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US Economic Outlook.
The latest published data shows that the US economy is still expanding at a solid pace with a strong labor market and a rebound in the housing sector after a slower improvement in January. The Fed held the rates, and the dot plot confirms the greater possibility of three cuts in 2024, which helped the stock markets rise and the US dollar fall. However, with stronger economic data, especially in the labor market, these movements have been reversed. We should also not forget about the effect of the Swiss National Bank rate cut on USD value, as it raised market risk and increased demand for the US Dollar. Also, data shows that the LEI advanced 0.1% in February, marking the first monthly gain in nearly two years.
This week we have to watch the New Home Sales (Mon.), Durable Goods Orders (Tue.), and Personal Income & Spending on Friday.
New Home Sales increased in 2023, despite slower growth in the pending home market. The owners who bought their houses with low-interest loans were not willing to sell or even exchange them, but inventory and builder concessions have supported the solid pace of new home sales. In 2024 and so far, the trend has continued, and sales have increased. For February data as well, we are positive about new sales and permits. That can help the overall positive sentiment of the market and support the US dollar value.
The next day, we have very important Durable Goods Orders data. As LEI digits and PMI numbers have been showing, Manufacturing production and orders improved much slower than the service sector, which means business equipment spending has also been weak, and consumer demand has pivoted away from durable goods. However, analysts are slightly more positive for this sector in the year ahead, as they expect lower rates, which can drive business investments and stimulate demand for durable goods. In January, mostly due to fewer nondefense aircraft orders, orders of durable goods contracted 6.2. Aircraft sales data from Boeing shows net new orders modestly picking up in February.
Finally, on the last day of the week, while markets will be closed due to Good Friday, investors and market participants will watch the Personal Income and Spending outcomes. With 0.5% expected in personal spending, we expect the PCE price index to increase by 0.4%. Higher-than-expected income and spending will pressure the stock market trend.
Economy in Europe
In the Eurozone, we have a very light week, with most of the focus on German data. On Tuesday, we have the GfK German Consumer Climate, and on Wednesday, we have labor market data. France will also publish CPI and employment numbers. Overall, Eurozone data shows a slow improvement in economic activity.
Outside of the Eurozone, in the UK, we have the final estimate of Q4 2023 GDP on Thursday. Among the mentioned data, market participants will pay closer attention to the speeches by ECB and BoE members throughout the week.
Japan
Tokyo CPI numbers on Friday could be important, but as it is just a week after the BoJ meeting, it may not move the market or attract much attention. Tokyo CPI, on Friday, will offer better insight into the period of higher inflation above the central bank's 2% target. After the February jump, we expect Tokyo's inflation to remain steady in March. Headline inflation is forecast at 2.5% annually, and core inflation is forecast at 2.4%. In addition, we have retail sales and February industrial output as well, and we expect progress in both of them to help the Japanese Yen regain some of its losses against its crosses.
Canada
As we anticipate the Bank of Canada to be the next major bank to cut rates, the GDP numbers can provide valuable insight into the situation. The consensus expectation is that GDP growth will resume at the beginning of 2024 after weaker-than-estimated growth in the last quarter of 2023. This estimate could bolster the likelihood of interest rate cuts in the next meeting and potentially lead to a relative weakening of the Canadian dollar.
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