The ISM manufacturing headline number for February on Friday was also interesting, coming in softer than expected at 47.8 versus expectations of 49.5 (touching the lower range estimate), with new orders and the employment index also softening (the former dipped into contractionary territory). However, the prices paid index remained elevated, with only minor softening versus prior data and expectations.

Where We Are This Week

The Bank of Canada (BoC) are centre stage on Wednesday at 2:45 pm GMT and are anticipated to stand firm at 5.0% this week (marking a fifth consecutive session on hold at a 22-year high). Year-over-year headline inflation cooled to 2.9% in January (down from the 3.4% jump in December), marking its lowest rate since June of 2023.

This coupled with economic activity increasing by 1.0% on an annualised basis for Q4 2023, suggests policymakers are unlikely to move on rates at this week’s meeting. Investors are betting the first 25bp rate cut will not be seen until July’s policy meeting (34bps of easing priced in), which is largely in line with market forecasts for the Fed and the European Central Bank (ECB).

The ECB will claim the central bank’s spotlight this week on Thursday at 1:15 pm GMT and is widely expected to remain on hold for all key benchmark rates for a fourth consecutive meeting. Following regional inflation numbers from France, Spain and Germany, the latest inflation data out of the euro area on Friday revealed that headline inflation slowed to 2.6% in the twelve months to February from 2.6% in January, according to the latest flash estimate from Eurostat.

Core inflation also cooled from 3.3% in January to 3.1% in February. Though we continue to see a disinflationary process play out (albeit February’s softer inflation was largely fuelled by base effects), this and accompanying data since the last meeting in late January are unlikely sufficient to prompt a cut at this week’s meeting or either April’s meeting.

As of writing, the OIS curve forecasts 74bps of easing for the year (you may recall that we have seen a significant hawkish repricing recently from around 150bps of easing priced in for the year) with the first 25bp cut expected in June (well -24bps). What will be widely watched this week are the new Staff Projections (released four times per year) on growth and inflation—both of which are expected to be revised lower in 2024, and, of course, the ECB President Christine Lagarde’s comments at the presser 30 minutes after the rate announcement. Should downside revisions come to fruition, Europe’s single currency could come under pressure.