Market Overview: How CPI Changes Bank of Canada Decision

Welcome, traders! As we embark on a fresh trading week, E8 is here with your essential Market Overview. This week’s edition is packed with key economic events and data to guide your trading decisions. Stay ahead of market trends and anticipate shifts with our comprehensive analysis.

Key Events of the Week Include:

• CPI (Consumer Price Index) in Canada
• RBA and FED Meeting Minutes
• Flash Manufacturing & Services PMI for Major Economies
• Balance of Trade for Japan, Switzerland, and New Zealand

Monday, February 19th, 2024

Our week starts on a calm note, with Monday bringing us just one piece of noteworthy data: the Canadian Producer Price Index at 1:30 pm. This figure is more than just a number; it’s a sneak peek into what we might expect for Tuesday’s Canadian Inflation Rate. Think of it as a chain reaction: changes at the producer level often lead to shifts in consumer prices, potentially influencing the CPI data. So, let’s keep an eye on this, as it might just be the hint we need for what’s to come.

There are no other significant data releases scheduled for Monday.

Tuesday, February 20th, 2024

Tuesday begins early with the release of the RBA Meeting Minutes in Australia, offering a detailed perspective on the recent monetary policy meeting’s discussions, which covered economic conditions, financial market dynamics, and both domestic and international economic developments.

At 7:00 am, the Swiss Federal Customs Administration will release the latest International Trade data. This release is particularly noteworthy as Switzerland is currently experiencing one of its smallest trade surpluses in years, attributed mainly to a rise in imports.

In the afternoon, we turn our attention to the critical Canadian CPI figures, highlighting a rise to 3.4% in December, indicative of ongoing inflation concerns. This trend aligns with the Bank of Canada’s projections, hinting at sustained inflation rates around the 3.5% mark into mid-year. This data fuels the discussion around additional rate hikes, heightening the anticipation for the Bank of Canada’s next meeting. An increase in inflation could signal a more hawkish approach, potentially boosting the Canadian Dollar ahead of the March 6, 2024, meeting.

Just before midnight, Japan will unveil the Reuters Tankan Index and its international trade figures. The trade balance has surprisingly been in surplus a few times since mid-2021, and the upcoming data is anticipated to show a larger surplus, marking a shift from previous deficits. This would represent positive developments for Japan.

Speeches:

• 10:15 am – BoE Gov. Andrew Bailey, Ben Broadbent and Swati Dhingra

Wednesday, February 21st, 2024

Wednesday will mostly be calm, featuring only a few speeches from bank officials and the Eurozone’s preliminary Consumer Confidence at 3:00 pm.

The evening, however, promises to be different as we look forward to the FOMC Minutes at 7:00 pm, revealing the discussions from the Federal Reserve’s last Interest Rate Decision on January 31st. The Fed has once again held the Fed funds rate steady at a 23-year peak of 5.25%-5.5% during its fourth consecutive meeting in January 2024, as anticipated. The authorities have expressed that rate cuts are unlikely until they are more assured that inflation is consistently trending towards the 2% goal. In the press briefing, Chair Powell mentioned the possibility of beginning to lower rates later this year, although decisions will be evaluated individually, hinting that a cut in March seems improbable. Additionally, the Fed has ceased mentioning additional rate increases, indicating a more balanced outlook towards meeting its employment and inflation targets, yet emphasized readiness to modify monetary policy if necessary to mitigate any arising risks. The report noted a reduction in inflation over the previous year, though it remains high. Further details will emerge from Wednesday’s report.

Two hours following the FOMC, New Zealand will unveil its most recent International Trade figures.

Then, at 10:00 pm, Australia will start the Flash Manufacturing and Services PMI rally. The current forecasts are quite optimistic: the Manufacturing PMI is expected to rise slightly to 50.9 from 50.1, and the Services PMI is anticipated to edge above the benchmark level 50, moving from 49.1 to 50.2, signaling a minor yet positive effect on the Australian economy.

Speeches:

• 10:25 am – ECB Edouard Fernandez-Bollo
• 01:00 pm – FED Raphael Bostic
• 01:30 pm – BoC Toni Gravelle
• 02:00 pm – BoE Swati Dhingra
• 03:10 pm – ECB Anneli Tuominen
• 06:00 pm – FED Michelle W. Bowman

Thursday, February 22nd, 2024

Thursday begins with a continuation of PMI releases, starting with Japan just 30 minutes past midnight.

The day will proceed with more PMI announcements from Europe:

• France at 8:15 am
• Germany at 8:30 am
• Eurozone at 9:00 am
• United Kingdom at 9:30 am

Although the PMI figures for major Eurozone economies are expected to be optimistic, they are still not anticipated to surpass the 50 level.

At 1:30 pm, Canada will announce its Retail Sales data alongside the U.S., which will release its weekly figures for unemployment benefit claims. Over the last three weeks, these numbers have gradually decreased from 227K to 212K. This week, forecasts are set at 217K, complementing the recent jobs report which showcased historical tightness in the U.S. labor market, thereby giving the Federal Reserve room to maintain a hawkish stance.

At 2:45 pm, the U.S. will also publish its Flash PMI data, which, unlike the other mentioned countries, are expected to decline. The Manufacturing PMI is anticipated to fall from 50.7 to 50.2 and the Services PMI from 52.5 to 52. Although this is a slight decrease, it remains above the pivotal 50 level, but it is unlikely to have a significant impact on the U.S. economy.

Commodity traders will be watching the EIA Weekly Petroleum Status Report, which is due for release at 3:30 pm.

The day will conclude with the latest retail sales data from New Zealand.

Speeches:

• 07:30 am – ECB Edouard Fernandez-Bollo
• 09:25 am – ECB Anneli Tuominen
• 06:00 pm – FED Philip Jefferson
• 08:15 pm – FED Patrick T. Harker
• 10:00 pm – FED Lisa D. Cook & Neel Kashkari

Friday, February 23rd, 2024

The final trading day of the week appears to be as calm as Monday, with only the Non-Farm Payrolls release from Switzerland and the IFO Business Climate index from Germany on the schedule.

To wrap up the week, we will also have the opportunity to listen to some speeches from members of the European Central Bank.

Speeches:

• 12:35 am – FED Christopher J. Waller
• 09:20 am – Isabel Schnabel
• 09:30 am – Kerstin af Jochnick
• 01:00 am – Isabel Schnabel

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