZD lost -1.5% w/w while AUD was down -1%.

Equities

• The major US stock indices closed the week lower to varying degrees. The Nasdaq100 was the biggest loser, down -1.2% w/w but still up 10.3% year-to-date. The S&P500 reached a record high last Tuesday but closed down -0.13% w/w. The DJIA was fractionally lower on the week.
• European equities performed better, with the FTSE100 gaining 0.9% w/w and the CAC40 up 1.7% w/w. Germany’s DAX rose 0.7% last week.
• Local equity markets were mixed with the DFM and Tadawul ASI rising 0.2% and 1.2% w/w respectively while ADXGI declined -1.4% w/w.

Commodities

• Both Brent and WTI prices rose sharply last week, up 4.0% and 3.9% w/w respectively, despite losing some ground in Friday’s session. The main driver for the gain last week was the IEA’s upward revision to its demand forecast for 2024. There was also increased demand from US refiners.