Sample Category Title

In focus today

The key PMI index for February is scheduled for release today across most major economies. Our focus will be on the data from the euro area in particular. The rise in euro area manufacturing PMI from 45.1 to 46.6 in January was welcome news after the weak second half of 2024. We expect the February PMIs to show roughly unchanged manufacturing PMI at 46.8 while activity is expected to have continued to rise in the service sector, with services PMI projected at 51.6.

In Denmark, we receive the business sentiment indicator for February. Despite a decrease in sentiment in January, the outlook still pointed towards moderate progress in 2025, with a clear expectation of increased hiring. We also receive payrolls data for December 2024. This data has shown growth throughout 2024, and the business sentiment indicator suggest that this continues in December.

Over the weekend, the German federal election takes place. A key theme is how to revive the ailing economy, meaning the outcome could have substantial implications for future growth. The most likely result of the German election is a coalition between the conservative CDU/CSU and the Social Democrats (SPD) 'Grand Coalition' or the Greens 'Black-Green'. In both cases with CDU's Friedrich Merz as chancellor. We estimate a 50% probability of a reform of the 'debt brake', which could allow an increased structural deficit, potentially boosting GDP growth over the coming years significantly. In absence of a reform, similar fiscal stimulus would likely come from targeted off-budgets funds. For details, see Research Germany - Limited economic impact of German election, 6 February.

Economic and market news

What happened overnight

In Japan, Core Nationwide Consumer Prices Index (CPI) Ex Fresh Food came in slightly above expectations at 3.2% y/y (cons: 3.1% y/y). The increase in CPI is welcome news for further rate hikes, as BoJ Governor Kazuo Ueda mentioned additional rate cuts are contingent on continued improvements in the price outlook. He also indicated that the central bank is prepared to increase its purchase of government bonds if there is a significant rise in long-term interest rates.

What happened yesterday

In Denmark, consumer confidence data for February dropped to -14.5 from -11.7 in January. The weak data is likely due to concerns about the Danish economy and uncertainty surrounding President Trump's impact. Despite this, Danes view their personal finances more positively, thanks to rising real wages, a strong job market, and a stable housing market.

GDP rose by 1.6% in Q4 and 3.6% overall for 2024, largely driven by the pharmaceutical industry. Excluding pharmaceuticals, growth would have been 1.8%, with private consumption up by only 0.9%. Despite modest underlying growth similar to Europe, optimism for 2025 is buoyed by rising real wages and falling interest rates.

In the euro area, consumer confidence rose to -13.6 (cons: -14.0) in February from -14.2 in January. This marks the second month in a row with slightly improving consumer confidence, a positive development following the large decline we saw in November and December. Still, confidence remains significantly lower than in October. Consumers are likely concerned about the potential impact of President Trump's policies on Europe, which could negatively affect consumption this year. This is despite improving economic fundamentals for households, such as rising real incomes, higher employment, and declining interest rates.

Equities: Risk appetite continued to fade on Thursday. Europe started the session higher but came down at the US opening bell. S&P and Stoxx -0.5%, small cap Russell 2000 -0.9%. This takes European equities lower week-to-date for the first time since early January. As noted earlier this week, European outperformance is now consensus which means we need solid macro evidence that Europe is indeed turning around, in order for the rally to continue. In this respect, PMIs later today are crucial. Defensives outperformed cyclicals with health care and utilities in the lead, financed by cyclicals and banks. Chinese equities against the tide this morning with strong Alibaba earnings lifting the Hang Seng index 3%. US futures a notch lower.

FI: Last night, Fed's Kugler was hawkish as she said that downside risks to employment have diminished and that there is 'some way to go' on inflation with upside risks remaining. Today's highlight is the PMIs. We do not expect them to change the March ECB decision, albeit with the positioning ahead of the Q2 and later ECB meetings, we take note on those meetings on strong PMI deviations.

FX: Yesterday saw broad USD weakness across the G10 space despite a risk-off backdrop. EUR/USD edged higher toward 1.05 as markets shift their focus to today's PMI figures. USD/JPY set new YTD lows below 150, with JPY emerging as the clear outperformer in G10 so far this week. EUR/GBP continues to consolidate below 0.83. In the Scandies, EUR/SEK remains well below 11.20, while EUR/NOK edged higher to 11.65.

Short Term Elliott Wave View in Light Crude Oil (CL) suggests the metal ended cycle from 1.16.2025 high. Decline from 1.16.2025 high unfolded as a 5 waves with wave ((i)) ended at 77.87 and wave ((ii)) ended at 79.44. Wave ((iii)) lower ended at 72.38 and wave ((iv)) rally ended at 75.18. Final leg wave ((v)) ended at 70.12 which completed wave A in higher degree.

Oil is now looking to correct cycle from 1.16.2025 high in wave B. Internal subdivision of wave B is unfolding as a zigzag Elliott Wave structure. Up from wave A, wave i ended at 72.07 and pullback in wave ii ended at 70.89. Wave iii higher ended at 73.04 and pullback in wave iv ended at 71.85. Final leg wave v ended at 73.25 which completed wave (i). Due to the 5 swing rally from 2.17.2025, the structure suggests further upside is more likely. Pullback in wave (ii) is in progress to correct cycle from 2.17.2025 low before it resumes higher. Near term, as far as pivot at 70.11 low stays intact, expect dips to find buyers in 3, 7, or 11 swing for further upside.

Light Crude Oil (CL) 60 Minutes Elliott Wave Chart

CL Video

https://www.youtube.com/watch?v=tpEBsY0eqX8

Key insights from the week that was.

As expected, the RBA delivered a 25bp rate cut on Tuesday, bringing the cash rate down to 4.10%. While the Board cited “welcome progress on inflation” as a determinant of the decision, communications were hawkish overall. In particular, the decision statement highlighted the Board’s caution over easing policy “too much too soon”. In the subsequent press conference, Governor Bullock also made an effort to temper expectations, referring to market pricing for another three rate cuts as “far too confident” and “unrealistic”. This path, taken as an assumption for the RBA’s latest forecasts, ultimately sees trimmed mean inflation hold above the mid-point of the target range through to June 2027. Deputy Governor Hauser reiterated these points in an appearance with Bloomberg later in the week, but added that, in a forecast scenario where the cash rate remained unchanged, trimmed mean inflation would instead be projected to undershoot the mid-point of the target range.

Chief Economist Luci Ellis also took time this week to outline the RBA’s perspective on the labour market and its significance for policy. In short, the RBA now anticipates the unemployment rate will hold at 4.2% until June 2027, below the Bank’s current NAIRU estimate of around 4.5%, resulting in annual nominal wages growth between 3.0% and 3.5% over the forecast horizon. With weak productivity, wage growth at this rate is seen as a material risk to inflation holding sustainably at the mid-point of the target range.

We also received updates on wages growth and the labour market. The former came in a touch softer than expected in Q4 at 0.7% as the latter showcased strong growth in employment, trends evident over the past six months. While assessing the true degree of tightness in the labour market in real time is very difficult, we continue to believe, on balance, that the upside risks posed to inflation by the labour market are not as significant as implied by the RBA’s baseline forecasts. We remain of the view therefore that three more rate cuts will be delivered over the next three quarters to a terminal rate of 3.35%. Before the House of Representative Standing Committee on Economics this morning, the Governor and senior staff kept the focus on the key themes above.

Across in New Zealand, the RBNZ announced another 50bp cut, taking cumulative easing to date to 175bps. A further 50bps of easing is expected in coming months, but this should trigger a robust growth recovery through 2025 and 2026. The decision and updated forecasts of the RBNZ are discussed in depth by our New Zealand Economics team in their bulletin.

Further afield, in the US, the January FOMC meeting minutes emphasised that, with appropriate monetary policy, the Committee continue to believe inflation will decelerate to target and the labour market remain balanced. Still, potential changes to US trade and immigration policy means the risks to this baseline view are high. Many participants therefore "emphasized that additional evidence of continued disinflation would be needed to support the view that inflation was returning sustainably to 2 percent". A few also noted "the federal funds rate may not be far above its neutral level", an additional reason for caution.

It will be some time before the new administration's policies are fully known, let alone the implications understood, so these risks are likely to persist. Making this clear, while at Mar-a-Lago, President Donald Trump announced he will impose a tariff on imports of automobiles, pharmaceuticals and semiconductors on 2 April at an initial rate of "25%... and it'll go substantially higher over a course of a year". Reports suggests these tariffs would be in addition to country tariffs already announced.

Canada’s CPI meanwhile accelerated to 1.9%yr in January, reintroducing risks around inflation. The acceleration of median and trimmed mean inflation to 2.7%yr could imply there are underlying pressures. Despite considerable slack in the economy, a pickup in price pressures may require the Bank of Canada to shift their focus from supporting growth to restraining inflation.

Across the pond, UK data pointed to inflation risks remaining present, justifying the Bank of England's 'gradual' approach to monetary easing. Wages (ex. bonus) accelerated to 5.9%yr for December 2024, in line with expectations. This comes despite softer labour market conditions as reported by the ONS. Official LFS data showed a 107k gain in employment, and the official three-month unemployment rate remained unchanged at 4.4%. While it is uncertain how these risks will evolve, one silver-lining comes from the Decision Maker Panel survey which showed that businesses' wage expectations are starting to tick down, and that they are most likely to compress profit margins in response to the increase in the National Insurance contributions rather than raise prices or reduce labour demand. This would help to contain risks to services inflation from wage growth. The BoE also had the January CPI to digest, down 0.1%mth but with base effects lifting the annual figure to 3.0%. A reacceleration in headline inflation was expected by the BoE and is unlikely to prompt a change of approach to policy.

Finally to Japan where Q4 GDP surprised on the upside, rising 2.8%qtr annualised against a consensus expectation of 1.1%qtr. Much of the growth came from an improved trade position – exports rose 1.1%qtr, likely reflecting activity front running tariff risks, while imports decreased 2.1%. There was also a notable 0.5% gain in private investment. Household consumption meanwhile rose 0.1%qtr, leaving it, in level terms, below the recent peak of Q1 2023 and immediately prior to COVID. While data is moving in the right direction, caution is still warranted. Consumer confidence is necessary to sustain a recovery in consumer demand in real terms and justify further rate hikes by the BoJ.

Daily Pivots: (S1) 1.4147; (P) 1.4196; (R1) 1.4225; More...

Intraday bias in USD/CAD remains neutral as consolidations continue above 1.4150. Deeper decline is expected as long as 1.4378 resistance holds. Fall from 1.4791 is correcting whole rise from 1.3418. Break of 1.4150 will target 1.3946 cluster support (61.8% retracement of 1.3418 to 1.4791 at 1.3942).

In the bigger picture, long term up trend is tentatively seen as resuming with prior breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

Daily Pivots: (S1) 0.8275; (P) 0.8283; (R1) 0.8298; More...

Further decline is expected in EUR/GBP as long as 0.8308 minor resistance holds. Fall from 0.8472 is in progress and should target a retest on 0.8221 low. Nevertheless, firm break of 0.8308 will turn bias back to the upside for stronger rebound to 0.8376 resistance instead.

In the bigger picture, rebound from 0.8221 medium term bottom could extend higher through 55 W EMA (now at 0.8435). However, medium term outlook will be neutral at best as long as 0.8624 cluster resistance zone (38.2% retracement of 0.9267 to 0.8221 at 0.8621) holds. Another decline through 0.8221 would remain mildly in favor. Firm break of 0.8221 will resume whole down trend from 0.9267 (2022 high) and carry larger bearish implications.

Daily Pivots: (S1) 1.6354; (P) 1.6410; (R1) 1.6462; More...

EUR/AUD's corrective pattern from 1.6800 is still extending. Deeper fall is expected as long as 1.6518 resistance holds, to 61.8% retracement of 1.5963 to 1.6800 at 1.6283. On the upside, though, break of 1.6518 resistance will bring stronger rebound back to 1.6631.

In the bigger picture, with 1.5996 key support (2024 low) intact, larger up trend from 1.4281 (2022 low) is still in favor to resume through 1.7180 at a later stage. Nevertheless, sustained break of 1.5996 will indicate that such up trend has completed and deeper decline would be seen.

Daily Pivots: (S1) 0.9409; (P) 0.9432; (R1) 0.9451; More....

No change in EUR/CHF's outlook as range trading continues. Intraday bias remains neutral for the moment. On the downside, break of 0.9359 support will revive the case that choppy rise from 0.9204 is merely a correction and has completed. Deeper fall should then be seen back to retest 0.9204 low. However, firm break of 0.9516 and sustained trading above 0.9481 fibonacci level will carry larger bullish implication and extend the rise from 0.9204.

In the bigger picture, sustained trading above 38.2% retracement of 0.9928 to 0.9204 at 0.9481 should confirm that whole fall from 0.9928 has completed at 0.9204. Further rally should then be seen back to 61.8% retracement at 0.9651 and above. However, another rejection by 0.9481 will keep outlook bearish for extending larger down trend through 0.9204.

Daily Pivots: (S1) 188.59; (P) 189.64; (R1) 190.59; More...

Intraday bias in GBP/JPY is turned neutral again with current recovery. Overall outlook is unchanged that corrective pattern from 180.00 could extend further. On the upside, above 193.04 will target 194.73 resistance, and possibly further to 198.94. On the downside, though, break of 187.04 support will extend the fall from 199.79 towards 180.00 support.

In the bigger picture, price actions from 208.09 are seen as a correction to rally from 123.94 (2020 low). Strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. However, sustained break of 152.11 will bring deeper fall to 100% projection of 208.09 to 180.00 from 199.79 at 171.70, even still as a correction.

Daily Pivots: (S1) 156.30; (P) 157.15; (R1) 157.98; More...

EUR/JPY recovered ahead of 155.72 support and intraday bias is turned neutral again. Overall outlook is unchanged that consolidation pattern from 154.40 might extend further. Above 185.35 minor resistance will bring stronger rebound to 161.17. Nevertheless, firm break of 155.72 support will be a strong sign that whole fall from 175.41 is resuming. Retest of 154.40 support should be seen next and firm break there should confirm.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). Strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. However, sustained break of 152.11 will bring deeper fall even still as a correction.

Yen volatility remains a key theme in Asian session today. Stronger-than-expected Japanese inflation data provided further justification for BoJ’s ongoing policy normalization, reinforcing speculation that the central bank may hike rates sooner than previously anticipated.

However, Yen’s rally lost momentum after Japan’s 10-year JGB yield pulled back sharply. This dip in yield came after BoJ Governor Kazuo Ueda told parliament that the central bank is ready to step in to stabilize markets if yields rise too sharply, hinting at possible intervention in the bond market to smooth fluctuations.

Despite this pullback, there are no clear signs of reversal in both JGB yields and Yen. Market participants may continue to position for an earlier BoJ rate hike, given the persistent inflationary pressures and rising wage expectations in Japan.

Meanwhile, Dollar plunged to a two-month low overnight before stabilizing slightly. The previous Dollar rally was fueled by expectations that US President Donald Trump’s trade policies would quickly escalate into a broader tariff war. However, progress on tariff implementation has been much slower than expected, with the only concrete measure so far being a 10% additional tariff on Chinese imports. As a result, some traders have begun closing long dollar positions, leading to its this week's weakness.

For the week so far, Dollar is currently the worst performer, followed by Loonie and then Euro. Yen is still leading gains, with Aussie and Sterling also holding firm. Kiwi and Swiss Franc are positioning in the middle. Market focus now shifts to PMI releases from the UK, Eurozone, and the US, which could provide fresh directions.

Technically, some attention is now on AUD/USD as it's in proximity to key near term fibonacci resistance of 38.2% retracement of 0.6941 to 0.6087 at 0.6413. Rejection from this resistance is still expected, and break of 0.6327 support will argue that the corrective rebound from 0.6087 has completed. However, firm break of 0.6413 will pave the way to 61.8% retracement at 0.6615, even still as a correction.

In Asia, at the time of writing, Nikkei is up 0.17%. Hong Kong HSI is up 3.02%. China Shanghai SSE is up 0.66%. Singapore Strait Times is up 0.11%. Japan 10-year JGB yield is down -0.0237 at 1.427. Overnight, DOW fell -1.01%. S&P 500 fell -0.43%. NADSAQ fell -0.47%. 10-year yield fell -0.035 to 4.500.

BoJ's Ueda pledges action against sharp JGB yield rise, Yen tumbles

Yen pulled back sharply from its recent rally, along with steep fall in 10-year JGB yield from its 15-year high. The move came after BoJ Governor Kazuo Ueda reminded markets of the central bank’s commitment to curbing excessive yield volatility.

In parliamentary comments, Ueda stated, “We expect long-term interest rates to fluctuate to some extent.”

However, he cautioned that "when markets make abnormal moves and lead to a sharp rise in yields, we are ready to respond nimbly to stabilize markets.”

The pledge to increase bond purchases, if necessary, knocked the 10-year JGB yield off its 15-year high

Ueda declined to specify when BoJ might conduct emergency bond market operations, stating only that the central bank would closely monitor the market for signs of destabilization.

Japan's core CPI jumps to 3.2% in Jan, above expectations

Japan’s inflation accelerated in January, with core CPI (ex-food) rising from 3.0% yoy to 3.2% yoy, surpassing expectations of 3.1% yoy and marking the fastest pace in 19 months, driven by higher rice and energy costs.

This was also the third consecutive month of acceleration, with core CPI rebounding sharply from 2.3% yoy in October. Inflation has now remained at or above BoJ’s 2% target since April 2022.

Core-core CPI (ex-food and energy) climbed to 2.5% yoy, up from 2.4% yoy, signaling broader price pressures beyond energy and food. Food prices, excluding perishables, surged 5.1% yoy, up from 4.4% yoy, driven by a 70.9% yoy spike in rice prices, the largest increase since data collection began in 1971. This sharp rise was attributed to supply shortages and higher production and transportation costs.

Energy prices also saw a notable increase of 10.8% yoy, up from 10.1% yoy in December, as gasoline costs rose following government subsidy reductions. Meanwhile, services inflation slowed slightly to 1.4% yoy from 1.6% yoy.

Headline CPI surged from 3.6% yoy to 4.0% yoy, a two-year high.

Japan’s PMI improves, but business confidence hits lowest since 2021

Japan’s PMI data for February showed slight improvements, with PMI Manufacturing rising from 48.7 to 48.9. Meanwhile, PMI Services edged up from 53.0 to 53.1. Composite PMI increased from 51.1 to 51.6, the highest in five months.

According to Usamah Bhatti, Economist at S&P Global Market Intelligence, the "modest improvement" was driven by sustained growth in services, with firms crediting business expansion plans and improved sales.

However, optimism about future business activity weakened, with confidence dropping to its lowest level since January 2021. Companies cited labor shortages, persistent inflation, and weak domestic economic conditions as major concerns.

Employment growth slowed to its weakest pace in over a year, reflecting businesses’ caution about hiring amid economic uncertainty. Additionally, input price inflation remained elevated, similar to January’s historically high levels.

RBA’s Bullock: More rate cuts possible, but patience needed

At a parliamentary committee hearing today, RBA Governor Michele Bullock explained that this week’s 25bps rate cut was based on better-than-expected inflation data, weaker private demand, and wage growth aligning with forecasts.

Also, she acknowledged that the board is mindful of timing, stating, “What’s also playing on the board’s mind is that the board also doesn’t want to be late, and arguably we were late raising interest rates on the way up.”

While further easing remains on the table, Bullock emphasized the need for caution. "We are not pre-committed. We're going to be data-driven on this and I think people just have to be patient," she added.

Deputy Governor Andrew Hauser echoed this sentiment, reinforcing the RBA’s wait-and-see approach. He remarked, "If we're wrong and inflation moves more quickly downwards, you could celebrate that fact and policy will need to respond, but we'd rather wait and see than assume that's what's going to happen."

Australia’s PMI composite hits 6-month high, but business confidence dips

Australia’s PMI data for February showed continued expansion in private sector activity, with Manufacturing PMI rising to from 50.2 to 50.6, its highest level in 27 months. Meanwhile, Services PMI edged up from 51.2 to 51.4, and Composite PMI ticked up from 51.1 to 51.2, both reaching six-month highs.

According to Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, the latest figures indicate a “modest” but steady improvement in economic conditions, while growth was broad-based.

However, business sentiment weakened to its lowest level since October 2024. This caution also affected pricing strategies, with businesses reluctant to fully pass on cost increases, leading to a slowdown in selling price inflation.

RBNZ’s Conway: 50bps cut the clear choice, signs of economic turnaround emerging

RBNZ Chief Economist Paul Conway revealed in a Reuters interview that the central bank considered both 25bps and 75bps rate cuts ahead of this week's policy decision. But the bank ultimately concluded that a 50bps reduction “was the way to go” given the state of the economy and inflation.

Conway pointed to recent data in manufacturing and services, indicating that some businesses may already be "starting to feel a bit of a turnaround." However, he acknowledged that companies remain cautious.

Regarding the labor market, Conway noted that employment trends typically lag economic activity. He added that"businesses need to have confidence that growth is returning and that growth will be sustained into the future before they start to think about employing someone.”

Fed’s Kugler supports holding rates for some time

Fed Governor Adriana Kugler said overnight that it's "appropriate to hold the federal funds rate in place for some time", citing the current balance of risks in the economy.

Kugler acknowledged that inflation still has “some way to go” before reaching 2% target. She highlighted that while the labor market remains strong and risks of a downturn have eased, "upside risks to inflation remain."

Regarding the potential impact of new tariffs, Kugler stated that while they could contribute to higher prices, the extent of their effect remains uncertain. She emphasized that policymakers will need to “wait” for more data to assess how trade policy shifts might influence inflation and broader economic conditions.

Fed’s Musalem warns of inflation expectations unanchoring

St. Louis Fed President Alberto Musalem raised concerns overnight about inflation expectations becoming "unanchored", emphasizing that the risk is higher when the economy is running without slack and after a period of elevated inflation.

Musalem pointed out that market and survey data show a notable rise in near-term inflation expectations over the past three months, reinforcing worries that inflation might remain above the Fed’s 2% target for longer than anticipated.

He warned that if inflation remains stuck at elevated levels or expectations continue to rise, “a more restrictive path of monetary policy relative to the baseline path might be appropriate.”

Fed’s Bostic sees two rate cuts in 2025 but flags significant uncertainty

Atlanta Fed President Raphael Bostic noted his baseline expectation for two 25bps rate cuts later this year, but cautioned that “the uncertainty around that is pretty significant”, with multiple factors that could shift the outlook in either direction.

He acknowledged growing concerns from businesses regarding the potential impact of new tariffs, immigration policies, and regulatory changes on economic conditions.

He noted that there is both enthusiasm and “widespread apprehension” among business contacts regarding these policy shifts. Specifically, he warned that tariffs could push up costs, adding, “Many feel confident that if that happens, then they can pass along higher costs in their prices.”

Looking ahead

UK retail sales and PMIs, as well as Eurozone PMIs will be released in European session. Later in the day, Canada will release retail sales. US will release PMIs and existing home sales.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 156.30; (P) 157.15; (R1) 157.98; More...

EUR/JPY recovered ahead of 155.72 support and intraday bias is turned neutral again. Overall outlook is unchanged that consolidation pattern from 154.40 might extend further. Above 185.35 minor resistance will bring stronger rebound to 161.17. Nevertheless, firm break of 155.72 support will be a strong sign that whole fall from 175.41 is resuming. Retest of 154.40 support should be seen next and firm break there should confirm.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). Strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. However, sustained break of 152.11 will bring deeper fall even still as a correction.