Fragile sentiment ahead of UK job data and US PPI

With Tuesday's European opening approaching, we should expect sentiment to remain fragile due to the optimism about progress on ceasefire talks between Russia and Ukraine and the sharp fall in oil and gas prices, which have brought US oil prices below $100 a barrel. The increasing number of COVID-19 cases in China also contributes to the overall negative sentiment for markets since investors fear that it will impede China's growth. As a result, the CSI300 index in China fell 1.78% for the month, putting its month-to-date losses at 11.2%. Australian shares closed down 0.73%.

As the Covid outbreak worsens and export markets struggle, a new setback will likely push pressure on commodities' prices and limit further traction in commodity-linked currencies like AUD and NZD. 

USD/JPY at a 5-year record high

Yen prices plunged to 118.44 per dollar Tuesday, a record five-year low as the recent slide shows no signs of ending. As the Fed begins to tighten, the contrast between rising US benchmark rates and low rates in Japan has become increasingly evident, with investors waiting for the Fed and the Bank of Japan meetings this week.

UK employment figures in focus

Tuesday's unemployment figures are expected to show continued strength in the UK labour market. The unemployment rate remained unchanged at 4.1% in December for the quarter, its lowest since July 2020. Another multi-month low is expected to be seen in January's numbers, falling to 4%. In February, the number of payroll employees is forecast to increase by 125k, up from 108k in January. 

It is expected that this will boost wage growth over the next few months, with an estimated rise of 0.3% to 4.6% in payrolls, including bonuses.

US PPI is set to hit a fresh high

Inflation continues to look hot, with headline US CPI in February rising to 7.9% last week. PPI is expected to continue increasing in line with commodity prices, which have been moving higher recently. PPI has been a fairly reliable leading indicator for CPI over the past few months.

The headline PPI is expected to rise from 9.7% to 10%, a fresh record high, while the core PPI is expected to grow from 8.3% to 8.7%, keeping the pressure on the Federal Reserve, which begins its two-day meeting later today.   

China's data upbeat expectations

Despite fears of a sharp slowdown in the Chinese economy, today's retail sales and industrial production numbers eased some concerns. The retail sales for February, covering January through to Chinese New Year, rose by 6.7%, which was a significant improvement over December.  

Furthermore, industrial production also exceeded expectations of an increase of 4%, rising 7.5%, whereas fixed asset investment grew 12.2%. Given these better-than-expected numbers, the PBoC decided to keep interest rates on hold this morning. As a result of recent lockdowns, the next few months may pose challenges, as may the government's 5.5% GDP growth target.