At the start of the new week, all eyes will be on China’s economic resumption after the Lunar New Year holiday. Some believe that China’s consumption is poised to accelerate again after strong travel and spending during the period, according to local reports. However, China’s financial markets are less impressed. China’s CSI 300 index rose only 0.6% today, even as the regional stock benchmark rose 2.5% during China’s holiday. And the Hang Seng Index has declined. Similarly, the offshore renminbi (CNH) was little moved today, leaving the 7.20 support level unimpressive. Investors may have to wait until early March for a two-session meeting to see if policymakers can tease out signs of growth.
If we wait until March, it seems likely that the dollar will remain strong for the rest of this month. Although seasonal factors are supporting this, the strong US PPI data for January released on Friday also puts the Fed’s recommended core PCE inflation data on February 29th at a high 0.4% m/m. It warned that it could continue to hinder economic growth. Disinflationary trade. That is our preferred view. Investors are then anticipating that they may begin positioning for a weaker dollar again in early March ahead of his February CPI data release on March 12th. Core inflation is expected to fall to 0.2% month-on-month.
US markets are closed today for President’s Day, and there isn’t much on the US calendar this week. Wednesday will likely be a big day given the release of January’s FOMC minutes and the popular Nvidia quarterly results. Other data includes consumer confidence (Tuesday) and existing home sales (Thursday).
Perhaps DXY should have rebounded more following the recovery in US short-term interest rates last week. Theoretically, DXY is expected to stay in the $104-$105 range this week. However, technically, DXY has seen quite a reversal, and the unexpected strength of the euro this week (see below) could trigger an unexpected break below 104.00.
chris turner
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