Weekly economic and financial commentary

Wells Fargo Research Team Wells Fargo

Summary

United States: Little Love in January Data

Economic data were stuck in the doldrums this week, highlighted by a hot January CPI print. The out-of-consensus start to the year for economic data continued with a slip in retail sales and industrial production followed by a startling 14.8% drop in housing starts during January.
Next week: LEI (Tue.), Existing Home Sales (Thu.)

International: International Data Deliver Downside Surprises

This week in international data, U.K. Q4 GDP fell 0.3% quarter-over-quarter, and January inflation was slower than forecasted, holding steady at 4.0%. Japan's GDP was also weak, reporting an unexpected decline. Australia's January labor market report was disappointing, with employment virtually unchanged, while the jobless rate rose more than forecast to 4.1%.
Next week: Canada CPI (Tue.), Eurozone PMIs (Thu.)

Interest Rate Watch: Central Banks on Hold for Longer?

We explain why we think the FOMC is still on pace to cut rates by 25 bps at its May 1 meeting despite this week's higher-than-expected print on CPI inflation in January. We look for the European Central Bank to reduce its policy rate by 25 bps on April 11. That said, we readily acknowledge that both central banks could wait longer to ease policy than we currently anticipate.

Credit Market Insights: Housing Affordability Update

The affordability of the U.S. housing market continues to be bifurcated across prospective and existing homeowners as the differential between rates for new mortgages and the average existing mortgage widens. Purchase affordability has reached its lowest level in close to 40 years. Meantime, existing homeowners have yet to directly feel the pinch of higher mortgage rates.

Topic of the Week: Slow to Find Shelter from Inflation

The strengthening in January's CPI for owners' equivalent rent (OER) stood in contrast to leading measures of shelter inflation and moderation in rent of primary residences (RPR). We expect to see some payback next month, but January's gap between OER and RPR growth hints at a firmer path for OER ahead as the single-family rental market remains tight amid low purchase affordability.

Download the Full Report!

Author

Wells Fargo Research Team

Wells Fargo

AUD/USD flirts with 0.7000, lowest since early August amid bullish USD

AUD/USD hits a fresh low since early August during the Asian session on Friday and looks vulnerable near 0.7000 after breaking below the 200-day SMA overnight. Against the backdrop of the hawkish Fed, a two-day rally in oil prices revives inflation fears and continues to push US bond yields to multi-year highs. Adding to this, geopolitical risks lift the US Dollar to a two-month high, overshadowing RBA rate hike bets and weighing on the pair.

USD/JPY pulls back from three-week high after failing near 159.00

USD/JPY edges lower during the Asian session on Friday, stalling its recent strong move to a three-week high of 159.00 as Japanese Yen bears turn cautious amid intervention fears. Meanwhile, the US Dollar retains a strong bullish undertone as the Fed's hawkish outlook and oil-driven inflation fears continue to push US bond yields to multi-year peaks. Furthermore, the BoJ's dovish rate hike last week might cap JPY and support spot prices.

Gold treads water below $4,300

Gold grabs some buying attention and advances marginally at the end of the week, partially retracing the weekly decline, although it is still navigating below the key $4,300 mark per troy ounce. The fresh selling bias on the Greenback and the modest decline in US Treasury yields appear to support the humble advance in the precious metal.

Crypto Today: Bitcoin and Ethereum edge lower, XRP extends recovery as macro headwinds weigh

The broader cryptocurrency market is consolidating on Friday, with Bitcoin paring losses slightly above $84,000. Ethereum declines in tandem with BTC. Ripple (XRP), meanwhile, paints a different picture.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Federal Reserve (Fed) and the Bank of Japan (BoJ) have just done something remarkably similar. Both central banks raised interest rates by 25 basis points (bps) last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.