North America moved on to Daylight Saving Time at the weekend but Europe doesn’t do so for a fortnight. This means the time difference between New York and London will be just four hours for the next couple of weeks. The clocks may have changed but the concerns of investors remain frustratingly familiar: the near-term outlook for inflation and interest rates, the impact of tariffs on trade and growth, and the diplomatic tensions between the US and North Korea. The US stock market, as measured by the DJIA is up 400 points since the start of the day on Friday as the combination of a 312,000 increase in non-farm payrolls but a softening in average earnings to 2.6% was deemed to be ‘risk-positive’. This, in turn, weighed down on the US currency and the USD index is down around half a point from last Thursday’s high of 89.90.
Even after Friday’s employment report, Chicago Federal Reserve Bank President Charles Evans said he wanted the US central bank to keep interest-rate increases on hold until after March to allow inflation a chance to rise and even exceed the Fed’s 2-percent target. “My own preference would be to wait a little bit longer,” Evans said in a CNBC interview. “We could go midyear and all of a sudden see, ‘wow, inflation continues to move up towards 2 percent, I’m much more confident’ and we continue an upward gradual adjustment of the funds rate.” Evans told both CNBC and Bloomberg that the February jobs report was good news in that it showed more people entering the labor force, with the participation rate rising to a five-month high of 63 percent. But, with strong hiring and an unemployment rate of 4.1 percent, he had hoped that wage growth would be stronger. He also said he would rather wait at least until inflation data for March had been released before raising rates.
For the week ahead, the main focus on economic data will be Tuesday’s CPI data. The headline inflation rate is expected to tick up to 2.2% y/y from 2.1% although the core rate excluding food & energy costs is expected to remain unchanged at 1.8%. Bear in mind that unlike the RBA, RBNZ or BoE, the Federal Reserve doesn’t have a CPI target. Instead, it looks at the core PCE deflator which is still some way below its preferred 2.0% level. After the inflation numbers, on Wednesday we have retail sales and then towards the end of the week it’s housing and industrial production data. The USD index opens this morning in North America around 89.55.