European Outlook: Asian stock markets are narrowly mixed, with investors holding their breath ahead of today’s Fed policy review, which is expected to bring another rate hike. The ASX managed to close higher again after a weak start as strong iron ore prices underpinned a rally in Fortescue shares. U.S, and U.K. stock futures are also moving higher, the latter despite a broad rise in Sterling. Oil prices are also up and the front end WTI future is trading at USD 48.51 per barrel. Today’s European calendar has U.K. labour market data, as well as final Feb inflation data from France and Italy. Germany sells EUR 1bln of 30 year Bunds and market will look to the Netherlands, where elections are held today amid an increasingly escalating spat with Turkey, that seems to have strengthened PM Rutte’s stance against anti-EU populist Wilders.
US reports: the PPI rose 0.3% in February with the core rate up 0.3% as well, following respective January gains of 0.6% and 0.4%. On an annual basis, PPI posted a 1.5% y/y rate versus 1.2% y/y before, while the core rate accelerated to 1.8% y/y from 1.6% y/y. February goods prices were up 0.3% with food posting a 0.3% gain while energy was up 0.6%. Services prices rose 0.4%. The numbers are a little higher than forecast. Rising inflation is one of the main factors behind the Fed’s likely rate hike today. The y/y PPI rise should climb to 2.3% in March from 2.2% in February thanks to a hard comparison, while the y/y core price rise climbs to 1.8% from 1.5% in February. On the old SOP basis, we saw a 0.1% headline PPI rise after gains of 1.1% in January, 0.6% in December and 0.2% in November. Last Thursday’s trade price report revealed firm February prices beyond an oil import price drop that reflected surprisingly little downward pressure from the dollar’s surge.
German ZEW & EU Industrial Production: German ZEW investor confidence rose to 12.8 from 10.4 in the previous month. A tad below Bloomberg consensus, but still a sign that the number of those optimistic about the economic outlook continues to rise, although uncertainty continues to keep a lid on investment sentiment in particular. Eurozone industrial production rose 0.9% m/m in January, after falling -1.2% m/m in the previous month. Numbers have been volatile, and the three months’ trend rate remains unchanged at 0.9%, unchanged from December, the data are still consistent with ongoing economic improvements ahead. European data releases included the slightly weaker than hoped improvement in ZEW investor confidence as well as a confirmation of German headline HICP at 2.2% y/y, with food and energy prices driving the rise above the Eurozone’s upper limit for price stability.
Main Macro Events Today
- UK Unemployment Rate – Monthly labour market report expected to show the unemployment rate remaining unchanged at the cycle low of 4.8%.
- US Retail Sales and CPI – February CPI is expected to be unchanged after a 0.6% surge in January, while the core rate is projected rising 0.2% following the 0.3% gain previously. That should leave the annual headline rate rising at a 2.6% y/y pace versus 2.5% y/y. February retail sales are expected to fall 0.3% amid weakness in autos, nearly unwinding the 0.4% January gain. Excluding autos, sales should also fall 0/3%, partly due to declines in gas and food.
- FOMC Statement & Rate Decision – The FOMC takes center stage and is universally expected to hike rates another 25 bps to a 0.75% to 1.00% policy band. Key for the outlook will be the Fed’s dot plot, as well as any discussion regarding the balance sheet. Given the improved data and more hawkish rhetoric, it’s likely the Fed will confirm its three-tightening dot plot from December.
- Dutch Elections – The Netherlands kicks off this year’s round of elections today and all eyes will be on anti-EU, anti-immigrant populist Geert Wilders and his PVV.
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