Monday starts quietly, with no significant events scheduled for the FX market. Overall, it’s a light week for data, with the main focus likely to remain on developments in the Middle East.
On Tuesday, Japan will release its national core CPI y/y, while the Eurozone, the U.K., and the U.S. will publish flash manufacturing and services PMIs. In addition, the U.S. will release the ADP employment change and the Richmond manufacturing index.
On Wednesday, attention will turn to inflation data from Australia and the U.K. Thursday brings U.S. unemployment claims, and on Friday the U.K. will release retail sales m/m, while the U.S. will publish the revised University of Michigan consumer sentiment and inflation expectations.
Some FOMC members are expected to deliver remarks during the week, and traders will be watching closely for signals on the future path of monetary policy. Markets continue to expect rate cuts by the end of the year, in line with the Fed’s projections, although concerns about stagflation have increased due to elevated energy prices and potential supply disruptions.
The U.S. may be less vulnerable than other regions, but the labor market remains a key area of concern, showing signs of softening. If uncertainty persists, it could weigh further on hiring. While the Fed is not expected to raise the federal funds rate, policymakers are likely to emphasize a cautious, data-dependent approach.
In Japan, the consensus for national core CPI y/y is 1.7% versus 2.0% previously. Markets will closely monitor the release to assess whether inflation remains below the BoJ’s 2% target or begins to reaccelerate as the rising global energy prices and a weaker yen could increase import costs.
At the latest meeting, the Bank of Japan kept policy unchanged, with Governor Ueda highlighting the importance of wage developments and underlying inflation trends, particularly in the context of ongoing geopolitical uncertainty.
On Tuesday, attention will focus on PMI data, particularly in the U.K., the eurozone, and the U.S., to assess how the Middle East conflict is affecting business activity, costs and confidence. One of the key aspects to watch will be whether rising energy prices are feeding into inflation, and to what extent companies are passing those costs on to consumers.
At the same time, the data will be monitored for signs of weakening demand and sentiment, as geopolitical uncertainty could weigh on growth. Supply chain disruptions, especially through energy routes, will also be an important theme, with delivery times serving as an early warning signal for potential production constraints.
From a regional perspective, the eurozone and Japan appear particularly exposed due to their energy dependence, while the U.K. and the U.S. face a combination of inflationary pressures and softer confidence. Overall, the surveys should help markets determine whether the shock is primarily inflationary or increasingly growth-negative.
In Australia, the consensus is for inflation to hold steady at 3.8% y/y in the February CPI reading, with only a modest monthly increase. Seasonal patterns point to softer overall price pressures, supported by declines in fuel and travel-related costs.
However, these declines are being offset by continued increases in areas such as education, housing, and utilities, keeping underlying inflation relatively firm, analysts from Westpac noted. The trimmed mean measure is also expected to remain steady at around 3.4% annually, suggesting that core pressures are still sticky, even though momentum has eased slightly in recent months.
As a reminder, the RBA raised rates by 25 bps to 4.10% at its most recent meeting, in a narrowly split decision. Policymakers highlighted ongoing capacity constraints and rising inflation expectations driven in part by higher energy prices, while signaling that further tightening could remain on the table depending on how risks evolve.
In the U.K., both CPI y/y and core CPI y/y are expected to remain unchanged at 3.0% and 3.1%, respectively. A near-term dip in inflation towards 2% is unlikely to alter the outlook, as the impact of higher gas prices on electricity bills is not expected to be fully reflected until Q3. For now, analysts from ING expect the BoE to enter an extended pause.
