On a more technical note, the Fed reintroduced the SLR – a banking orientated balance sheet restriction that was temporarily lifted in midst of last year’s market chaos. Despite initial fears, the funding markets were not disrupted, prices were still made, and the sky did not fall. Going forwards the short-term funding rates may drift lower as banks look to shift deposits (a liability for a bank) towards money funds, year-end funding may cost a little more and possibly an increase in UST volatility as price-makers widen bid /offer spreads. Overall, the market impact is not significant, but may detract from the banking sectors’ bottom line. Hence the disproportional amount of bank research on this topic.
North America
US: Business and manufacturing surveys were stronger, but Feb core retail sales unexpectedly dropped to -3.5% (-0.6% exp., 6.0% prev.)
The FOMC met and left its QE program unchanged and its policy rate in the same range of 0.0% to 0.25% (0.0% to 0.25% exp., 0.0% to 0.25% prev.) The interest was the updated dot plot and press conference, where chair Powell messaged that despite the upgrades to growth and inflation, policy rates would not be moved until inflation had been realised, so the path of rates was unchanged.
Canada: Feb CPI (trimmed-mean) was weaker at +1.9% YoY (2.0% exp., 1.8% prev.), Jan core retail sales were better than expected, but still negative at -1.2% MoM (-2.7% exp., -4.1% prev.)
Europe
Eurozone: Feb CPI was stable at +0.2% MoM (0.2% exp., 0.2% prev.) and 0.9% YoY (0.9% exp., 0.9% prev.) with core at +1.1% YoY (1.1% exp., 1.1% prev.) French CPI was stronger but low at +0.8% YoY (0.7% exp., 0.7% prev.) German survey measures of expectations and the current situation were slightly stronger. Italian CPI was stable at +1.0% YoY (1.0% exp., 1.0% prev.)
Sweden: Swedish Feb Core CPI printed lower than expected at +0.2% MoM (0.5% exp., -0.7% prev.) and +1.2% YoY (1.6% exp., 1.8% prev.). Unemployment dropped to +8.9% (9.0% exp., 8.9% prev.)
Norway: Norwegian policy rates were left unchanged at 0.0% (0.0% exp., 0.0% prev.) by the central bank, but the big news was an uplift to the rate path signalling a hike by the end of the year. The committee pointed to a faster vaccine rollout and stronger house prices than they were comfortable with. With the backdrop of a stronger oil prices and energy sector as well as a relatively mild coronavirus so far, the new rate path seems reasonable.
Japan
The BoJ kept its overnight policy rate unchanged at -0.1% (-0.1% exp., -0.1% prev.). Its yield target on the 10-Yr was formally published for the first time to be in a +/- 0.25% band and the formal target for ETF purchases was dropped. Whilst there was a little disappointment that the 10-Yr band wasn’t widened to +-0.3%, the announcement represents the reality of the current implementation of QQE and is a recognition that further progress in reinflating asset prices can be achieved with smaller amounts of QQE.
Feb the national measure of core-CPI was stable at +0.2% YoY (0.2% exp., 0.1% prev.) and core machine orders, albeit volatile, was better than expectations.
UK
The BoE met left both its asset purchase programs and its policy rates unchanged. Bank rate is +0.1% (0.1% exp., 0.1% prev.)
Australasia
Australia: 4Q house prices rose more than expected and the minutes of march RBA meeting suggested the committee can only see weak wage growth ahead. Strong employment data in full and part time employment was released, the unemployment rate dropped to +5.8% (6.3% exp., 6.4% prev.) and the participation Rate held steady at +66.1% (66.1% exp., 66.1% prev.) only retail sales were weaker, at -1.1% MoM (0.6% exp., 0.5% prev.)
New Zealand: 4Q GDP was negative and came as a bit of a surprise after a string of positive data -1.0% QoQ (0.2% exp., 14.0% prev.) pushing 4Q GDP to -0.9% YoY (0.5% exp., 0.4% prev.)
For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below
