While yields and the USD traded lower immediately after the report was released, the sell-off was short-lived. I noted this was a strong possibility ahead of the release, simply due to the buck remaining bolstered on haven demand, easing Fed-rate expectations, and the currency being overstretched to the downside. I felt the more bang for your buck was on a beat, which would feed into that haven bid.
One payroll is unlikely to change the Fed, and I am expecting the central bank to hold steady again this month. However, last week’s jobs data puts the central bank in a tricky spot: grappling with a loosening labour market and heightened price pressures, especially amid the Middle East conflict. The rally in energy markets has triggered fresh worries about price pressures and prompted investors to pare back expectations for Fed rate cuts. As of writing, money markets are pricing in just 44 bps of easing by year-end, down from 57 bps a week ago, though up from 37 bps on Thursday.
Given this dovish repricing and the particularly weak US payrolls numbers out on Friday, attention will shift to this week’s US inflation data.
The Week That IS: US Inflation Data
Despite the US-Iran conflict remaining front and centre for market sentiment – which could very well overshadow any data this week – US inflation numbers and their implications for Fed policy will still be on the watchlist for many market participants. We have the February CPI inflation report landing on Wednesday at 12:30 pm GMT, and the all-important January PCE inflation release on Friday at 12:30 pm, which the Fed tracks more closely.
YY headline (core) CPI inflation data is expected to remain unchanged at 2.4% (2.5%), with a 0.3% MM increase from 0.2% in January at the headline level and to cool to 0.2% on the core front from 0.3%. For the YY headline PCE inflation, economists expect a moderate deceleration to 2.8% from 2.9%, and the YY core print forecast to remain unchanged at 3.0%.
Although the surge in energy prices took hold last week and this morning, this, of course, will not be included in the upcoming data. However, we have to account for the fact that Oil markets have been on the front foot for most of the year, and investors are concerned about the implications for inflation now.
Heading into the events, you may also recall that the Fed remains divided but continues to lean hawkish, with patience the key theme right now and that the bar to cut is essentially rising. I think it is safe to say that Governor Waller and Governor Stephen Miran will vote to cut rates this month, particularly after Waller noted that he may be open to holding the target rate steady if jobs indicate a more ‘solid footing’, which we clearly did not get on Friday. Of note, the Fed’s blackout period started on Saturday and will end a day after the Fed’s rate announcement on 18 March.
Ultimately, higher-than-expected inflation figures this week will support the Fed’s ‘no rush’ stance, potentially reinforcing yields and the USD, while exerting downward pressure on Stocks and Gold. Remember, the USD is expected to stay bid on haven demand amid the US-Iran conflict, and this, combined with a ‘still’ overextended USD to the downside and easing Fed rate-cut expectations, suggests a possible rise in the USD on a positive report.
Other Key Data on the Docket This Week
Friday 13 March
UK MM GDP data for January at 7:00 am GMT
Economists estimate that GDP grew by a meagre 0.1%, matching December’s 0.1% gain.
Canadian employment data for February at 12:30 pm GMT
Unemployment is forecast to increase by 6.7% in February, from 6.5% in January. In terms of employment change, the Canadian economy is expected to have lost 15,000 jobs, following a 24,800 fall in the previous month.
US GDP growth rate (preliminary estimate) for Q4 25 at 12:30 pm GMT
Based on early forecasts, economists estimate that real GDP growth grew by an annualised rate of 1.4% in Q4 25, matching the first estimate released last month.
US JOLTS job openings data for January at 2:00 pm GMT
Economists estimate that job openings decreased to 6.5 million in January, from 6.54 million in December.
Written by FP Markets Chief Market Analyst Aaron Hill
