It’s quiet. Too quiet. Markets aren’t providing us with much to write about this morning: equity futures are setting up for a tame open, yields are basically flat, and most major currencies are less than 0.10 percent off yesterday’s levels.
Yesterday’s round of Fedspeak was relatively hawkish. Outgoing Federal Reserve Bank of Cleveland President Loretta Mester – a voter until June – said policymakers might feel confident enough to begin easing policy “later this year,” but “It would be a mistake to move rates down too soon or too quickly without sufficient evidence that inflation is on a sustainable and timely path back to 2 percent”. Neel Kashkari, her non-voting colleague in Minneapolis, said “A remarkable thing has happened over the last six to nine months: Inflation has come down very quickly,” but “I don’t want to say we’re done yet.”
The most hawkish member of the European Central Bank’s rate-setting council warned that easing financial conditions could cause inflation to “flare up again,” signalling a desire to keep rates at current levels for longer. In an interview with the Financial Times, Isabel Schnabel said “Incoming data do not allay my concerns that the last mile may be the most difficult one”. “We see sticky services inflation. We see a resilient labour market. At the same time, we see a notable loosening of financial conditions because markets are aggressively pricing the central banks’ pivot. On top of that, recent events in the Red Sea have sparked fears of renewed supply chain disruptions”. “Taken together, this cautions against adjusting the policy stance soon.”
China replaced its senior securities regulator, signalling increasing commitment to pulling onshore markets out of their downward spiral. Stock indices staged a modest bounce after Wu Qing, former head of the Shanghai Stock Exchange, was appointed to replace Yi Huiman as chair of the China Securities Regulatory Commission, suggesting that – for now, at least – the government’s “beatings will continue until morale improves” approach is working on investors.
Today’s schedule is short on data, long on rhetoric from central bankers. Updated numbers, out at 8:30 Eastern, might show the US trade deficit narrowing slightly in January, but market implications should be limited. The Treasury Department will auction a record $42 billion in notes at 13:00, attracting more interest from traders seeking to gauge investor appetite for US debt at prevailing yields. And the Fed’s Kugler, Collins, Barkin, and Bowman are all scheduled to speak, with markets prepared to seize on signs of disagreement with Chair Powell’s comments last week – real or imagined.
Please note: I will be on vacation from the 9th to the 19th, and the Morning Market Brief will resume on the 20th. Apologies for any inconvenience.
The Bank of Mexico is overwhelmingly expected to stay on hold for a seventh straight decision, maintaining its benchmark rate at 11.25 percent. With January data out earlier in the day likely to show core inflation continuing its downward trajectory, officials could follow their developed-country counterparts in preparing markets for a slow and gradual easing cycle starting around the March meeting. The Federal Reserve’s shift into neutral should give policymakers some breathing room, but the all-clear for rate cuts hasn’t yet been sounded. (14:00 EDT)
A big disappointment in Canada’s January Labour Force Survey could have a significant impact on monetary policy expectations – and on the Canadian dollar. Markets lowered odds on a March rate cut after November and December gross domestic product estimates surprised to the upside in late January, but the jury is out on whether the economy is truly generating the kind of recovery that translates into increased demand for workers. A negative print could bring easing bets back into vogue and unravel the loonie’s recent gains. (08:30 EDT)