Daily Market Outlook, March 2, 2023

All Eyes On Euro Area Inflation

ISM data left Wall Street closing on a whimper, markets are increasingly pricing a higher terminal rate for the US rate cycle, compounded by hawkish rhetoric from Fed members Bostic & Kashkari both of whom remarked that a 5%+ terminal rate is required to quash inflation, Kashkari specifically stated that services inflation was a primary concern and required real attention, as such the US 10yr yield tipped 4%, with markets pricing a further 75bp rise by the FOMC this year.

Eurozone headline CPI is expected to fall to 8.4% from 8.6% in January, a smaller decline than previously forecast. ECB officials will be focused on core CPI (excluding food and energy) which market watchers expect to rise to a new record high of 5.5% from 5.3% in January,driven by services sector wage inflation. The January unemployment rate is expected to stay at all time lows anchored at 6.6%. The ECB’s minutes from the latest policy meeting in February will be released later this morning and should offer more clarity on discussions, however, the board has been very transparent in communicating its belief that further rate rises are required throughout the first half of this year. Stateside US weekly jobless claims data is pencilled in for another print below 200k as has been the case for the past six weeks which is still signalling a very tight labour market. Fed Governor Waller will make remarks on the economic outlook later this afternoon, he is expected to tow the line of ‘higher for longer’.

Overnight, Japan’s CPI will also garner investor interest ahead of the national figures in a few weeks’ time, given market anticipation of policy normalisation by the Bank of Japan later this year. China’s Caixin services PMI will also be parsed for further confirmation of an economic uptick post Covid restriction relief.

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