ON DECK FOR THURSDAY, MARCH 28

ON DECK FOR THURSDAY, MARCH 28

KEY POINTS:

  • Bonds sell off on hawkish Fed, BoE comments
  • Canadian GDP to inform rebound prospects
  • Fed’s Waller struck a somewhat hawkish note, with an asterisk
  • BoE’s Haskel hawkishly disagrees with Governor Bailey
  • Dovish comments from ECB’s Panetta were ignored by markets
  • US GDP-r, PCE-r, claims, pending home sales on tap
  • Early bond close in Canada and the US ahead of Good Friday

Hawkish comments from officials at the Fed and the BoE are contributing a rates sell off this morning. Dovish remarks by an ECB official are being ignored and perhaps justifiably. Other overnight developments were light and included German retail sales that were weak (-1.9% m/m, +0.4% consensus). Canadian GDP is the main focus into the N.A. session.

Fed’s Waller is in No Rush to Cut—Sort Of

Federal Reserve Governor Waller sounded relatively hawkish last night, but with an asterisk. His speech title “There’s Still No Rush” was a pretty big hint at what it would contain (here). He said “the risk of waiting a little longer to ease policy is small and significantly lower than acting too soon and possibly squandering our progress on inflation.” He also said “In my view, it is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data.”

He also said that he wants to “see at least a couple months of better inflation” before cutting. Ok, well, we’ll get three core PCE readings before the June decision including tomorrow’s and so technically Waller’s guidance is not incompatible with a June cut if all goes just peachily. Productivity appeared 26 times in his speech which apparently indicates its importance to him while stating “I am not convinced that the recent boom in productivity growth will continue” while going through a few arguments to state his case.

BoE’s Haskel Conflicts with Bailey

There is a bun fight going on at the BoE. After Governor Bailey struck a dovish sounding tone last Thursday by saying cuts were ‘in play’, the FT quoted Jonathan Haskel—an external MPC member—as saying that “I think cuts are a long way off.” He went on to say “what we really care about is the persistent and the underlying inflation.”

Why Dovish ECB-Speak Was Ignored

By contrast, ECB-speak was relatively dovish. Governing Council Member Fabio Panetta said that “Risks for price stability have decreased and the conditions for monetary loosening are coming about” while also noting “the rapid reduction of inflation.” His remarks didn’t really impact markets because they’re already priced for a June cut. His remarks could nevertheless be challenged. Eurozone core CPI m/m NSA has been registering relatively hot readings including February’s that was the second hottest month of February on record as we await the March readings and then wage figures before the June meeting.

Canadian GDP—Tracking a Possible Rebound

Canada’s GDP figures for January and February will be the main thing on the macro calendar today (8:30amET). The figures are likely to feed into the rebound narrative. One key is what’s happening to hours worked (chart 1). 0.4% m/m SA is expected for January based upon Statcan’s initial ‘flash’ guidance that was provided on February 29th and little reason to depart from it based upon data since then. There is always revision risk based upon more complete information that Statcan has (chart 2). 

Chart 1: Canada Total Hours Worked; Chart 2: Spread Between Actual Real GDP and Statistics Canada Flash Guidance

More important may be the flash guidance for February GDP. I think momentum could be sustained but there are a lot of unobservable parts of the picture. Hours worked were up by another 0.3% m/m in February after a 0.6% surge in January. Housing starts were up by 13.6% m/m. Home sales took a breather after two prior gains so that may dent ancillary services. Flash guidance for wholesale and manufacturing activity offered solid nominal gains amid uncertainty toward translating that into volumes and value-added activity.

OTHER STUFF

Canadian bond markets face an early close at 1pmET today before being shut for Good Friday. There is no official early close for the TSX ahead of being shut for Good Friday.

UK GDP revisions were basically a non-event. US GDP and core PCE revisions are also on tap but expected to leave growth at or close to 3.2% and core inflation at or close to 2.1% q/q (8:30amET) along with other light US data including weekly jobless claims (8:30amET) and pending home sales during February (10amET).

The US bond market also faces an early 2pmET close ahead of Good Friday.