Ahead Today
G3: US CPI
Asia: Philippines trade, Malaysia industrial production, India industrial production, India CPI
Market Highlights
Tonight’s US February CPI print could be important to see if it validates the Fed’s increasing confidence on rate cuts this year and the current market pricing. The January print rose more than expected with the core rate in particular rising 0.39%mom, driven in particular by increases in shelter costs and some services components such as transportation services and healthcare. Beyond the headline print, markets will watch closely to see if the spike in shelter inflation reverses, and also if the details suggest a reversal in sticky components in inflation.
On that front, the NY Fed inflation expectations for 3-year and 5-year ahead rose by around 0.35%, but with the 1-year ahead figure more contained in its increase. Beyond the month-to-month gyrations, the trend for inflation expectations remains much lower compared with the last two years, and should remain sufficient for the Fed to cut rates this year absent sharp increases moving forward.
The Dollar was mixed, with JPY outperforming at 146.68, while risk assets took a little bit of a backseat in the leadup to CPI with the US and European equity markets declining.
Regional FX
Asian FX markets traded stronger against the Dollar, with Asian currencies helped by better sentiment on JPY on the back of rising expectations of a BOJ rate move next week. PHP (+0.8%), IDR (+0.7%), and KRW (+0.6%) were the key outperformers. Looking ahead today, we will have the Philippines trade deficit estimate for January, which is expected to rise to US$4.7bn from US$4bn previously. While PHP has outperformed recently, we continue to see PHP underperforming through 2024 as the current account deficit remains large and FX valuations are not attractive. Meanwhile, India will release its CPI inflation estimate for February and industrial production estimate for January. We see some possibility for India’s inflation to be lower than expected given the high frequency food prices data. We are constructive on INR and see USDINR at 81.5 by year-end.
