G3: US CPI revision
Richmond Fed President Thomas Barkin said that the Fed has time to be patient on cutting rates given robust demand and a historically strong labour market, while highlighting that current issues among regional banks on commercial real estate will not be enough to push the Fed to cut rates early. He also highlighted the possibility that neutral rates (or long-term nominal rates minus inflation) could have risen. This echoes recent remarks on higher neutral rates also made by other Fed speakers such as Kashkari, Collins, and Mester. The current debate on whether the long-term neutral rate has risen is likely to increase in the months ahead, especially as the US economy has been quite resilient at least so far, even as inflation has come off.
The US macro data pointed to continued resilience, notwithstanding some pockets of stress such as credit card debt. Initial jobless claims fell more than expected to 218k, but latest data by the NY Fed showed rising credit card delinquencies especially among younger and lower income households, and in auto loans.
Overall, the US Dollar strengthened slightly, US 10-year yields picked up to 4.15%, while equity market sentiment improved on the back of Fed comments and US data. Markets will watch out for today’s CPI revision to gauge extent of disinflation progress.
As many Asian markets geared up for the Lunar New Year-related celebrations in the Year of the Dragon, Asian FX was mixed on the back of the stronger Dollar, with SGD and THB falling 0.3% and 0.4% respectively. China’s CPI fell further by -0.8%yoy, with the PPI also remaining weak at -2.5%yoy. This was partly about lower pork prices, but core inflation also moderated further to 0.4%yoy from 0.6%yoy the previous month. Overall, the weak inflation data raises further pressure on Chinese authorities to implement meaningful stimulus to address the cyclical and structural challenges, even as there have been a flurry of activity in recent weeks on supporting the stock market. Meanwhile, the Reserve Bank of India kept rates on hold at 6.50% in the Feb 2024 meeting as expected, but disappointed markets by keeping its policy stance of “withdrawal of accommodation” unchanged (see link here). We continue to expect the RBI to cut rates by 50bps starting from the September 2024 quarter, but the central bank is likely to have the space to be slow and methodical in doing so given still resilient growth amidst moderating inflation.