US Jobs Report and Jerome Powell Testimony to Take Center Stage

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Bloomberg — US job growth probably moderated last month after a blistering January pace, while the unemployment rate likely held at a 53-year low, illustrating a labor market that’s proved mostly impervious to the Federal Reserve’s massive interest-rate hikes.

The report will follow testimony by Fed Chair Jerome Powell on Tuesday and Wednesday as he delivers semi-annual monetary policy report to lawmakers. His comments may shed light on whether investors are in tune with the central bank’s view on how high it will have to raise rates to knock down inflation.

Payrolls increased by 215,000 in February, according to the median forecast in a Bloomberg survey. To start the year, US employers added more than half a million workers and the jobless rate fell to 3.4% — results that dashed expectations for a near-term pause in the Fed’s tightening campaign.

Friday’s jobs report will be the last before the Fed convenes March 21-22 to consider another 25 basis-point increase in rates or to potentially be more heavy-handed in light of recent data showing stubborn inflation. Officials will also have February consumer-price index and retail-sales data in hand before they meet.

“If the data show that the re-acceleration at the start of the year was short-lived, the Fed’s narrative would become much easier,” Bank of America Corp. economists, led by Michael Gapen, said in a report. “A little bad news would be good news for the Fed.”

Resilient labor demand has bolstered wage growth, in turn undergirding consumer spending and adding to employers’ costs. That risks keeping inflation higher for longer, and helps explain why swaps markets are now pricing in a peak policy rate of 5.5% in September. The benchmark rate currently stands in a range of 4.5% to 4.75%.

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Will Latin America’s Inflation Cool In 2023?

Inflation appears to be dissipating in the majority of the region’s countries, as Argentina and Venezuela struggle to escape from the list of the five countries in the world with the sharpest price hikes

What Bloomberg Economics Says:

“But our analysis suggests many of the high-profile layoffs that have been announced – in tech, for example – only translate to job losses about two months later. If that’s correct, we should expect to see initial jobless claims climb in March.
The March jobs reports – which won’t come out until after the next FOMC meeting – will likely show clearer signs that the labor market is weakening. Unfortunately, the Fed can’t wait until the fog clears to make policy decisions.” —Anna Wong, Stuart Paul and Eliza Winger, economists

Powell will likely be asked by lawmakers if a half percentage-point move is under consideration. The Fed raised rates by a quarter point on Feb. 1, shifting down from a half-point hike in December that came after four consecutive 75 basis-point moves.

Elsewhere, Canada’s central bank may halt rate hikes while Australia’s will likely increase again, and the Bank of Japan’s decision will mark the end of an era.

Canada

In Canada, Governor Tiff Macklem on Wednesday is set to become the first Group of Seven central banker to take his foot off the monetary brake.

The Bank of Canada is expected to hold rates steady at 4.5% in its first decision since officials declared a conditional pause in January. Macklem said it would take an “accumulation of evidence” that the economy wasn’t evolving as forecast for policy makers to step off the sidelines, and so far that hasn’t materialized.

Canada’s inflation slowed to 5.9% at the start of the year from a peak of 8.1%, and output flat-lined in the fourth quarter. The labor market, however, remains tight, with a fresh batch of jobs data due on Friday after two consecutive blowout reports.

Asia

China set a modest economic growth target of around 5% for the year, with the nation’s top leaders avoiding any large stimulus to boost a recovery still being weighed down by weak business confidence and an uncertain property market.

Recent data have been showing the economy’s recovery is strengthening, and trade and inflation numbers are due later this week.

Haruhiko Kuroda makes his final policy decision as Bank of Japan governor on Friday as a momentous decade-long tenure of unprecedented stimulus draws to a close.

While he has one last chance to surprise markets with a move that might help his likely successor Kazuo Ueda, the consensus is that Kuroda will finish with barely a whimper as a stint that began with a bazooka bang of bond-buying ends with a simple stand-pat.

The week starts with inflation figures from South Korea that will test how seriously Bank of Korea Governor Rhee Chang-yong needs to consider the possibility of returning to interest rate hikes after pausing the tightening cycle last month.

The Reserve Bank of Australia meets Tuesday and is expected to push ahead with another quarter percentage rate increase, even after recent data showed slower-than-expected growth and a cooling of inflation. Under-pressure Governor Philip Lowe will get a chance to explain the decision the following day amid growing angst over the Aussie cost-of-living crunch.

Europe, Middle East, Africa

After a week when underlying euro-zone inflation reached a new record, the next few days offer the last chance for policy makers to comment before a pre-decision blackout period in advance of their March 16 meeting. Investors are betting that the European Central Bank’s deposit rate will rise as high as 4% in coming months.

Speaking in an interview published on the ECB’s website on Sunday, President Christine Lagarde said a half-point rate hike this month is “very, very likely.”

Lagarde is scheduled to speak again this week, as are chief economist Philip Lane and Executive Board member Fabio Panetta.

It’s a quieter-than-usual week for euro-zone data. German factory orders and industrial production, on Tuesday and Wednesday respectively, will be among the highlights.

Over in the UK, figures on Friday will reveal if the economy began 2023 with expansion, keeping a widely-predicted recession at bay for longer. Gross domestic product probably eked out a 0.1% increase in January from the prior month, according to the median forecast of economists.

Consumer-price data elsewhere in Europe will draw investors’ attention. Starting on Monday, Swiss statistics will probably show slower inflation in February, with economists anticipating an outcome of 3%. Price growth in the Czech Republic and Norway, due Friday, may also have weakened.

Hungary, which had the fastest inflation in the European Union in January, is likely to have suffered a similar result above 25% last month. That release comes on Wednesday.

Polish policy makers the same day will probably keep their rate at 6.75%, while on Thursday, their Serbian counterparts may hike borrowing costs again.

In Sweden, the monthly GDP indicator for January may signal whether the biggest Nordic economy began the year with another contraction. With a recession looming and the housing market slumping, investors may focus on speeches by officials including Riksbank Governor Erik Thedeen on Tuesday. Thedeen on Saturday said curbing inflation remains the priority.

Further east, Russia on Monday reports auto sales, which are expected to remain in steep decline amid the departure of Western producers. Monthly inflation data on Friday will be watched for signs price pressures are growing.

In South Africa, data on Tuesday will likely show the economy contracted in the fourth quarter, as record power cuts stifled production and discouraged investment. In figures out last month, mining and manufacturing output, which make up about a fifth of total GDP, declined in the December quarter.

Egyptian inflation due on Thursday is likely to show another acceleration after food prices reached a record and the effects of the latest currency devaluation filtered through.

Data on Thursday is expected to show Saudi Arabia’s non-oil sector expanded at the strongest pace in more than a year and helped the kingdom record the fastest overall growth among major global economies at the end of last year.

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Inflation in US, Emerging Markets Keeps Challenging Central Bank Decisions

In Mexico, the mid-month consumer price report should underscore the obvious: inflation is elevated, well over target and sticky as the headline rate hovers near 7.8% while core readings continue to run above 8%

Latin America

In Argentina, January construction activity and industrial output may both extend declining trends, due in no small part to trade and currency controls gumming up the import of materials.

After a surprise decision to hold the key rate unchanged in February at 7.75% following 18 straight hikes, Peru’s central bank is up against it at this week’s policy meeting. Nationwide protests that have weighed on economic activity have also pressured inflation, currently running near its June 2022 peak of 8.81%.

Closing out the week, the last of the region’s big five economies post February consumer price reports. While Chile, Mexico and Brazil all appear to be on the downhill side of peak inflation, many analysts expect above-target readings to bedevil the trio into 2025.

A third month of slowing in Chile may only trim the headline rate to 12%, while early estimates for Mexico see it drifting lower to around 7.7%, the first decline in three months and just 100 basis points below the cycle high.

And while Brazil’s central bank has chipped 600 basis points off its headline reading, inflation is now bogged down just below 6% — roughly where local analysts see it at year-end.

--With assistance from Gregory L. White, Robert Jameson, Stephen Wicary, Malcolm Scott and Andrea Dudik