The week ahead: 18 – 22 March 2024

Eurozone

The composite PMI is expected to have increased in March, with the biggest part of the rise probably due to a jump in the manufacturing PMI. The manufacturing PMI still was well below the 50 boom-bust mark in February, but its forward looking new orders component rose markedly during the past four months, indicating that output is bottoming out after it has contracted sharply throughout 2023. The services PMI is expected to be more stable at a level just above 50.

US

We expect the Fed to keep policy on hold at the March FOMC meeting. The Committee will also update its quarterly projections, and we expect this to show the median FOMC member still expecting three rate cuts this year. Chair Powell is likely to maintain the cautiously hawkish tone of recent remarks and not seek to rock the boat, as the Fed is likely comfortable with current market pricing for rate cuts. Powell signalled at the January meeting that the FOMC would discuss the winddown of QT at the March meeting. Given that use of the Overnight Repo Facility has stabilised recently, it is probably too soon for the Fed to announce a winddown plan at this meeting, but Powell is likely to confirm that this is now being actively worked on. See also here for more: link.

Asia

The Bank of Japan is getting closer to normalisation of its monetary policy framework, including the end of negative policy rates, with the technical recession in 2H-23 revised away, the latest wage negotiation rounds pointing to a sharp rise in wages, and the BoJ’s preferred inflation measure expected to remain above 2% this year. Today, the largest trade union (Rengo) announced an average wage hike of 5.3%, compared to 3.8% last year. Although we do not rule out the possibility of a March hike, consensus expectation including ours is for the BoJ to stay pat at its 19 March meeting. With consumption still weak, the central bank may wait until Q2 to see further confirmation in the macro data before hiking its policy rate for the first time in 17 years. In any case, we only foresee a very gradual, and modest hiking path for the Bank of Japan going forward. Meanwhile in China, we expect the 1-year loan prime rate to be left on hold on Wednesday, after the PBoC left its 1-year medium-term lending facility rate unchanged at 2.50% today.

The Netherlands

We expect that the unemployment rate has slowly crept up to 3,7% in February, from 3,6% in January. The labour market remains tight and we see only modest signs of easing. As bankruptcies are normalising from pandemic lows, labour mobility is also likely to increase going forward, but we do not expect a sharp rise in unemployment.