Core US Inflation Remains Stubbornly High

AUD

The Aussie dollar has steadied against the majors in the last 24hrs, while equities slumped in the domestic & Asian regions. The ASX closed the session down -1.4%, led by energy & tech stocks, while the Hang Seng and Nikkei fell -2.4% & -2.2% respectively after sell-offs gained steam amid fears of a global contagion of bank runs as a result of the SVB collapse in the USA. Little in the way of local data yesterday, while focus today will be on China’s Retail Sales (expected at +3.5% y/y) & Unemployment Rate (expected to fall slightly to 5.3%). For Aussies, the main focus this week will be tomorrow’s employment data. The Unemployment Rate is expected to fall slightly to 3.6% and while RBA Governor Lowe’s recently indicated the risk of a wage-price spiral are small, no doubt the RBA will be taking tomorrow’s data into consideration when deciding on next month’s interest rate decision.

USD

AUDUSD opens slightly higher at 0.6681 this morning, with Wall St also steadying overnight; the NASDAQ +2.1%, S&P 500 +1.6% & the Dow Jones +1.1%. Overnight the much anticipated consumer inflation numbers were released, with data for February showing another firm month of underlying inflation, with Core CPI m/m at 0.5%, up from 0.4%, while the headline figures both fell to expectations of +0.4% m/m & 6.0% y/y respectively. Notably, the Core data shows almost no disinflation in its trend (3 month average), which remains near peak levels reached in October 2022. Given the underlying breadth & persistence of US inflation, particularly within the Services sector, expectations of further interest rate hikes would typically strengthen. However, recent obstacles in the banking sector have led to a sharp unwind in expectations of further rate hikes. Some economists have even called for a cut at next week’s meeting for financial stability reasons. To gain a clearer picture, all eyes will be on tonight’s market moving data, including Core PPI m/m (expected at +0.4%), Core Retail Sales (-0.1% suggesting consumer spending is weakening) & the Empire State Manufacturing Index (expected to remain firmly in contractionary territory).

EUR

After a bumpy session, AUDEUR opens flat relative to this time yesterday at 0.6226, while the DAX & CAC saw gains of +1.8% & +1.9% respectively. No data out of the Eurozone yesterday while today we’ll see French Final CPI m/m tipped at +0.9%. Focus will remain on Friday’s early hours where the European Central Bank is expected to raise their interest rate by 50bps to 3.5%, as President Christine Lagarde recently ‘promised’. Despite this, markets are only pricing in 38bps of tightening based on recent financial turmoil (think Silicon Valley Bank). Economists largely agree on a 50bps hike as the ECB remains (on paper) focused on fighting inflation.

GBP

AUDGBP opens at 0.5501 and the FTSE closed the session up 1.2% after UK January Unemployment printed at 3.7%, beating expectations of 3.8% & underlining further persistence in their labor market. Market focus in the UK has been centered around HSBC’s purchase of SVB UK, an operation that was championed by the UK government, although it’s hard to tell how this will impact the pro-cyclical currency amin recent swings in equities. Tonight we’ll see UK Chancellor Hunt deliver the Annual Budget Release where he’s expected to further Rishi Sunak’s focus on the Science & Technology sectors. While recent falls in gas prices are good news for public finances, potential revisions to the medium-term outlook offer virtually no room for the Chancellor to shelve plans for tighter public spending this decade.

NZD

AUDNZD opens at 1.0725 after New Zealand’s seasonally adjusted Current Account deficit this morning exceeded expectations at $8.5 billion. The main focus this week remains on tomorrow’s GDP q/q with the figure expected at -0.2%. Although the RBNZ hasn’t followed recent Central Banks in toning down their hawkish rhetoric, it’s already been one of the most aggressive central banks over the past year & so there’s currently limited scope for their terminal rate to head much higher. On the flip side, the RBNZ is unlikely to abruptly turn dovish, meaning there isn’t much scope to price into markets (in either direction). As a result, the NZD will likely remain correlated with global risk sentiment.